Car buying, a middle and upper class option to become a dollar

NOVEMBER 20, 2020
After the opening of concessionaires, there were problems with the replacement of units

Involved in a pandemic that forced to shuffle and give again in many ways, but also immersed in a particular Argentinean macroeconomy, the local automotive sector today has two faces to show: on the one hand, in the first nine months of this year exhibited the lowest level of sales since 2004; but, on the other hand, from July to October the daily average of sales was on the rise and that allows one to get the illusion that the market will end 2020 better than expected before the irruption of the coronavirus.

The Association of Automotive Dealers of the Argentine Republic (Acara) reported that the number of vehicles patented in October this year amounted to 37,163 units, representing a 6.1% increase compared to September, when 35,014 had been registered. The year-on-year comparison also shows a 13.9% growth over October 2019, and thus last month was the second of 2020 to grow over last year (the previous month was June, but with a lower percentage). Thus, the 286,695 patents accumulated in the ten months of the year are reached.

Ricardo Salomé, Acara's President, comments: "We, the concessionaires, are active, trying to close all the operations that are presented to us, beyond certain uncertainty related to the replacement of the units".

The upturn in recent months is mainly explained by the effect of the exchange rate gap, that is, the difference between the official dollar and the parallel dollar. This turns the car into a product that allows access to the American currency at a cheaper price: plain and simple, Argentines who can afford to buy a vehicle, which has a large part of its components imported at the value of the official dollar.

In fact, as analyzed in a sectorial report prepared by the consulting firm Abeceb, the exchange rate gap continues to be an expansive factor in sales, especially since mid-September, due to greater devaluation expectations. "Above an 80% level in the gap, the habituation effect disappears and the opportunity purchase persists", is explained in the work, which shows that this level is exceeded since May of this year.

Guillermo Oliveto, specialist in social and consumer trends, highlights that the Argentineans are experts in crisis and very skilled in recognizing windows of opportunity. "You find yourself with consumers of high and medium high class who have accumulated dollars at lower prices than the ones that blue has today and who always read well when there are goods that 'have dollars inside' and can be made of them at lower cost", says the expert, founder of Consultora W.

The car explosion, Oliveto recalls, is a phenomenon that has already occurred in other stages of the country, such as in 2013, when 950,000 units were sold. "In reality, cheap dollars were being bought through a vehicle. Then, what happens here is that the first month of recovery, June, the dealerships were closed, then there were stock problems, but from there on it rose. There is no boom, because it will even end up falling 30% compared to an already bad year like 2019, but it is better than expected," he says.

For Damian Di Pace, economist and director of the consultancy Focus Market, cars today are very cheap in terms of their price in dollars. "Those who have those green bills are in some cases accessing vehicles that are up to 40% cheaper than a year ago in U.S. currency. For many it is an opportunity," he points out.

Franco Roland, an economist at Abeceb who specializes in the automotive industry, says that with the level of gap between May and September, people saw the possibility. But he warns that this is an effect that may fade in the future. "As high as the gap is, as time goes by, its effect as an incentive to buy durables in general, and cars in particular, drops quite a bit," he explains.

In any case, Roland highlights as an interesting point to keep in mind that consumer confidence for the purchase of cars and real estate is at its highest level in the last two and a half years (since April 2018), which indicates that there is an appetite for dollarization and the purchase of durables. "It seems that this is a trend that is running out and these are not levels to celebrate either, because they were at their lowest levels in the last 20 years," he clarifies.

Meanwhile, Thomas Owsianski, President and CEO of Volkswagen Group Argentina and Vice President of Sales and Marketing of Volkswagen Region SAM, stresses that 2020 was a year out of any usual parameter. "We are going through an unprecedented event worldwide and we are still uncertain about the real consequences that the pandemic will leave. The automotive industry was hit hard by the pandemic, but is showing signs of recovery, albeit slow, supported mainly by its export nature, so we believe that the market will close the year around 300,000 units," the executive said.

These sales figures, as also ratified by Pablo Sibilla, President and CEO of Renault Argentina, are more encouraging than those that were predicted before the appearance of the coronavirus and the mandatory social isolation. "Clearly, the market is better than in the period before the pandemic," stresses the executive.

Sibilla says that if you asked the industry before the quarantine for their sales projections the answer would be that the market would exceed 250,000 units, while now they say it will be 330,000 units, and next year, 400,000. "It is far from the historic numbers of 800,000 cars, but given the context, the trend is positive," he concludes.

Federico Ovejero, Vice President of General Motors Argentina, Paraguay and Uruguay, comments that the brand has resumed its vehicle launches as a sign of confidence that the market will begin to gradually recover. "In fact, results for the end of the year are already better than expected, and we could be ending up with more than 320,000 units sold annually, above the 285,000 projected at the beginning of the pandemic," he adds.

Production on the rise

Beyond sales, it is also interesting to analyze what happens on the production side, that is, the one that provides the supply. In this sense, Fernando Rodríguez Canedo, executive director of the Association of Automotive Manufacturers (Adefa), says that, at the beginning of the year, they projected a production of 400,000 units, but that already in the middle of the quarantine those estimates dropped to 200,000 units. "The health emergency led us to work on the emergencies and to reach a consensus in order to return to activity as quickly and safely as possible after 60 days of inactivity. We came back and made a commitment to the government to produce 250,000 units this year and be in a sales market close to 300,000", he trusts.

Here he starts to carve the theme of the need that the Government has that certain percentages of the cars that are sold in the internal market are of national manufacture. "It is true that this is required of the companies in the sector. We are asked not to be less than 50%, but from there it goes up and in some cases it reaches 70%. Renault produces here 45% of what it sells in the domestic market, so in that sense we are fine," says Sibilla.

Source: La Nación

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