Brazilian demand lifts Argentina's auto industry

By Karina Grazina - Analysis

BUENOS AIRES (Reuters) - Brazil has been a shot in the arm for Argentina's automobile industry.

Argentina, Latin America's third-largest carmaker, is seeing production recover from the global slowdown and is on track to assemble 500,000 vehicles this year. That's still down from the 600,000 made in 2008, but much better than was originally forecast.

"The Brazilian market has helped tremendously," said Gustavo Castagnino, director of institutional relations at Mercedes-Benz in Argentina. "It has become the industry engine for the region, and especially Argentina."

Brazil's tax incentives, combined with the country's quicker rebound from the global economic crisis compared with those of more developed economies, have helped Argentina make up for a lack of demand from Europe.

"The European market, which was key for us last year, disappeared completely from the map. We went from exporting 2,500 units to Spain last year to zero this year. We shipped 2,000 to Russia in 2008 and none this year," said Castagnino.

Daimler AG's (DAIGn.DE) (DAI.N) Mercedes-Benz produces commercial vehicles in Argentina and until last year exported 25 to 30 percent of its production to Brazil. This year, the figure has risen to 50 percent, Castagnino said.

The situation reflects the health of the Brazilian automobile market, one of the strongest in the world in recent months. Brazil is among the world's top six car producers.

Argentina's automobile sector accounts for almost 15 percent of industrial gross domestic product and sales of vehicles and parts account for about 9 percent of total exports, according to data from the abeceb.com consultancy.

Exports and local demand propelled the automotive sector as it flourished during Argentina's six-year economic boom, before it cooled last year and the global downturn hit.

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Leading automakers in Argentina include PSA Peugeot Citroen (PEUP.PA), which has produced 63,650 vehicles through October of this year, followed by General Motors Co GM.UL, with 62,799 vehicles and Fiat SpA's (FIA.MI) Fiat Argentina with 62,264 automobiles.

An uptick in local Argentine demand is also helping to spur a recovery.

The lack of credit that dried up automobile demand in many parts of the world has had less of an impact in Argentina, where nearly 70 percent of cars are paid for in cash because of limited access to credit.

Vehicles are seen as an investment for many Argentines worried about high inflation at a time when local banks offer low interest rates for savings accounts. Car values frequently keep pace with inflation in Argentina since financing options are so limited.

Argentina's 12-month inflation rate through September was reported at 6.2 percent, but the government's figures are widely discredited as being underreported for political gain, analysts say.