Darling of Argentine industry, autos see downturn

By Hilary Burke

BUENOS AIRES, Oct 10 (Reuters) - Argentina's flourishing automotive sector is girding for a slowdown as fallout from the global credit crisis combines with high inflation and a local currency that is losing its competitive edge.

Union leaders are warning of possible layoffs in Latin America's third largest car-manufacturing nation, and companies such as General Motors Corp (GM.N) and PSA Peugeot Citroen (PEUP.PA) have cut shifts this month to trim what has been extraordinary growth in production in the last six years.

At the same time, the industrial lobby is upset over the recent sharp depreciation of the Brazilian real, which could make Argentine goods comparatively less competitive if -- as the central bank has said -- the Argentine peso is held firm.

Brazil is the top market for Argentine-made vehicles, so a downturn in the Brazilian economy would also spell trouble.

"We have to look very closely at the availability of credit, especially for commercial sectors ... and the impact this crisis has on Brazil's economy," said Enrique Alemany, president of Ford Argentina, an arm of Ford Motor Co (F.N).

"We'll see if we can turn this growth in Argentina's automotive sector into a great opportunity for the future or if it was just a phase and we'll have to shift gears at some point," Alemany told a business seminar this week.

The Ford executive said the Argentine auto industry's total production has grown fivefold from 2002 and will reach a record of 620,000 vehicles this year. Land vehicle exports account for about 9 percent of the value of Argentine exports.

Sales of locally made and imported vehicles, originally forecast at as many as 650,000 units, is now estimated at 600,000 -- which is still a record high.

Dealerships are offering discounts to lure buyers as the rosy outlook recedes.

"The automotive industry's latest figures are negative in terms of slower growth. Uncertainty is causing companies to reduce or suspend investment plans," Juan Carlos Lascurain, head of the Argentine Industrial Union, told local media.

"The very significant currency devaluation seen in our regional partner (Brazil) could imply a serious risk for some sectors," he added.

TOO MUCH INVESTMENT?

The Brazilian real BRBY has shed 29 percent against the dollar since Aug. 1, rebounding slightly this week thanks to central bank intervention.

Meanwhile, the head of Argentina's central bank has vowed to ensure demand for the peso ARSB= and keep the currency from tracking the real's steep drop. The peso has weakened by nearly 9 percent since the start of August.

Asked how this could affect Argentine-based firms, Labor Minister Carlos Tomada told reporters: "The companies will analyze this, and we'll be watching how this productive process unfolds to see if employment is affected."