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Venezuela Autos Report Q2 2010
Market |
Automotive and Parts |
Report Type |
Market Research |
Country |
Venezuela |
Published |
23 February 2010 |
Number of Pages |
47 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
File Format |
- |
There has been little in the way of good news for Venezuelan carmakers of late and the industry faces a new round of challenges in 2010. The first bad news came in January 2010 when the government announced the devaluation of the bolívar from VEB2.15/US$ to VEB4.30/US$. We believe that the policy will add to the existing burden on carmakers by increasing production costs, given that most carmakers rely heavily on imports for their parts supply.
Maintaining local production in Venezuela is increasingly becoming a headache for most carmakers as they encounter all sorts of issues ranging from labour conflicts to unavailability of foreign currency for parts import. Production fell 17.4% year-on-year (y-o-y), to 111,554 units, during 2009, as both domestic and export demand contracted a sizeable 19.2% y-o-y, to 110,015 units, and 95.4% y-o-y, to only 55 units, during the year.
Adding to these woes, in December 2009, the government indicated strong interest in participating in the domestic autos industry and eventually forming a giant state-run automotive corporation. An industry spokesperson revealed that the future course of this policy could be that only those businesses which agree to a merger with the government unit could be allowed to assemble vehicles. As we have long argued, such a policy will be closely examined by locally based carmakers and suppliers when deciding whether to continue operations in the country.
What is more worrying is that we expect the recessionary trend in Venezuela to continue in 2010, as we forecast economic growth of -4.2% y-o-y. We expect such pressures to keep domestic demand at 17% lower in 2010 compared with last year, while production is also expected to fall another 10% y-o-y by the end of the year. We expect demand to recover at a robust pace of 25% y-o-y in 2011 as a result of pent-up demand from the last three years and continue rising, with rates averaging around 15% y-o-y between 2012 and 2014.
The state of its autos industry and the frail institutional framework which remains a key weakness of the countrys business environment has moved Venezuela to last position of our ratings this quarter. Such a high level of government intervention may be off-putting for market leaders, particularly the US companies, and in the long-term may undermine the government's hopes of boosting domestic car production. As of now, the country is banking hopes on its increasing ties with China to help bring back some of its lost credibility.
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