Argentine light-vehicle registrations grow 20.8% y/y in October, up 27.3% in YTD
Argentine light-vehicle registrations grew 20.8% year on year (y/y) to reach 73,854 units in October and increased 27.3% y/y to 747,619 units in the year to date (YTD), according to dealers' organisation ACARA. IHS Markit forecasts full-year 2017 growth of 27%.
IHS Markit Perspective
- Significance: October's registrations in Argentina grew at a 20.8% pace, stronger than September's 11.9%. Passenger cars saw stronger growth than LCVs, and continue to dominate the market. Sales of SUVs, however, grew by 28% in October.
- Implications: October continued the double-digit growth rates, but stronger than in each of the previous five months. YTD sales are up 27.3%, compared with a first quarter increase of 43.4% and an increase of 33% at the half-way mark.
- Outlook: In 2016, registration results compiled by Argentine dealers' group ACARA indicate that the market grew by 10.8%. That was better than expected, but nothing like the 27.3% gain over the first 10 months of 2017. For 2017, IHS Markit forecasts growth of 27% as automakers push sales in Argentina to offset declines in Brazil. IHS Markit forecasts sales averaging about 75,000 units per month through the rest of 2017. In coming years, the year-to-year change in registrations is forecast to be modest, with market registrations at about 851,000 units in 2024.
Argentina's Automotive Dealers' Association of the Republic of Argentina (Asociacion de Concesionarios de Automotores de la Republica Argentina: ACARA) has published its accounting of October's and the year to date (YTD)'s registrations, which shows another month of strong double-digit rate gains. October's registrations increased by 20.8% year on year (y/y) to 73,854 units, and the YTD's growth was 27.3% y/y to 747,619 units. The strong growth in 2017 continues, picking up in October after seeing some slowdown in the third quarter. To date in 2017, only April's registrations showed lower than a double-digit rate of y/y growth (4.7%). After 2016 delivered strong sales, registrations in 2017 are extremely strong. Argentine light-vehicle sales are also typically strong in the first part of the year (January alone normally accounts for about 13% of annual sales). While we may see some volatility in the final months of 2017, the year is closing out at a strong pace. The growth in October of light commercial vehicle (LCV) registrations was 14.1% y/y, while car registrations grew 23.7% y/y. Argentina remains a market driven by passenger-car sales, which accounted for 71.6% of registrations in October. Registrations in October comprised 52,919 cars and 20,935 LCVs.
The B-car segment remains by far the highest-volume segment in Argentina, making up 36.3% of light-vehicle registrations in October. The share of the segment is being eroded, however. Over the first 10 months of 2017, the B-car segment's share was 36.5%, compared with 40.1% in the same period of 2016. The best-seller in the B-car segment in 2016 was the Fiat Palio, but in 2017 so far, the Volkswagen (VW) Gol holds the lead. In October, the Gol also held its position as the best seller for the overall market. In the YTD, Renault's Sandero is in second place, with the Gol increasing its lead throughout the year. By October, the Sandero is behind the Gol by 6,009 units. In the B-car segment in October, the Gol was followed by the Chevrolet Onix, Renault Sandero, and Fiat Palio. The C-car segment came next with a 12.0% share in October. In October, the C-car segment's sales jumped 11.0% and were up 23.1% in the YTD. Exclusive of segment, the Gol was followed as best seller by the Onix, Hilux, and Etios in October. In the YTD, the Gol and Sandero were followed by the Chevrolet Onix and Toyota Hilux.
Argentina remains a market heavily biased towards passenger cars, though sport utility vehicle (SUV) registrations are making inroads. SUV registrations increased by 121% in 2016. In October 2017, SUV sales grew 28.4% y/y and were up 56.9% in the YTD. Consistent with the market, the B-SUV segment is the largest of the SUV segments, claiming 55.1% of SUV sales in the YTD. In January‒October, the B-SUV segment accounted for 60,369 of the 109,537 SUVs registered. The new Renault Duster, a C-SUV entry, ousted the B-SUV Ford EcoSport as best-selling SUV in Argentina. Though in October, the Duster saw sales contract by 17%, in the YTD the model's sales were up 58%. The EcoSport saw a 8.9% sales decline in the YTD but a 25.4% gain in October's registrations. The C-SUV segment's sales reached 40,385 units between January and October, widening the lead over the C-van segment (36,700 units) in the YTD.
On an automaker level, Volkswagen (VW) maintained full-year leadership in 2016 and holds the lead in 2017 so far with a 31.6% growth pace in the YTD and 41.6% growth in October; VW's sales in October reached 12,521 units. A 5.9% Renault-Nissan decline in October's registrations put the automaker in third place for the second consecutive month, though in the YTD the alliance remains in second position. Renault-Nissan's registrations outpaced VW's from June onward in 2016, but landed in second place in January 2017. In October, General Motors (GM) remained ahead of Renault-Nissan, as GM saw a 38.7% gain. In the YTD, GM was behind Renault-Nissan by more than 10,000 units. For several months, VW's lead over Renault-Nissan was being eroded, falling to 6,461 units in August. A weak performance for Renault-Nissan in September and October, however, helped enable VW to pull its lead back up to 10,753 units. In the YTD, fourth and fifth positions were taken by Ford and Groupe PSA, respectively. PSA and Fiat Chrysler Automobiles (FCA) have alternated for fifth slot, with the PSA lead in January‒October at 3,285 units.
Outlook and implications
In 2016, registration results compiled by ACARA indicate that the market grew by 10.8%. That was better than expected, but nothing like the 27.3% gain over the first 10 months of 2017. For 2017, IHS Markit forecasts growth of 27% as automakers push sales in Argentina to offset declines in Brazil. IHS Markit forecasts sales averaging about 75,000 units per month through the rest of 2017. In coming years, the year-to-year change in registrations is forecast to be modest, with market registrations at about 851,000 units in 2024.
There is some initial government support for alternative powertrains as well. In May, the country cut its import taxes on hybrids, electric vehicles, and hydrogen-fuel cars, on a limited basis. The tax cut is limited to three years or 6,000 vehicles, and restricted to only automakers that have assembly plants in the country. Argentina is looking to spur interest in demand for this vehicle type, though this relatively restrictive cut may have limited impact. As Argentina's sales have improved, there have been announcements of new production and investment. This includes BRL500 million in GM's Alevear facility, FCA's execution of a plan to add a new sedan, VW considering a new SUV, and Renault planning a second shift.
The effects of the Argentine peso's depreciation and unstable economic and political situations had generally kept this market back, though 2016 and 2017 have been revival years. Prior to a sales collapse in 2014, Argentina was pushing to become a 1.0-million-unit market by 2016. Even with the improving market this year, Argentina is no longer forecast to see a 1.0-million-unit year in the current period; IHS Markit now forecasts a natural replacement demand would be about 850,000 units per year, which it is now expected to reach in 2017.
After seeing sales exceed 859,000 units in 2017, however, we forecast the market will largely settle in the 830,000‒850,000-unit range through 2024. We expect a mix of growth and contraction, but with swings of less than 2%. By 2024, we project the market to be at about 851,500 units, lower than in 2017. In 2016, the seasonally adjusted annual rate (SAAR) average sales level exceeded 700,000 units over the second half of the year and, in 2017, has broken the 900,000-unit mark twice. The SAAR is flirting with breaking the 900,000-unit mark for 2017 but has begun flattening out in recent months. While the Brazilian market is improving, OEMs remain aggressive to achieve sales in Argentina.
Increases in vehicle pricing (up 12.6% y/y in January‒August) did not slow the market, as the impacts of currency devaluation and inflation make the number attractive. There have been an 17% y/y currency devaluation and 23.1% inflation. The new foreign exchange is starting to permeate to the car market, even as Brazil has seen growth since mid-2017. Additionally, in December 2016, the Argentine government raised the base price for the threshold at which the luxury tax applies. This enabled some models to see their pricing increase without tripping the threshold to higher taxes.
In June 2016, Argentina and Brazil entered into a new trade agreement, on a four-year term, while in July 2017, an agreement allowing free automotive trade with Colombia was approved. Relative to the Argentine-Brazil agreement, the Argentine government resisted both a free-trade agreement and the increase Brazil requested to allow USD1.8 in imports for every USD1 exported, up from the current USD1.5. In the end, the USD1.5 figure holds through 1 July 2019; if both parties agree, it could be raised to USD1.7. Once this agreement ends in 2020, the two countries have agreed to shift to a free-trade agreement. The negotiations are in part driven by Brazil's efforts to increase its export base as its own market is in decline. It also illustrates that a broader agreement would benefit Brazil more than Argentina. There is less opportunity for Argentina to increase exports of assembled vehicles to Brazil than vice versa. Additionally, a lack of foreign currency had been restricting the importation of cars and components, reducing supply. Factors improving sales include the Argentine government's efforts to free up more foreign currency, to make vehicles available for the local market and offset some impact of plummeting exports to Brazil.
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