Favourable base effects have enabled the Venezuelan autos industry to return to positive growth territory in Q112 - the first time since 2008. Estimates from the Venezuelan Automotive Chamber (Cavenez) show that the market posted a sharp rebound of almost 29% year-on-year (y-o-y), to 3,244 units, in sales during Q112, while production grew almost 21% y-o-y, to 29,261 units, during the same period. BMI however, remains cautious about the sustainability of this growth as domestic production continues face difficult operating and regulatory environment.
|Past Its Peak|
|Total Vehicle Sales, Production, and Imports, CBUs|
Our core outlook for the segment currently forecasts vehicle production reaching 146,700 units by 2016, still a far cry from the more than 172,000 units produced in 2007, prior to the imposition of import restrictions. Given that growth in domestic sales in directly related with dynamics in the production segment, we limit our sales growth forecast to an average 10.5% y-o-y during the forecast period, with 2016 sales reaching 198,500 units.
The only positives for the production segment come from the investment commitments made by some new entrants into the market. The new MAZ/ MTZ plant will produce 5,000 trucks and 10,000 tractors a year once production gets under way. The Belarusian firms have revealed that they will be looking to cater to demand from the local as well as export market. Similar optimism has come from Chinese carmaker Chery Automobile, which is targeting assembly of some 18,800 vehicles in the country by the end of 2012, up from nearly 5,000 units assembled in 2012.
However, BMI warns of being overly optimistic about these developments. In February 2012, Venezuelan president Hugo Chavez revealed that international sanctions imposed on Iran are hurting Venirauto - 64% - of which is owned by the Venezuelan government and 36% by Iran's Aidco. Chavez's acknowledgement of Venirauto's problems undermines one of the potential boosters in the Venezuelan autos production segment. Venirauto was to be part of the government's drive to form a large state-run automotive corporation and was to be involved in the entire production chain by engaging in a range of activities from the handling of raw materials to the distribution of finished products.
Owing to developments such as these, Venezuela remains our least favourite market in the region. The government is doing little to improve the operating environment for carmakers and there could be more downside risks, given that there are discrepancies between government policy and the experiences of carmakers themselves. Much will depend on whether carmakers have been able to significantly improve their production levels in line with the increased demand. We expect Venezuela's underperformance to continue as long as the policy of import restrictions remains in place.