BMI remains bearish on the outlook for the Argentine autos sector in 2015 and we forecast of an 8.0% decline in vehicle sales for the year. Following the 36.3% fall in vehicle sales in 2014, we believe further drags on sales will be generated by rampant inflation, falling consumer and business spending and the expiry of the government's subsidised car purchasing scheme. Ongoing currency controls and weakness in the Argentine peso in the country will also continue to push up vehicle prices in 2015, dragging on vehicle sales, and a likely devaluation in the peso in 2016 will ensure price pressures continue in 2016.
Consumer And Business Spending To Remain Low
Despite a slight rally in consumer confidence in Q115, our Country Risk team remains confident that inflation will average 17% for the year, leading to an erosion of household purchasing power and a 0.8% fall in overall private consumption in 2015 . This will drag on sales growth through the private household market channel and informs our forecast that passenger car sales will decline 7.3% to 401,109 units.
Furthermore, falling business spending represented in our Country Risk team's forecast of a 2.0% fall in fixed investment, will also limit sales potential. As businesses curb investment amid falling GDP and growing economic uncertainty, sales of new vehicles through the business fleet purchasing channel will fall concurrently.
Upward Price Pressures To Continue But Weaken Slightly
After vehicle prices rose more than 48% in 2014 as a result of the central bank's devaluation of the peso and the government's currency controls, we expect pricing pressures to remain over 2015 but to ease slightly. The government's slight loosening of capital controls for automotive importers will partly loosen the squeeze on the supply of imported vehicles and components, while gradual currency depreciation against the US dollar will place only mild upward pressure on prices when compared to the price effects of the 2014 peso devaluation. Thus, we still expect further price inflation for vehicles, but these will not be to the same extent as last year.
Upcoming Currency Shock To Prevent Recovery
In 2016, however, we forecast further declines in vehicle sales as another currency shock will again create pricing shocks for vehicles. Our Country Risk team continues to forecast that the central bank will implement another devaluation in the peso in 2016, which we anticipate will lead to a 1.3% decline in vehicle sales in 2016.
However, there is a risk that this devaluation could come earlier than 2016, which would lead us to decrease our forecast for 2015. Furthermore, if Argentinean consumers also begin to expect devaluation sometime after the October presidential elections, sales of vehicles may spike in the run up to the elections as consumers seek to purchase vehicles before prices are pushed up by a devalued peso. Signs of whether or not this risk is playing out are unlikely to emerge until Q3, but BMI continues to watch for early warning signs in sales data.
Producers Will Continue To Be Squeezed
Vehicle production in Argentina contracted 28.2% y-o-y in 2014 to 363,711, on the back of sustained declines in the domestic and export markets such as Brazil. BMI expects these dynamics to continue in 2015, and believes that this will weigh on output volumes over the year. Consequently we are forecasting a 4.9% decline in 2015, followed by a modest 0.5% recovery in 2016.