Bloomberg News

Porsche Sells Malbec to Keep Autos Coming Into Argentina: Cars

November 16, 2011

Nov. 3 (Bloomberg) -- Porsche importer Hugo Pulenta has promised to ship wine from his family’s vineyards in the Andean foothills in exchange for permits to bring his expensive cars into Argentina.

Under similar agreements with the government, Mitsubishi Motor Corp.’s representative will export peanuts while imported Subarus will be matched by sales of chicken feed to Chile.

President Cristina Fernandez de Kirchner, who won re- election Oct. 23, is forcing sellers of foreign-made cars to become exporters of everything from bio-diesel to bottled water in return for access to an auto market that’s growing 30 percent a year. Argentina introduced the program in March to boost export, increase investment in local industry and shore up dwindling central bank reserves. The government forecasts the trade surplus will shrink to $8.6 billion next year from $12.1 billion in 2010.

Not everyone is pleased. “What we’ll see, if these measures continue, are fewer vehicle imports, less variety and lower sales,” said Marcos Ferrario, an economist who tracks the auto industry at Buenos Aires-based research company Abeceb.com. “It’s very difficult to counterbalance imports of luxury cars, which are worth about $150,000 each, with sales of olives or wines.”

Companies will have to match imports, dollar for dollar, with exports. To compensate for imports valued at $8 million this year, Pulenta’s Nordenwagen SA will supplement shipments of Bodegas Pulenta Estate wines, including those made from Argentina’s iconic malbec grape, with purchases of wines from other producers, Pulenta said. He’ll also ship olives. Pulenta, 57, has imported cars made by Stuttgart, Germany-based Porsche SE for 18 years.

BMWs for Rice

Before signing a deal on Oct. 13, Bayerische Motoren Werke AG sales had plummeted to a near standstill after authorities blocked imports from the Munich-based carmaker.

“For the last four months we have had no new cars to sell,” said Adrian Santos, 49, president of BMW dealership A. Santos SA, which has closed one of its two showrooms in the Buenos Aires metropolitan area.

BMW sold 18 vehicles in October, down from 270 a year ago, according to Argentina’s Car Dealers Association. Sales of the German autos fell 49 percent in the first 10 months of the year to 1,613 models from 3,133 in the same period of 2010.

The world’s leading manufacturer of luxury vehicles has committed to exporting auto parts, upholstery leather and processed rice, according to an Industry Ministry statement.

VW Gearboxes

The program to reverse an auto-industry trade deficit that reached $3.3 billion in 2010 extends beyond companies that sell imported vehicles. Among the 17 agreements signed by Industry Minister Debora Giorgi this year is one for Volkswagen AG to invest 100 million euros ($138 million) at its factory in the province of Cordoba to boost production of gearboxes for export.

The Argentine units of France’s Renault SA and PSA Peugeot Citroen agreed to boost exports and use more locally made auto parts to reduce their imports, according to statements issued by the ministry.

As a result of the contracts, the government foresees the auto industry posting a trade surplus of $844 million by the end of 2012, Giorgi said in an Aug. 5 statement. This only includes auto-related goods, not malbec. The agreements don’t exempt Porsche, BMW and Fuji Heavy Industries Ltd., the maker of Subaru cars, from a 35 percent import tax.

Argentina’s automobile industry has led a boom in industrial production as South America’s second-biggest economy -- after Brazil -- grew an average 5.6 percent annually since Fernandez took office in 2007. Vehicle output is forecast by the automakers association to rise to about 840,000 units this year from 717,000 in 2010. PSA Peugeot-Citroen, General Motors Co. and Volkswagen are the three biggest automakers in Argentina, followed by Fiat SpA, Renault SA and Ford Motor Co.

Vehicle Imports

Last year, Argentina imported $5.6 billion of vehicles, an 81 percent increase from 2009, while exports rose 51 percent to $6.6 billion, said Ferrario. In 2009 imports fell 40 percent and exports 11 percent, according to Ferrario.

The automakers’ association will publish its October sales report today.

Argentina’s economy needs to make sure that enough dollars flow in for the central bank to accumulate reserves and maintain a stable exchange rate, said Dardo Ferrer, an economist at Buenos Aires-based research company Fundacion Mercado.

“The government aims to replace imports with national output and at the same time have dollars from a trade surplus to maintain a programmed devaluation of the currency that won’t accelerate inflation,” Ferrer said.

Tumbling Reserves

The central bank spent $2.7 billion of dollar reserves in the past two months to defend the peso, which has weakened 6.1 percent this year. Reserves have tumbled to $47.4 billion from a record $52.6 billion in January as the central bank defended the peso and paid debt. Economists estimate consumer prices are rising 24 percent annually, more than double the official rate of 9.9 percent.

Economists and politicians have questioned official statistics since former President Nestor Kirchner, Fernandez’s late husband, made personnel changes at the statistics agency in early 2007, saying he did that to “improve operations.” Since then, private economists have released their own consumer price indexes.

Pulenta, the Porsche importer, was able to quickly respond to the government’s request because of his family’s investments in wineries.

“When the government decided that we would have to offset imports with exports, we were ready and prepared because that’s what we do,” said Pulenta. Nordenwagen is planning to increase sales of Porsche autos by 50 percent to 150 in 2012.

Sales Limited

Even with a government agreement, some importers will be forced to reduce sales because they won’t be able to meet the government’s requirements, said Abeceb’s Ferrario.

While Argentine auto-parts companies have invested 1.3 billion pesos this year to boost production and substitute for imports, it will take time for the results to appear, said Fabio Rozenblum, president of the Argentine Association of Auto Parts Makers.

“The replacement of an imported part by a locally made one doesn’t take place from one day to the other,” Rozenblum said. “This process may take from 12 months to 18 months.’

Government efforts to help the auto industry may be undermined by a slowdown in Brazil, which buys about 80 percent of Argentina’s car exports, former President Eduardo Duhalde told reporters Oct. 6.

Fundacion Mercado’s Ferrer said declining demand in Brazil led to an 11.4 percent drop in Argentine vehicle exports in September from a year earlier, the first year-on-year contraction since October 2009.

“We are Brazil-dependent and I’m worried about Brazil’s problems,” said Duhalde, who was Argentina’s president from 2002 to 2003. “If Brazil is going to have a bad time, Argentina will have an even worse time.”

--Editors: Richard Jarvie, Bill Faries, John Brecher.

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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