Some automakers are transferring investments from Brazil to Argentina to benefit from lower production costs and the rapidly growing domestic market. This is exactly the opposite situation of what happened ten years ago, when the local currency was pegged to the dollar and investments were directed to Brazil.
The strong position of the Brazilian real vis-à-vis U.S. dollar and the Argentine Peso is making Argentina a more attractive place to produce. This country is also attractive because of its growing car market. Argentine vehicle output is expected to grow by 40 percent reaching 450,000 units in 2006. Brazilian vehicle output is expected to rise modestly by 4.5 percent to 2.5 million units.
The automotive industry has been one of the pillars of the economic recovery in Argentina. In 2002 the Italian carmaker Fiat, suspended production in its plant in the province of Cordoba. Now, Fiat plans to invest US$50 million to produce gear boxes in Argentina. In 2006, Volkswagen began production of the Space Fox model in Argentina. This demanded investments of US$100 million. At the same time, in Brazil, the company announced a cost-cutting program over the next two years.
In yet another case, Peugeot Citroen decided to transfer the production of its Peugeot 206 from the plant in Rio de Janeiro, in Brazil, to Buenos Aires, Argentina. The company has a contract to export 5,000 Peugeot 206 cars to Mexico. This shift will entail a reduction of Peugeot Citroen's exports out of Brazil. Peugeot Citroen's plans for Argentina also include the start-up of its Peugeot 307 sedan model manufacturing line in July 2006.
