Dow Jones Newswires (Buenos Aires) - Argentina's auto parts sector will likely post modest sales growth next year as the broader automobile industry weathers a slowdown in the economy, according to a top executive.
Auto parts makers have benefited from a surge in automobile production that has accompanied rapid economic growth in Argentina and Brazil. About 850,000 vehicles are expected to roll off Argentine assembly lines this year, up from 544,647 in 2007.
After surging nearly 29% on the year to $5.96 billion in 2010, auto parts trade group Afac expects sales by the roughly 400 companies in the sector to increase about 10% this year.
Fabio Rozenblum, president of Afac, said recent forecasts put 2012 vehicle output unchanged from this year or slightly higher.
"Getting close to 900,000 [vehicles] would be an important increase, especially given a scenario of uncertainty," he said in an interview.
Argentina's government expects the economy to grow 5.1% next year after expanding an estimated 9% during 2011. Economists see Brazil growing 3.5% in 2012, compared to about 3.1% this year.
Brazil buys about half of all the vehicles made in Argentina.
Today, the automobile industries of both countries are highly integrated. Brazil specializes in making small cars and engines, while Argentina's strength is in larger cars, trucks and transmissions.
Last year, Volkswagen pledged to invest $155 million to increase its annual production of transmissions by more than 30% to 1.3 million units starting in June 2012. About 95% of those transmissions will be shipped to Volkswagen factories in Brazil, Mexico and Europe, a company source said.
Research firm IES Consultores said in a report that Argentina's auto parts exports rose 10.4% on the year to $2.63 billion from January to September, with Brazil accounting for nearly 55%. However, Argentina still ran a trade deficit in auto parts of $7.42 billion during that period, with imports surging nearly 35% to $10.05 billion.
Rozenblum, who is also planning and corporate affairs director at auto parts and consumer electronics maker Grupo Mirgor SA (MIRG.BA), doesn't expect a downturn in exports to Brazil next year.
"Argentina's auto parts exports are extremely concentrated right now; I would say that the exports that are most at risk of not growing are those to developed markets," he said.
Argentine manufacturers are struggling with annual inflation that most private sector economists say is running between 20% and 25%. Rising consumer prices spurred the country's powerful unions to demand even greater wage increases.
Though parts makers haven't been able to totally offset rising costs, Rozenblum said the sector is still competitive. The executive said a bigger risk to exports might come from hard-up European parts companies sacrificing margins to boost sales.
"If there is an oversupply in those countries that could cause some difficulties for Argentine exports that will be competing under different conditions," he said.
Rozenblum said the local auto parts industry needs to boost its production of electronic components and continue investing to keep pace with vehicle output.
Afac expects investments in the sector to reach 1.32 billion pesos ($309 million) this year, up from ARS708 million in 2010.
"The big challenge we have is sustaining growth with our sights set on Argentina producing 1 million vehicles in 2014 or 2015," he said.
