Ford Argentina agrees to boost exports in deal with government

The Wall Street Journal (Buenos Aires) - The Argentine unit of Ford Motor Co. (F) is the latest carmaker to sign an agreement with the government to boost exports to compensate for increased imports, as the government jacks up the pressure on manufacturers to help it maintain a wide trade balance despite soaring demand for imports.

Ford has vowed to boost its export surplus to $90 million by 2012, the economy ministry said in a press release Monday. That follows a deficit of $250 million in 2010.

Ford executives vowed to increase exports 70% next year through developing new models and to increase imports by no more than 30% by boosting domestic manufacturing, according to the ministry.

The agreement comes three weeks after Ford was fined $1.3 million by the tax agency Afip for allegedly failing to accurately declare auto parts that were imported from Brazil.

Ford is the latest of a long list of carmakers to sign similar agreements with the government, which has strong-armed the companies to balance any imports with corresponding exports.

The local units of Chery, General Motors Co. (GM), Volkswagen AG (VLKAY, VOW.XE), Daimler AG's (DDAIY, DAI.XE) Mercedes Benz, Porsche (POAHY, PAH3.XE), Fiat SpA (FIATY F.MI), Peugot SA's (PEUGY, UG.FR) PSA Peugeot Citroen and Fiat's Alfa Romeo have also agreed to the deals, according to the ministry. Most of the companies vowed to export more cars or parts, but Porche, which doesn't manufacture cars in Argentina, agreed to export wine and olive oil to balance out the 100 vehicles it plans to bring in this year.

In April, Germany's BMW AG (BMW.XE) said it would stop importing cars to Argentina due to restrictions. BMW sold around 3,500 vehicles in Argentina in 2010, according to data from the Argentine automotive dealers association, Acara. That was up almost 60% from 2009.

The agreements with the other carmakers will lead to an export surplus of $4 billion next year for the vehicle industry, compared with a deficit of almost $6 billion last year, Industry Minister Debora Giorgi said in the release.

Despite the government measures, the carmakers are on track to set records for production, exports and domestic sales this year as they benefit from booming economic growth in the region and runaway inflation in Argentina, which has led consumers to pour cash into durable goods like cars as a hedge.

During the first four months of the year, vehicle production was up 27.8% on the year, according to vehicle manufacturers chamber Adefa.

During the first four months of the year, exports were up 32.4% on the year, with the vast majority shipped to neighboring Brazil, where demand has surged over the past year.

In 2010, Argentina ran a $12.06 billion trade surplus thanks to high prices for its grain exports and strong demand for Argentine manufactured goods in Brazil. But the government has aggressively thrown up barriers to imports so far this year amid booming economic growth which has fueled strong demand for goods from overseas.

In April, Argentina's trade surplus tumbled 38% from a year ago to $1.3 billion as import growth continued to outstrip exports. In April, exports grew 12% on the year to $6.95 billion, while imports surged 38% to $5.65 billion, according to the national statistics agency Indec.

Amid those soaring imports, last month the central bank trimmed its forecast for this year's trade surplus to $9 billion from $10 billion.

Argentina's measures to slow imports have angered top trade partners Brazil and China and fueled friction.

Earlier this month, Brazil stopped granting non-automatic import licenses on a number of products, including automobiles and auto parts, produced in Argentina. The move, which can delay goods at the border for up to 60 days, was in retaliation for similar measures imposed by Argentina against Brazilian goods.

Brazilian and Argentine trade officials are scheduled to meet this week for talks to end the latest trade spat.