Budget Range and High Inflation Boost Renault in Argentina

Inflation accounts for most shopping decisions for durable goods amongst Argentineans. With rates above 20%, a devaluation of the Argentinean Peso to the dollar of less than 7% and very low interest rates, Argentinean families are encouraged to spend their income in order to prevent their savings from losing value. Consequently, demand for consumer electronics, domestic electrical appliances and vehicles reached record figures in 2011. According to the Argentinean carmakers’ association ADEFA (Asociación de Fábricas de Automotores), over 880,000 new vehicles were sold in 2011 – 26.5% more than a year earlier.

The inflation index presented by the Universidad Di Tella explains why millions of families choose to spend their money instead of saving or investing it. Throughout 2011, more than 1,000 respondents to the university’s surveys said that they expect the inflation rate to reach 25% in 2012. These expectations give consumers a feeling that “money burns your pockets,” as quoted by local newspapers Perfil, La Nación and Clarín. Since money loses value at a rate of 25%-30% every year, families choose to consume.

However, the 2012 outlook is less positive, due to the potential impact of the international financial crisis upon the country, major trade partner Brazil’s slowdown and the
increasing fiscal deficit of the Argentinean Government. This last factor led to a series of adjustments dubbed “fine tuning” by the government, which is eliminating certain subsidies for transportation (causing subway fares to rise), and also electricity, water and gas. Furthermore, provinces and counties also announced their own tax increases of up to 60% as the year began, which is expected to impact negatively on the index.

New Vehicle Sales, 1995-2012

1

Source: Euromonitor International from ADEFA

With money burning consumers’ pockets, seven out of every 10 vehicles purchased in 2011 were bought in cash, with no need for credit. The remainder was sold in instalments financed by car manufacturers, with only 8% using bank credit. Demand for used cars also hit an all-time record in 2011; 1.8 million units were transferred, that is to say a 19% increase on the previous year.

More than 60% of the units sold – both used and new – are from models up to US$15,000. The Volkswagen Gol is the most popular choice (9% of sales), followed by the Chevrolet Corsa (7%), the Peugeot 207 (5%), Ford’s Ecosport (4.5%) and the Renault Sandero (4%). This ranking has remained stable over the years; therefore, the stock of the used car market is similar.

The propensity for consumers to spend cash rather than save it naturally supports the lower end of the car market and the addition of the budget Dacia-developed model range to Renault’s line-up in Argentina (Logan, Sandero, Stepway and Duster) has therefore helped the brand to regain third place in Argentina’s vehicle sales rankings. Renault is even challenging Chevrolet for second place in 2012.

New Vehicle Sales by Brand, 1995-2011 and Jan-July 2012 Units

2

Source: Euromonitor International from ADEFA