Change is happening rapidly in the Latin American automotive sector, with the main countries of production being Argentina, Brazil, and Mexico. Each country has its unique political, economic, social, technological, legal, and environmental problems to deal with, which all affect their specific automotive environment. In this blog post, we give you more information about these aspects and offer a glimpse into some future developments within this dynamic region.
Argentina: Opportunity despite economic challenges
Being declared a strategic sector for the country, Argentina has promoted incentives, where there is total exemption from export duties on produced goods until the end of 2031, allowing costs to decrease for car components manufactured locally for export.
Regardless of high inflation and the slowing economy, through huge investments by major manufacturers like Mercedes-Benz new plants are continuing to be opened in the country. Shortages of imported inputs have caused temporary factory shutdowns. Other companies like Toyota, General Motors, and Renault have announced staff reductions due to internal problems and low demand from bordering countries such as Chile, Peru, and Colombia.
Its positives on that regard were that it is a very young population, 60% under the age of 35, with the highest level of English proficiency in South America. Given its vast natural gas reserves and renewable resource potential, especially for wind and solar around the Andes Mountains, Argentina proved to be in an excellent position for future sustainability moves in the automotive sector.
Brazil: Confronting Innovation with Slowing Demand
Brazil has implemented a spate of initiatives to get things moving for the automotive sector. The “People’s Car” program provides a subsidy to attempt to lower vehicle retail costs. On the supply side, access to finance is made available via Finame, while tax cuts occur under the Rota 2030 initiative, whereby taxes on hybrid and electric vehicles have been reduced from 25% to 7%. The Mover Program provides generous tax incentives for the production of safer, less-polluting cars.
Notwithstanding such efforts, manufacturers like Mercedes-Benz, Volkswagen, and Ford are continuing to cut their capacities due to the demand crisis. This is in part because of high interest rates—kept high by the Central Bank’s fight against inflation—make loans expensive and deter car purchases.
However, Brazil is still a hot location for investment in future technologies like electric vehicle batteries and bio-hybrid technologies. Scoped as the most innovative economy in Latin America, Brazil offers an increasingly interested population in electric and hybrid vehicles supported by an energy system of which 72% is renewable.
Mexico: Strategic Positioning and Nearshoring Opportunities
Labor and content requirements of the USMCA free trade agreement determine whether Mexico’s automotive industry will receive preferential duty treatment. The content has to be manufactured to a certain percentage with high-wage labour, with at least 70% of its steel and aluminium coming from USMCA countries. Such rules would encourage more production in North America. However, for the time being, no financial incentive is given to drive demand of electric vehicles by Mexico.
The automotive sector in Mexico contributes 22% of all manufacturing employment. Incredibly, the Mexican automotive sector continued growing in 2023 as the U.S. sector anticipated contraction. Geographical proximity to the United States provides several logistical advantages that make it an attractive location for nearshoring production amid growing U.S.-China tensions. If there is a country with a strong base in manufacturing and strategic location, growing into a leading position in this new future for the automotive industry, it would be Mexico.
Conclusion: A Region on Brink of Transformation
Argentina, Brazil, and Mexico boast of specific strengths and various problems. The country of Argentina, with a young labor force and rich natural resources, is well-placed for future growth despite current economic challenges. Brazil is making its investment and strong developments in innovation and future technologies despite facing demand problems. Mexico uses its advantageous geographical location and trade agreements to the fullest to further consolidate its position as a key production base. As the global automotive trends change, so will the futures of these countries. It would require the collaboration of governments, industry leaders, and investors to unlock Latin America’s full potential for sustainable growth and technological advancement in the automotive sector.