Crisis in auto ?

["Charles Brown" <CharlesB@xxxxxxxxxxxxxxxxxxxxxxxxx>]

South America: Boom or Bust?

A Detroit News Special Report
Auto frontier a struggle
U.S. carmakers wrestle with sluggish economy and stunted sales to tap Latin 
market
potential

By David Phillips / The Detroit News

BUENOS AIRES -- Leonardo Shulman has never seen it so bad after more than 30 
years of
selling cars and trucks.
   With little walk-in traffic these days in central Buenos Aires, the salesman 
at
Ford Motor Co.'s oldest dealership in the city, Serra Lima S.A., is left to 
scanning
local newspapers for tips about companies poised to expand and add jobs.
   "Maybe they need a small fleet of new cars or trucks. It's like fishing. 
Nothing is
selling well," Shulman said. "People don't have work. The only thing we are 
doing is
raising taxes."
   Across Argentina, demand and output of cars and trucks will fall again this 
year
for the third consecutive year.
   A lingering recession, rising fuel prices, high inflation, a jobless rate of 
17
percent and unfavorable exchange rates with neighboring Brazil have put a giant 
damper
on demand for new vehicles in South America's second-largest market.
   It's a scenario playing out across the rest of the continent. After peaking 
at 2.57
million units in 1997, sales of new cars and trucks remains lackluster across 
South
America.
   It wasn't supposed to work out this way for the world's leading automakers.
Attracted in the early 1990s by South America's booming growth, low wages and
development-oriented local governments, major automakers pumped $20 billion into
Brazil and Argentina for new assembly plants and engine factories.
   General Motors Corp., Volkswagen AG and other automotive giants were 
convinced
South America's fertile soil and expanding consumer base were ideal to expand 
their
reach and experiment with new manufacturing and selling techniques.
   But today, most of the factories are operating well below 50 percent of 
capacity --
a troubling reminder of the region's boom and bust cycles.
   The nagging slowdown is prompting layoffs, plant closings, and undercutting
profits. Adding to the distress are militant labor unions staging strikes to 
protect
jobs, raise wages and enhance benefits.
   Last week, 100,000 workers throughout Sao Paulo, Brazil's burgeoning 
automotive
corridor, dropped their tools and walked off the job to demand a wage hike of 10
percent.

Yet the staggering investments keep pouring in.
   French automaker PSA Peugeot Citroen is putting the finishing touches on a 
$600
million small-car factory outside Rio de Janiero. Next year, Ford's $1.9 billion
manufacturing complex goes on line in the northern Brazilian state of Bahia.
   "The fear of being left behind in a surging consumer tide has still got a 
hold on
many manufacturers in South America," said Diego Portillo, an auto analyst with
Standard & Poor's DRI. "Unless demand surges, South America may see an ugly 
shakeout
in four or five years.

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