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Latin America: Too Many Auto Plants

3 minute read

It used to be that every nation, developed or underdeveloped, wanted its own steel mill. Now it is auto plants. Home assembly plants of foreign-designed cars have blossomed from Egypt to Formosa. Japan’s 14 auto producers, who design their own autos, plan to double production this year. South Africa’s plants put together no fewer than 95 different models. But Latin American countries, which have caught the itch, simply cannot afford the grandiose auto industries that they have lately created. While the U.S. has five major auto producers, Latin America has close to 50—mostly from the U.S., Europe and Japan—and far fewer buyers.

Brakes on the Boom. In the resulting traffic jam, producers, workers and customers are getting stuck. Brazil in just six years has built the world’s ninth biggest auto industry, luring a dozen producers by giving them ample credit, tax and tariff help, and virtually banning imports of cars completely assembled abroad. But Brazil’s current and belated austerity program is hurting its auto boom. Curbs on credit have cut back buying and wiped out the backlogs of orders; automakers have reduced production by 30% and laid off 3,000 workers. Argentina has attracted 26 auto companies in the past four years, but only twelve of them survive; of those, several are in deperate shape and the four biggest—Kaiser, General Motors, Ford, Fiat—together have an annual capacity of 180,000 cars in a nation where only 100,000 were sold last year. In Uruguay and Chile, Ford’s assembly plants are almost at a standstill because of an embargo on imported parts caused by a dollar drought.

But the building of instant Detroits continues. Mexican financiers have bought the complete auto plant of Germany’s bankrupt Borgward to create Mexico’s first full-scale auto producer (there are eight foreign assembly plants in Mexico). All 40,000 tons of Borgward’s production -line is being shipped over in 40 freighter holds, and the first shipment is due to dock this week. Venezuela this year barred all imports of finished cars; one result is that eleven producers plan to open assembly plants in Venezuela, where they will compete for an annual market of only 28,000 cars.

What They Do Best. Hampered by heavy taxes, small markets and featherbedded payrolls, many of the local auto plants are inefficient and expensive: a homemade Chrysler Corp. Valiant sells for $3,500 in Venezuela, a Ford Falcon for $5,530 in Argentina. Nationalistic politicians argue that these prices are not too high to pay for developing a national industry that will create jobs, reduce imports and preserve precious foreign exchange. In Brazil alone, 1,300 companies have sprung up to supply the automakers, and only $24 worth of parts on each car is now imported. But Argentina still spends $200 million a year to import auto parts—just about what it would spend if it imported all its cars.

Outside economists think that fewer auto plants might serve Latin America’s ambitions better. Some Latin American businessmen are coming to realize that their nations could probably progress faster by producing what they have the resources to produce best—aluminum in Venezuela, steel in Brazil, appliances in Argentina—and lowering their trade barriers to import what others produce best. President Adolfo Lopez Mateos of Mexico and Joao Goulart of Brazil have mulled over a plan for each Latin American nation to specialize in particular car parts. But that presupposes something like a Latin American common market, which is nowhere near realization.

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