BUENOS AIRES, ARGENTINA — The city of Cordoba, located in the center of Argentina, has long been called the "Detroit of Argentina." However, after a catastrophic 1999, local auto-parts molders are working hard to find business to keep their plants running, even if that means fleeing from their No. 1 market.
One of the most important measures is the Local Autoparts Development Program, a project that includes carmakers, plastic and metal part manufacturers, unions and the government of the province of Cordoba. The program was launched April 13, and on May 2 plastics processors had a meeting with members from the province's secretary of industry to better understand the scope of this initiative.
"The program was designed by the Cordoba government and vehicle manufacturers in order to include local auto-part producers in the network of global suppliers," said Sergio M. de la Torre, manager at Cordoba's Plastics Industry Chamber.
According to the letter of intent, here's how the project will work:
Carmakers select Cordoba firms to produce auto parts, as well as putting them in touch with Tier 1 suppliers, if necessary.
Parts suppliers commit to using a minimum of three local firms as their suppliers. They also agree to comply with international quality standards and to maintain their current work-force level. Dismissals only will be allowed under special circumstances, such as a reduction in production plans on the part of automakers.
The Cordoba government offers tax exemption for participants that need to expand or make new investment. The local government also will petition other benefits from the federal government, such as tax reductions on some imported equipment, competitive lines of credit for locally manufactured machinery, and discounted lending rates.
Small and medium-size companies will get extra help in training workers to meet international quality standards. They also will obtain loans at lower interest rates for working capital and equipment-acquisition purposes, provided by the Cordoba province bank, and a 20 percent reduction in electricity bills as of June 1.
Unions will contribute by maintaining and improving working relations at companies included in the program, as well as to promote continuous training.
The province of Cordoba has a little more than 400 plastics companies, of which roughly 50 supply the auto industry either directly or indirectly.
Carmakers operating in the region include Renault, which assembles the Kangoo, Megane, R-19 and Trafic models; Fiat, producing the Siena, Palio, Uno and Duna; and Chrysler, with the Sport Cherokee and Gran Cherokee.
General Motors Corp. also had a plant in Cordoba to make the Silverado, but the company stopped producing that car in Argentina, closed the Cordoba plant a few months ago and centralized all activities at its Rosario facility.
The city of Cordoba is home to about 1.6 million people. In the mid-1990s, the auto industry was a powerful engine in the region's economic growth.
But things changed in early 1999.
"The devaluation [of the real] in Brazil unveiled the weaknesses in our economy and impacted in full the automotive sector, which was closely tied to trade with Brazil," de la Torre said.
"A significant reduction in auto production hit hard the auto-parts makers, who had made big investments to serve the car manufacturers."
Vehicle production in Argentina dropped from 457,957 units in 1998 to 304,913 in 1999.
In Sao Paulo, Brazil, the general feeling among auto-parts suppliers is that the automotive business in Cordoba is practically dead. In late 1999, processors in Santiago, Chile, claimed injection molders in Cordoba were "eating their machines," in view of the local auto industry's absolute lack of perspective at the time.
Currently there are few alternatives for processors in Cordoba, de la Torre said. One solution would be for companies to merge in order to compete more efficiently in larger auto markets. Another option would be to link with foreign parts suppliers with the objective of leveraging the participation in the international market.
Lodigiani Y Leali Group, a traditional auto-parts player in Argentina, is officially looking for a U.S. or European partner for its plastics businesses. The company does blow molding and runs an injection molding/painting/assembling unit in Buenos Aires' metropolitan region. It also has a painting and assembly plant in Cordoba.
The company wants a partner with capital and technology that can strengthen its operations through global purchase orders.
"A [second] possibility would be another type of company that employs the same technologies and serves other markets such as pallets, toys, accessories for construction, highway safety etc.," said Leopoldo Berliner, director of Lodigiani Y Leali, in an e-mail interview.
According to de la Torre, Cordoba processors in general are seeking new product opportunities outside the automotive sector. However, new projects require investment, and most regional processors are cash poor.
Some parts manufacturers have phased out their operations in Argentina. An article published in Argentine newspapers in February included a list of 28 companies that transferred all or part of their operations to Brazil. More than half of them were from the automotive sector, including Argentine subsidiaries of Magneti Marelli SpA, Goodyear Tire & Rubber Co., and Delphi Automotive Systems Corp.
Delphi closed its Cordoba wiring harness factory in late 1999, costing the region about 400 jobs. The firm consolidated production at its plant in Brazil, due to "challenging economic conditions" in Argentina, a Delphi official said.
Besides Delphi, Cordoba's Plastics Industry Chamber has no record of any plastics auto-parts processors having closed down in Cordoba lately.
Guillermo Bertolina, purchasing director at the acrylic headlamp molder Cibie Argentina SA, thinks fears of a widespread exit by auto and auto-parts companies to Brazil are exaggerated.
Cibie Argentina is a Cordoba-based Valeo SA operation, which runs five injection presses and has 140 employees. Valeo recently transferred its radiator and door-lock businesses to Brazil, but Bertolina said Valeo has not considered Cibie pulling out of Argentina, in spite of the decrease in sales. Valeo also runs an automotive-lighting factory in Curitiba, Brazil, that supplies car-assembly plants in that country.
"For the automobile markets, I think investments should be in Argentina and Brazil, because there is auto production in both countries," Bertolina said.
MGI-Coutier of Chamfromier, France, has adopted a similar strategy in South America. The company injection molds and assembles several parts, such as instrument panels, trim, bumpers and grilles at its 160,000-square-foot facility in Cordoba.
But in October, MGI-Coutier Brasil Ltda. will begin injection molding at a unit in Jundiai, Brazil, that already assembles a few items and makes non-plastic products.
"We work under a Mercosul vision that distinguishes us from the competition. The firm has a single management group for the Brazil and Argentina plants, which provides us important competitive advantages in terms of raw material purchasing, sales and financial administration of the business," said Sergio Humberto La Ganga, responsible for Mercosul procurement activities at MGI-Coutier.
MGI-Coutier Argentina SA was created in October 1997 as a joint venture between the French firm, which held a 65 percent stake, and an Argentine car-light maker. The $12 million plant employs 90 and has 10 presses — nine Italtech and one Billion — with clamping forces from 140-1,500 tons.
In June 1999 MGI-Coutier acquired its partner's shareholding interest, taking over full control of the business and implementing a more aggressive rhythm to activities in the region.
"Six months ago MGI-Coutier Argentina made 70,000 parts per month and was not competitive. We prepared a work plan, identified the right suppliers, increased efficiency and now we are winning projects even in Brazil, in spite of logistics costs," La Ganga said. By February 2000, output at the Cordoba unit had jumped to 250,000 parts.
"The company is making money now. We are not thinking of leaving Argentina," he said.
MGI-Coutier adopted the policy of encouraging exports inside and outside the Mercosul region. Currently, the Argentine facility ships to Brazil, Iran, Venezuela, Turkey, Poland and India. The unit's main clients include Peugeot, Renault, Fiat, General Motors and Volkswagen.
In La Ganga's opinion, high labor costs in Europe still tend to contribute to the growth of assembly activities in the Mercosul countries and Asia.
"We are beginning to offer lower prices than those seen in Europe, and I believe we will begin exporting to that region in two years," he said.
The Mercosul automotive industry gained some balance in March when the government set new rules on auto production, minimum percentages of local content, and import taxes for cars and auto parts.
The policy will take effect from mid-2000 to 2005 and represents an effort to incorporate Mercosul's car industry in a free-trade market, substituting the previous situation where Brazil could only export to Argentina the same amount of cars it imported from that country, and vice-versa. Under this new regime, the more competitive country may gradually increase its export volume to the less-competitive country.
Additionally, Mercosul vehicles will have incorporate at least 60 percent regional content. Cars imported from outside the Mercosul zone will carry a 35 percent duty.
Independent analysts consider the agreement an example of resolving commercial problems in the Mercosul trade region through dialogue. The deal will result in many companies keeping their business operations in Argentina, La Ganga said.
Right after the so-called "transition plan" was announced, automotive industry officials hailed the agreement for creating stability. Ford Motor Co. will boost its 2000 investment in Argentina from the original plan to spend $114 million to $152 million, Ford Argentina President Francisco Codina told the Buenos Aires Herald.
"Before, there was always doubt about whether it was better to invest in Brazil or Argentina," he told the newspaper. "Now there is a six-year window that provides companies the security to plan ahead."
At the Cordoba's Plastics Industry Chamber, de la Torre believes that the agreement has brought about a bit of tranquility to the sector, although not sufficient to put the industry back on the track toward growth.
Nevertheless, the Argentine automotive industry reported a strong first quarter, producing 76,460 vehicles — up sharply from 47,609 in the same period in 1999.
The prevailing opinion among analysts points to total 2000 vehicle production between 300,000 and 350,000 units in Argentina.
Plastics News senior reporter Bill Bregar contributed to this story.
