The three engines driving the car sales boom

How do you explain the jump from 414,000 brand-new vehicles sold in Argentina in 2024 to the 700,000 units that many market players have begun to estimate for this year?

There's a key fact that explains why vehicle sales were plummeting a year ago, but are soaring today: when Milei took office, it took 24 minimum wages to buy a mid-range, brand-new car . Today, with the dollar flat and car prices falling below inflation, the number of salaries has dropped to 17 , according to an estimate made by consultant and former Minister of Production Dante Sica.

“New vehicle sales could reach 700,000 units by 2025, representing a sharp increase of 69.2% compared to last year's total and a performance not seen since 2018, when sales reached 905,000 vehicles,” stated a report from Abeceb, the consulting firm led by Sica.

The report added that the Argentine automotive market has been experiencing significant growth this year, driven by several factors, including:

The opening of imports has filled dealerships with more and newer models from Brazil and also from countries outside the region. This increased supply has resulted in almost 60% of registrations now corresponding to imported vehicles, compared to a share of less than 40% in December 2023.

"A good portion of sales so far this year are in this segment, from buyers who had purchased pickup trucks in recent years and are now looking to upgrade to new SUVs," said Ernesto Cavicchioli, an importer for the Korean brand Hyundai, a few days ago. This entrepreneur even ventured that this year's sales could exceed 700,000 units.

For now, despite this increased supply at dealerships, sales continue to be led by the same models that have dominated the top spot for the past four years: the Peugeot 208, the Fiat Cronos, and the Toyota Hilux . The May registration report from the Association of Automotive Dealers (ACARA) shows that the best-selling model in the first five months of the year is the Peugeot 208 (16,184 units), followed by the Fiat Cronos (15,565) and the Toyota Hilux (14,895). Three other locally manufactured models (the Ford Ranger and the Volkswagen Amarok and Taos) are among the top 10 best-sellers.

On the other hand, the two cheapest models on the market, the Fiat Mobi (20.3 million pesos in June) and the Renault Kwid ($19.6 million) rank higher than 15th.

The increased supply of secured loans is another lever for increased sales. They are offered by banks and also by the automakers themselves. At the beginning of June, brands such as Renault, Chevrolet, and all Stellantis brands (Fiat, Peugeot, Citroën, DS, Jeep, and RAM) are offering zero-interest financing, which covers up to 80% of the price for some models, with average terms of 18 months.

Sales have also returned to dealerships. It's no longer the "price war" that characterized the 2016-2018 period (where discounts of up to 25% off list prices were offered), but some brands now offer cumulative discounts between the brand and the dealer, which can reach 8%.

The package is completed with a package of government measures to reduce the tax burden on vehicles. The first sign was the elimination of the PAIS tax at the end of the year, which was accompanied by a 2% price cut in December list prices for the automaker Toyota.

In January, the government continued with the elimination of the first tier of internal taxes and a halving of the second tier. This measure lowered the list prices of dozens of models that at the beginning of the year ranged between 45 and 70 million pesos, thus returning them to the market, with the resulting increase in supply at dealerships (the reduction did not include pickup trucks, which were never subject to internal taxes).

There were other tax reduction measures and red tape elimination measures, such as simplifying procedures for importing auto parts for vehicle production and eliminating the requirement for VAT (referred to in terminals as "double VAT"), which represented a significant financial cost.

However, there was no deflationary effect, but rather an adjustment in the price of new vehicles below the Retail Price Index.

According to a private report circulated among the automakers themselves, the INDEC CPI accumulated 8.6% between January and March, and the price of new vehicles increased by an average of 3.2% (0.3% in January, 1.8% in February, and 1.1% in March).

Abeceb measured the same trend, but over a broader period: between April 2024 and April of this year, cumulative inflation was 47.3%, while the average price of new vehicles increased 14.9%, less than a third of that.

"Even so, (vehicle prices) remain high compared to Brazil (+10% on average) and other markets in the region," noted a report from the consulting firm.

This resistance to a deeper decline is the axis of the complex yet still collaborative relationship between automotive manufacturers and the government.

Economy Minister Luis Caputo pressured car manufacturers not to raise prices. In early May, in response to a rumor that one of the automakers (Stellantis) was preparing to implement a price increase exceeding 3%, Caputo warned that he would use "tools" to "defend consumer rights."

So far, this pressure is yielding results in favor of the government. Despite the 8% devaluation of the peso following the end of the currency controls and a cumulative inflation of 6% between March and April, the accumulated increases in auto prices over the last two months have hovered between 2% and 3.3%.

According to Martín Zuppi, head of Stellantis Argentina and the Association of Automotive Manufacturers (ADEFA), the only way to achieve effective price reductions is to continue lowering taxes.

"A few days ago, the members of Adefa held a very positive meeting with the Minister of Economy, where we discussed these issues at length and continued working to remove obstacles to the industry, exports, and the automotive market in general. Prices were not discussed, but we all agree that prices will become more competitive as the tax burden is reduced and the industry's export prospects improve," Zuppi said during the presentation of a new DS model, in statements reported by the specialized website Motor1.

This resistance to lower prices was evident in the recent announcement by businessman Manuel Antelo, former owner of Renault Argentina for seven years (through Ciadea) and current importer of the Mitsubishi brands from Japan and Great Wall, Haval, and Changan from China.

Antelo tendered to import electric vehicles tariff-free and obtained government authorization to import up to 4,000 units at an FOB price of $16,000.

A few days ago, the businessman presented the three models he will begin importing under this modality: zero tariffs and an FOB price of $16,000. Even so, the retail price will not fall below $29,900. An almost mathematical example of what the "Argentine cost" represents today.