Decline of automobile sector in Mercosur puts thousands of jobs in peril

The automobile industries of Brazil and Argentina have gone from celebrating the 2013 landmark achievements in production and domestic sales, respectively, to this juncture in the first trimester of 2014 when thousands of jobs are at risk. In a closed market like Mercosur (including Venezuela, Paraguay and Uruguay), where factories of both countries mostly satisfy demand from within the group, though they also export to the rest of Latin America and to other regions, the decline of Brazilian and Argentine markets has caused some multinational corporations to furlough some workers and offer early retirement packages to others.

Minister of Treasury Guido Mantega said this Monday the government was analyzing measures to make credit for the purchase of vehicles more available. The Brazilian team will negotiate with the government of Cristina Fernández de Kirchner to bring down barriers to exports to Argentina, he added. Chief of the Cabinet of Ministers Jorge Capitanich attributed the furloughs and early retirement plans to a slip in the Brazilian market. He showed confidence in a deal Dilma Rousseff’s administration will put in place when the current tariff-based bilateral agreement for trade in cars and parts ends on June 30.

Car sales in Brazil dropped by 15.2 percent in March and accounted for a mere 2.1 percent in the first trimester of 2014. Exports fell by 18.8 percent in March and by 32.7 percent in first three months of the year, especially in the Argentine market, business leaders say. In total, production in the giant South American country decreased by 17.6 percent last month and by 8.4 percent overall in the trimester.

The Argentine market shrank by 35.5 percent in March and fell by 25.4 percent over the trimester. Exports, mainly to Brazil, dropped by 30.8 percent last month and by 17.8 percent overall in the first trimester of this year. So far, production has fallen by 26.2 percent and by 16.2 percent, respectively.

This Tuesday, Argentine Minister of Economy Axel Kicillof and Minister of Industry Débora Giorgi will travel to Brasilia to meet with their counterpart, Minister of Development, Industry and Foreign Trade Mauro Borges and Rousseff advisor on international affairs, Marco Aurélio Garcia. The officials will discuss the deterioration of bilateral trade relations in general and their auto-related trade agreement in particular.

The two countries hardly grew in 2013. Since Brazil wants Argentina to knock down trade barriers, the Fernández administration wants to strike a balance in the sale of cars and parts. The parties are negotiating financing from Brazil for Argentine importers of Brazilian products in order to keep Argentina from depleting its international reserves at a moment when it has finally reversed its decline after the devaluation of the peso in January.

Meanwhile, some multinational auto companies that usually rely on factories in Brazil and Argentina, the seventh and 19th largest producers worldwide, respectively, have announced emergency staff measures, though they have not cut any jobs.

Since Brazil wants Argentina to knock down trade barriers, the Fernández administration wants to strike a balance in the sale of cars and parts.

The South American giant Volkswagen will suspend 1,300 workers for five months starting in May. Fiat announced last week 10 mandatory vacation days for 900 workers. A little while before the company did the same for 800 workers. When faced with a decrease in production automakers usually opt for advancing workers’ holidays first and once that measure has been exhausted they then suspend contracts. Layoffs are the last resort and some companies recommend or force workers to take an early retirement.

In Brazil, the truck maker Scania ordered 3,800 workers to take 15 mandatory vacation days, previously scheduled for June, in May. Its competitor Man and the union are negotiating the furlough of 200 staff members. PSA Peugeot Citroën suspended 900 workers. Ford also put 900 others on mandatory leave. General Motors (GM) furloughed 400 people. Mercedes-Benz sent 450 home and began a voluntary severance process, telling 9500 operators that the company was overstaffed by 2000.

The bad news comes just as the largest partner in Mercosur is building long-term investment projects to create jobs. Fiat announced that it will hire 850 people in its new production center in the northern state of Pernambuco where dealers will join another 1350. Peugeot Citroën just inaugurated a motor plant in Bahía in which they employ 300. Nissan has opened a factory in the state of Río de Janeiro, generating 2000 jobs for staff and associates. Renault announced an investment in installations that will provide 6500 jobs while suppliers will hire 1000 more.

In Argentina, Fiat has suspended 600 workers and Renault has furloughed 500. Volkswagen and the union negotiated voluntary severance packages for 320 people over the age of 62. But, another 400 operators are still in limbo. On the other hand, Toyota y Mercedes-Benz will keep giving extra hours to their employees.

Translation: Dyane Jean François