Industry Trend Analysis - Inflation Causing Passenger Car Sales Underperformance - APR 2017

BMI View: We expect passenger cars in Argentina to grow at a slower pace than commercial vehicles in 2017. We have revised our passenger car sales forecast to growth of 10.6% , from 20.4% previously , given that consumer spending will be held back by stubbornly high inflation rates and only a mild uptick in consumer confidence.

We have revised down our passenger car sales growth forecast in 2017 from 20.4% to 10.6% and now expect passenger cars to underperform relative to commercial vehicles, which will grow 15.4% over the same period. This is mainly due to our expectations for stubbornly high inflation to continue forcing consumers to prioritise essentials spending over discretionary/conspicuous spending.

While we have previously highlighted the positive long-term macroeconomic fundamentals that will support a sustained recovery in vehicle sales in Argentina ( see ' Signs Of Long-Term Autos Recovery To Emerge Post-Election ' , November 5 2015), we stress that the recovery in passenger cars will be slower paced in 2017 than in 2016. In 2017, consumers will still be partly discouraged from purchasing new vehicles given the still very high inflation rates in the country. Our Country Risk team believe year-on-year inflation will average 29.3% in 2017. Despite a slowdown of inflation since April 2016 (see chart below) and our expectations for this fall to continue, inflation rates are still too high and consumers will continue to prioritise spending on essential items, leading to slower growth in discretionary spending on passenger cars. Furthermore, though consumer confidence has shown a pattern of recovery over H216, it is yet to rise to more meaningful levels and this process will be delayed by high inflation.

Recovery Underpinned By Stable Macroeconomic Outlook
Argentina - Vehicle Sales By Segment, Units
f=BMI forecast. Source: ADEFA/BMI

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