Growth Will Be Difficult To Sustain
Favourable base effects have enabled the Venezuelan autos industry to return to positive growth territory in H112 - the first time since 2008. The market has posted a sharp rebound in the first six months of the year. Vehicle sales increased 18.5% year-on-year (y-o-y), to 67,579 units, in this period, and production grew 12.9% y-o-y, to 58,044 units. BMI, however, remains cautious about the sustainability of this growth as domestic production continues to face a difficult operating and regulatory environment.
Our core outlook for the segment currently forecasts vehicle production reaching 140,909 units by 2016, still a far cry from over 172,000 units produced in 2007, prior to the imposition of import restrictions. Given that growth in domestic sales is directly related with dynamics in the production segment, we forecast vehicle sales to reach 198,500 units by the end of 2016 forecast period. This is still far below the 492,000 units peak reached in 2007.
|Venezuela Vehicle Production And Sales (CBUs)|
There is some cause for optimism on the back of ongoing investment from Chinese, Russian, and Iranian auto manufacturers, although exact sales and production figures are difficult to find and verify. Indeed, BMI warns of being overly optimistic about these developments due to potential volatility in the balance. In February 2012, for example, Venezuelan president Hugo Chavez revealed that international sanctions imposed on Iran are hurting Venirauto, of which 64% is owned by the Venezuelan government and 36% by Iran's Aidco. Chavez's acknowledgement of Venirauto's difficulties undermines one of the potential boosters for the Venezuelan autos production segment. Venirauto was to be part of the government's drive to form a large state-run automotive corporation and was to be involved in the entire production chain by engaging in a range of activities from the handling of raw materials to the distribution of finished products.
Venezuela remains our least favourite market in the Latin America region. The government is doing little to improve the operating environment for carmakers and there could be more downside risks, given that there are discrepancies between government policy and the experiences of carmakers themselves. Much will depend on whether carmakers have been able to significantly improve their production levels in line with the increased demand. We expect Venezuela's regional underperformance to continue as long as the policy of import restrictions remains in place.