Market Weakness Sharpens
Vehicle sales and production in Venezuela dropped considerably in the first six months of 2013, in line with our bearish market outlook. We expect the market to contract further over the course of the year ( see 'BMI Remains Bearish Despite April Uptick', May 14 ).
|Venezuela Monthly Vehicle Sales, CBUs|
Vehicle sales in Venezuela declined 15.2% year-on-year (y-o-y) in H113, to 57,280 units. This follows a 39.1% y-o-y decline in June, to 7,732 units. We hold a bearish outlook for consumer sentiment, and maintain our forecast for a 19% decline in the market in 2013.
We believe that the poor macro picture in Venezuela will continue to impact vehicle sales over the year. The government's currency devaluation in February will pose a considerable upside risk to inflation, hike interest rates for vehicle loans, and make vehicle imports more expensive, thus eroding consumers' purchasing power and affecting sales volumes ( see 'Near-Recessionary Conditions To Prevail', June 4). We expect this to continue to filter through to consumer sentiment over the course of the year.
The country's weak consumer story could have a stronger impact on the market, however, and we caution that the risks to our sales forecast are firmly to the downside.
In H113, sales of domestically-produced vehicles declined 36.0% y-o-y, to 36,205 units, while sales of imported vehicles increased 91.6% y-o-y, to 21,075 units. This increase in imported vehicles is due to the paucity of domestically-produced cars and low-base effects. Historically, sales of domestically-produced vehicles have dominated the market. As detailed below, however, production in the country has curtailed significantly in recent months, creating a shortage of vehicles available to buy. We believe that, as imported vehicles constitute a larger part of the sector, the weaker currency will have a more substantive impact on sales volumes over the year as imports become more expensive.
|Bearish Market Outlook Maintained|
|Venezuela Monthly Vehicle Production|
BMI remains bearish on vehicle production in Venezuela, as the government continues to intervene in the economy, further restricting access to foreign currency and implementing import restrictions on vehicle components. Further, the recent currency devaluation will serve to make supplier imports more expensive, exacerbating shortages of components.
Indeed, vehicle production in Venezuela decreased 36.4% y-o-y in H113, to 36,919 units, as these dynamics continued to play out. This follows a 45.5% y-o-y drop in June, to 5,766 units. We forecast a 45% decline in production volumes in 2013, which we maintain for now. BMI has long maintained that in order to see sustained growth in vehicle production, the regulatory environment needs a complete overhaul, particularly in the issuance of assembly permits and access to foreign currency ( see 'Production Returns To Positive Territory, Recovery Still Not Assured', May 12 2012). This does not look likely, however, and Venezuela continues to rank below the regional average on BMI's Risk/Reward Ratings.
The country's weak business environment could have a stronger impact on production volumes, however, and we caution that the risks to our production forecast are firmly to the downside.