INTEGRATION: The Auto Industry another Bone of Contention

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Dec 20 1996 (IPS) - On Jan. 1, when construction starts on a new Mercedes Benz car plant in the Brazilian state of Minas Gerais, with investments of 820 million dollars, the nation’s dream will be fulfilled to the envy of the Argentines.

The Brazilian states are offering ever bigger and better incentives to car plants, a form of attraction which is causing a breach with Argentina, and threatening to cause a new auto-related crisis in the Southern Cone Common Market (Mercosur).

The first big crisis came in April 1995, when Brazil developed rules on car production without consulting Argentina. A long series of negotiations finally led to the development of a common Mercosur regime to come into action in the year 2000.

But this Thursday, only two days before the bloc summit in Fortaleza, Brazil, the President of the host nation, Fernando Cardoso, signed a decree granting large benefits to companies – like Hyundai and Asia Motors – setting up factories in the northeast.

His Argentine counterpart Carlos Menem warned Tuesday that if Brazil continued to offer benefits, Argentina would do the same, but Cardoso said the decree was still “being studied.” This Thursday, the plants established in Argentina expressed their surprise and ill-feeling over the news.

Up until now, the states of Minas Gerais, Rio Grande do Sul, Santa Catarina, Parana, and – from this week on – those of the northeast, offer strong incentives for the installation of factories, meaning that some multinationals have even changed their minds about setting up shop in Argentina.

The Mercosur plans to build some three million vehicles by the year 2000, and many transnationals are hurrying to set up factories for complementary products within the bloc.

In interviews with IPS, the president of Mercedes Benz Argentina, Axel Arendt, said Argentina and Brazil “must have a common strategy in the Mercosur.”

If Brazil, which is the biggest country in the bloc, offers advantages, Argentina, like it or not, cannot lag behind, he said.

The case of the German company gives an example of the varied policies of the host nation, partly attributed to the strong competition between the states in the interior.

In mid-September, Mercedes Benz began to produce the “Sprinter” in Argentina, investmenting 100 million dollars.

The project plans to produce 15,000 units per year, of which 10,000 will go to Brazil, 3,000 will be sold nationally, and the other 2,000 will go to the rest of Latin America.

The first 100 cars will be sent off to Brazil next week, but many difficulties stand between the factory and the sales centre.

The roads to the plant in Gonzalez Catan, Buenos Aires province, are very bad and heavily used, making transport more expensive. The company has been appealing to the government to surface an alternative, more direct route for the last two years to no effect.

This is not the only disadvantage to the company sited in Argentina either. The Gonzalez Catan plant, which employs 1,400 workers, pays the province a million dollars in tax each year. Before it decided on this site, its executives tried all the provinces of the interior, and not one offered any advantages.

When they found an accessible site, there were no electricity or gas supplies, and they would have had to pay for the provision of these services.

On Jan. 1, 1997, the Mercedes Benz plant will begin to be built. It plans to produce 70,000 units of a middle-range, moderate-priced, class A vehicles for the Mercosur – the first time Mercedes Benz has moved in to this market.

For this to happen, the state gave the company 2.8 million sq m of government lands, provided tax exemption for 10 years, while offering training for the company workers.

The plant will directly employ 1,500 people, with a further 5,000 indirect jobs being created. The car it will produce in 1999 will be sold worldwide, and in Argentina it will be offered as an alternative to the “Sprinter.”

Director of Mercedes-Benz in Argentina explained the strategy of the multinational was to site itself in the regions with best potential growth, firstly, Southeast Asia, and secondly, the Mercosur.

However, he admitted it was tough job to convince the directors and shareholders to invest in Argentina and not in Brazil or the Asian nations, when the incentives offered were not attractive enough to encourage business.