Beatriz Nofal Ph.D, President

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Advantages of Investing in ArgentinaAutomotive
and Motorcycle Industry

• Beatriz Nofal (Ph.D), President
• Argentinas Investment Development Agency
• Argentina, May 2008

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• An Extraordinary Opportunity

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Argentina offers an extraordinary investment
opportunity given the combination of high and
sustainable economic growth, favorable terms of
trade and a competitive base of production
factors.
Favorable terms of trade and high prices of
agricultural commodities and raw materials.
Five years of steady growth at an average rate of
8.8
Twin Surpluses fiscal and external
Accumulation of foreign exchange reserves and
reduction of public debt
Global Integration of Value Chains and off
shoring
ARGENTINAS SUSTAINABLE ECONOMIC GROWTH
FAVORABLE INTERNATIONAL SCENARIO
Prudent monetary policy
New global consumption patterns (product
differentiation)
Flexible and Competitive exchange rate
Marked reduction of unemployment and poverty
levels
Increasing demand for renewable energy sources
Record profitability
STRUCTURALLY COMPETITIVE FACTORS OF PRODUCTION
Skilled Human Resources
KNOWLEDGE
Entrepreneurial and innovative capacities
NATURE
Abundant Natural Resources
Modern Industries
CULTURE
Rich culture
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Over the past five years, Argentina ranked among
the fastest growing economies worldwide. In 2007,
the annual GDP growth rate was 8.7 and the
average annual growth rate during the last five
years has been 8.8. For 2008, the estimated
growth rate is in the order of 8
Average 10.6
Average 8.8
Average 5.1
Average 3.6
Average 2.3
Source ProsperAr based on IMF WEO database, 2007.
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Growth is based on solid macroeconomic
fundamentals that strengthen the countrys
economy, making it more resilient vis-à-vis
external shocks, and ruling out the possibility
of a crisis in the mid-term. Macroeconomic
sustainability results in higher predictability,
a key factor for investment.
International Reserves (in billions of dollars)
Fiscal and Current Account Surplus (in billions
of pesos)
Source ProsperAr based on Ministry of Economy
and Production.
During the first quarter of 2008, tax revenues
increased at a faster rate than public
expenditure and international reserves continued
growing steadily.
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Investment has grown steadily, at higher rate
than GDP, leading to robust employment growth.
GDP, Investment and Employment In and Index
numbers 1997100
Estimated Source ProsperAr based on INDEC and
Ministry of Economy and Production
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Likewise, there has been important productivity
gains in the industrial sector, as the surge in
production outpaces the rise in employment.
Industrial Production, Employment and Productivity
Productivity
Productivity
Productivity
- Production
Production
- Employment
- Employment
Production
Employment
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One of the cornerstones of the current
macroeconomic program is the maintenance of a
flexible and competitive exchange rate.
Nominal and Real Exchange Rate (RER) EURO - USA
Brazil. Inverted Scale
Brazil RER
USA RER
EURO RER
Nominal ER (US dollar)
Source ProsperAr based on INDEC
8
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Argentinas exports and imports are at
record-high levels. The country has experienced a
sizable and persistent trade surplus over the
past eight years.
Argentinean International Trade Millions of
dollars
Source ProsperAr based on INDEC
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Argentinas economic growth is supported by an
attractive and competitive resource endowment
base which combines a pool of talented people,
abundant natural resources, a wealth of culture
and significant entrepreneurial and business
skills...
Productive Capacities

• High entrepreneurial and innovative skills
  (ranked 10th in the GEM 2007)
• Strong industrial tradition
• Modern infrastructure and technological
  availability
• World-class producers of agricultural and
  industrial commodities
• Competitive private sector
• Preferential Access to Mercosur market at 0
  tariff

• Rich culture and outstanding cultural
  productions in various fields
• Distinguished international figures and works of
  art
• Rich Urban life with a wealth of cultural
  possibilities
• International destination chosen for its quality
  of life and tourism

• Abundance of land and natural resources
• A wide variety of mineral and energy resources
• Diversity of regions, topography and climate
• High commitment with environmental protection
  and sustainable development

• Qualified Human Resources
• High level of education and training
• Prestigious Universities
• Excellent Research Centers
• Outstanding health indicators

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• Automotive Industry

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The automotive industry weighs heavily and
remains a growth leader in the countrys overall
manufacturing production
Location of Automotive TNCs in Argentina

• AUTOMOTIVE AND AUTOPARTS
• MAIN INDICATORS
• Companies 9 automotive producers (TNCs) 400
  autoparts producers (mostly local producers).
• Contribution to GDP 2.2
• Contribution to Manufacturing GDP 13.2
• Share in total Manufacturing Exports 33.3
• Employees 110,000
• Quantity of models produced 18
• Inhabitants per automobile 5.1
• Sales (2007) 565,000 automobiles Record High-
• Exports (2007) 316,410 automobiles Record
  High-

(Since 2009)
Source ProsperAr based on ADEFA, 2006
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Domestic and external market are rapidly
increasing
Domestic Sales of Vehicles Thousands of units
Sales in the domestic market (locally produced
and imported vehicles), have rebounded from the
record-low levels of 2002. Sales in 2007 reached
an unprecedented level of almost 565,000 units.
Exports and Imports of Vehicles Thousands of units
As a result of a surging external demand, exports
currently represent more than half of Argentinas
production. Similarly, imports account for more
than 55 of domestic sales.
Source ProsperAr based on ADEFA
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Brazil is by far the largest market for
Argentinas automotive exports.
Argentinas Exports of Vehicles, by Country Year
2007
Brazilian Automotive Industrial Indicators
In 2007, automotive production in Brazil reached
a record-high level of 2,870,000 units.
Source ProsperAr based on ADEFA and ANFAVEA
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Increasing demand in Argentina and also in
Brazil- stimulated domestic production to its
record-high levels
Production of Vehicles Thousand of units
242
19
In 2007, automotive production expanded at a 26
annual rate, reaching a record-high level of
544,647 units.
Source ProsperAr based on ADEFA
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Private sector estimates suggest that this growth
trend will continue unabated
Forecast of Vehicles Production, Sales Exports
Avg.
Prod.
345,500 un.
Avg.
Prod.
349,500 un.
Avg.
Prod.
314,300 un.
Avg.
Prod
874,368 un.
Avg. Sales 419,000 un.
Avg. Sales 353,600 un.
Avg. Sales 329,700 un.
Avg. Sales 699,083 un.
Avg.
Exports
40,000 un.
Avg.
Exports
157,700 un.
Avg.
Exports
185,350 un.
Avg.
Exports
558,949 un.
Source ADEFA
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All automotive companies currently operating in
Argentina increased their production levels to
meet the ever growing local and external demand
Production of Vehicles by Company Thousand of
units
Source ProsperAr based on ADEFA
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Although automobiles still represent three
quarters of the vehicles sold in Argentina.
Production of Vehicles by Category
Year 1996
Year 2007
Heavy Trucks 0.9
Automobiles 86
SUV Vans 34.6
SUV Vans 10.6
Heavy Trucks 3.3
Automobiles 64.4
Source ProsperAr based on ADEFA
Auto production represented 64.4 percent of
total production in the industry. Production of
SUVs (Sport Utility Vehicles) and Vans accounted
for 34.6 of total production, while heavy trucks
and passenger vehicles explained the remaining 1.
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Although automobiles still are the main vehicles
sold in the domestic market.
Sales of Vehicles by Category 2007
SUV Vans 20
Automobiles 75
Others 5
Automobile sales accounted for the lion-share of
the domestic market sales, with 75 of total.
Sales of SUVs Vans accounted for 20 of total
sales, heavy trucks, and passenger vehicles for
5.
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The production of trucks has skyrocketed in 2007
Production of trucks In units

• IVECO was the only producer in Argentina in 2007.
  
• The domestic market is mostly supplied by
  imports. Current imports are roughly 3.5 times
  domestic production.
• Demand for trucks has increased dramatically,
  stimulated by the strong economic growth of the
  past five years and particularly by a booming
  agricultural activity.
• Production has grown steadily since 2002 to meet
  the increasing demand
• Imports increased faster than production.

Imports / Production Ratio
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Argentina offers competitive labor costs
Labor Costs by Country. Index USA base 100
Labor Costs in Argentina Wages per hour
This figure excludes Managers Source ProsperAr
based on Ministry of Labor.
Source ABECEB based on PriceWaterhouse Coopers
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and a set of production incentives

• Cash Reimbursement

Fiscal benefits for vehicles produced
domestically and that have imported parts whose
value do not exceed 30 of the wholesale price of
the final good (Decree 774/05). Specifically, a
company manufacturing vehicles in Argentina
receive a cash reimbursement equivalent to 6 of
the value of the locally produced parts being
purchased.

• The Flex Mechanism for bilateral Trade with
  Brazil

Argentina and Brazil bilateral trade flows are
tariff-exempt within a flex mechanism, which
determines the level of Brazilian imports (US
1.95) for every dollar of Argentine exports.
Tariffs will apply when this level is exceeded.
The Flex Mechanism

• Trade with Mexico

In 2006, Argentina and Mexico eliminated all
bilateral trade barriers in automobile trade and
in June 2006 were eradicated hundreds of tariff
items in the car parts sector.
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World-class Japanese companies, such as Toyota or
Honda choose to produce in Argentina not only to
supply the domestic market, but also to supply
the region.
Toyota Argentina Production
in units
The largest Japanese company has settled in
Argentina, 10 years ago.
80.000
70.000
60.000
50.000
Since it was settled, and particularly in the
past few years, Toyota Argentina has expanded
operations becoming a regional supplying platform
of multi-purpose vehicles.
40.000
30.000
20.000
10.000
0
97-'02
2003
2004
2005
2006
2007 e
Source Toyota Argentina
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Toyotas settlement in Argentina acted as a
magnet for other Japanese companies
A rising number of Japanese car parts
manufacturers have settled in Argentina as a
response to Toyotas steady growth.
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Toyota has not only increased its production
scale, but it has also developed new models,
enlargening the scope and reach of its local
output.

• Toyota Argentina in figures
• Production per year 75,000 units (est. 2007)
• Employees 2,600
• Exports 74 of the production
• Sales all around Latin America
• Investments for more than US 700 million since
  1997

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Having settled in Argentina 1978, Honda is
building a new automobile production plant that
will start operations in 2009.
The new Honda plant is intended to meet the
ever-rising domestic demand. The new plant will
begin exporting products to other countries in
South America and will play a key role in Hondas
production strategy in South America along with
the Honda auto plant in Brazil.

• New Automobile Production Plant
• Investment aprox. US 100 million
• Start of Operation Second half of 2009
• Annual Production Capacity 30,000 units
• Production Model compact passenger vehicle
• Processes stamping, welding, painting, engine
  assembly and final assembly

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Automotive companies are undoubtedly responding
to market trends with new investments
Investment Projets in Argentina
May 2007 US 100 million to expand capacity for
the production of transmission gear October 2007
US 320.5 millon, for the production of a new
pick-up.
August 2007 US 161 million for the production
of a new car in 2008 and a pick-up in 2010. In
2006, the completion of previous investment
projects resulted in an increase in production
from 300 units per day to 340 units.
August 2007 US 24 to expand capacity and to
increase the integration of local parts in their
domestic production Previously, 76 million Euros
were invested to start the production of the new
Citroen C4.
March 2007 US 41.5 millon to increase
production of parts Toyota has so far invested
US 1 billion in Argentina
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Honda is investing US 100 million in a new plant
in Campana to start production in 2009.
Two-thirds of the 30,000 units that are expected
to be produced in this plant will be exported to
Brazil
2007 US 50 million for the production of a new
commercial vehicle, the NCV3
July 2007 US 200 million for the production of
a new model in the plant located in Rosario
After an agreement between Fiat and Tata Motors,
the Fiat plant in Ferreyra, Cordoba, is expected
to start the production of a pick-up. In 2008,
US 60 million will be invested for the
production of 50,000 annual units of the Siena
model.
May 2007 US 80 million for the production of a
new vehicle, and to increase the production of
the Kangoo and the Clio.
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• Autoparts Industry

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Autoparts main indicators
Main Location of the Autoparts companies in
Argentina

• AUTOPARTS MAIN INDICATORS
• Companies 400
• Direct employment 63,100
• Share of industrial employment 3.8
• Sales (2007) US 5,450 M
• Exports (2007) US 2,267 M

Cordoba
Santa Fe
Buenos Aires City
Buenos Aires
Source AFAC. Estimated Employment for FY2008
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Autoparts sales have grown significantly,
following trends in the auto production.
Autoparts Domestic Sales In million of US
Source AFAC
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Autoparts exports have also risen significantly
since 2002...
Autoparts Exports In million of US
90,2
12 compounded annual growth rate (1992-2007)
Source AFAC.
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and imports are escalating, reaching
unprecedented levels
AUTOPARTS EXPORTS, IMPORTS OVERALL TRADE BALANCE
Source AFAC based on INDEC
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Investment in the sector has shown a significant
positive trend.
Investment of Autoparts companies In millions of
US
Investments were made by companies of all sizes
Autoparts companies are investing to improve
their productivity levels, to enlarge their
production capacity and to develop new products





Source AFAC. Estimated
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• Motorcycle Industry

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The Motorcycle industry in Argentina is formed by
both world-class foreign companies and domestic
firms.
Location of the Motorcycles companies in Argentina
The most important motorcycle producers are
located in the province of Buenos Aires. Other
companies are located in the provinces of
Córdoba, Santa Fe, San Luis, San Juan and
Catamarca. Demand remains higher in the
provinces than in the City of Buenos Aires.
Catamarca
San Juan
Cordoba
Santa Fe
San Luis
Buenos Aires
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The domestic market for motorcycles has boomed
over the past four years.
Motorcycles Domestic Sales Thousand of units
Demand for motorcycles increased as a result of
the strong economic growth of the last 5 years,
the recovery of income, employment, consumption
and the widening gap between prices of
automobiles and motorcycles.
5261
42.5
106.2
Source ProsperAr based on ABECEB
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Production increased significantly to keep up
with rising demand.
Production and Assembly of Motorcycles Thousand
of units
2997
Source ProsperAr based on ABECEB
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Although, imports grew even faster than
production.
Imports by Destiny
Imports of Motorcycles Thousand of units
China, 93
6090
Brazil, 6
Others, 1
Imports come mostly from China and are
concentrated on small motorcycles
Source ProsperAr based on ABECEB
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Conclusions A Booming Automotive and Motorcycle
Industry.
New industry patterns emerged as a result of the
opening of new markets, the focus on regional
cooperation, and the countrys competitive
exchange rate. Large inflows of foreign direct
investments (FDI) expanded production capacities
and brought technological know-how for process
improvements.
Rapidly growing exports and domestic sales at
record-high levels are stimulating production,
which almost doubled since 2002 in the automotive
industry and triple in the motorcycle industry .
As a result, the automotive industry explained
more than 30 of the growth in the countrys
industrial production over the past three years.
In 2007, the production of cars exceeded by 19
the peak of 1998.
The autoparts industry is booming as the demand
from automakers escalate and as automakers
continue to increase their outsourcing
activities.
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Muchas GraciasThank you
To learn more about how to invest in Argentina,
contact ProsperAr
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Aires, Argentina Tel [phone] email
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