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Uruguay: It just might be South America's new auto capital
Ward's Automotive International / February 1, 1996

By Larry Luxner

MONTEVIDEO -- For years, Uruguay has been known as an antique car collector's paradise. Nearly six decades after their manufacture, ancient Cords, Opels and even Model T's can still be seen tooling around the stately streets of Montevideo -- making Cuba's classic cars of the 1950s seem recent by comparison.

Now, Uruguay wants to make a name for itself assembling new cars, rather than just accumulating old ones.

In the last six months or so, top executives from at least four big automakers have visited the small nation with an eye toward setting up auto factories and taking advantage of the country's relatively cheap labor. Russian automaker Lada, whose boxy little cars are a common sight throughout communist Cuba, has already announced it'll begin assembling vehicles in Uruguay for distribution to neighboring Argentina and Brazil.

Lada plans to produce around 300 cars a month in partnership with Montevideo auto distributor Efecto S.A., probably at an idle auto-assembly plant in the Nueva Palmira free-trade zone previously used by Volkswagen (see Ward's Automotive International, December 1995).

Meanwhile, French automaker CitroŽn says it'll take over Montevideo's failing Fiat assembly plant for $25 million. The idle factory, owned by Grupo Sevel of Argentina, was closed for several months last year -- reports the U.S. Embassy -- due to "virtually non-existent demand from Argentina, the primary market for its Fiat Uno." At full capacity, the plant employs 1,200 workers.

CitroŽn, which merged with Peugeot in 1976, is trying to carve out a market niche for its luxury car line in Argentina and Brazil. The newspaper El Pais reports that CitroŽn and local investor Nordex plan to assemble 5,000 autos the first year, generating $80 million in sales. Sweden's Volvo also sees opportunities in the region, and may locate a factory in Uruguay as well.

Finally, Montevideo's El Observador, quoting GM Brasil's director of corporate affairs, PiŮero Neto, reports that the company is "totally open to discuss and negotiate the possibility of installing a plant in Uruguay" to supply the Brazilian car market.

This all comes as good news for Uruguay, South America's smallest Spanish-speaking republic. Unlike the rest of Latin America, which generally enjoyed net economic growth in 1995, the three million inhabitants of this Oklahoma-sized country saw their gross domestic product shrink by 1.5% last year as a consequence of the economic problems plaguing nearby Argentina. Manufacturing unemployment hit 14.7%, nearly 5% above the 1994 year-end rate, while the accumulated trade deficit surpassed $500 million.

Meanwhile, public and private-sector wages, adjusted for inflation, declined by 0.7% and 0.8% respectively in October, while the downward trend in real wages totaled 2.6% for the public sector and 3.5% for the private sector during the 12-month period ending October 1995.

Nevertheless, Uruguay's central role in the Southern Common Market (known in Spanish as Mercosur) and its historic reputation for stability seem to be making the nation more attractive than ever to U.S. investors. Colgate-Palmolive, Sara Lee and CMS Gas Transmission have all recently announced investments in Uruguay, while Conrad International Hotels, a unit of Hilton Hotels Corp., is spending $150 million to build Uruguay's first private resort and casino at trendy Punta del Este.

While no U.S. carmakers other than GM have publicly commented on plans to set up auto factories here, Uruguay's potential automotive market appears to be very good. "The country's vehicle fleet has been estimated at 400,000 vehicles, which could sustain a market of around 40,000 vehicles per year," according to a report by the Economic Intelli-gence Unit. "Although that figure is far from the economic realities of the country today, it suggests that a sizeable market could spring up if the Uruguayan economy turns right."

That may take awhile, however.

During 1995, the Sevel auto plant being taken over by CitroŽn was in operation only four months, selling to Argentina only 33% of what it exported in 1994. Nordex finished the year not even hitting the 4,000-unit mark, a 50% drop from 1994 sales of Peugeot 205 and 306 and CitroŽn ZX cars to Brazil. Meanwhile, Ariel Soto, an official of Uruguay's Uniůn Nacional de Trabajadores del Metal y Ramas Afines, said that in 1992 the automotive sector employed 4,000 people in seven factories; Volkswagen, BMW, Mercedes and Toyota all manufactured here at one time or another.

An visiting official from CitroŽn promised that the new investment would straighten the industry around. "We would like to deepen our presence in Uruguay, and for this reason we've decided to make an investment to develop our industrial production here," the official said. Urging a reduction in taxes, however, the CitroŽn representative added that "we also need the help of the Uruguayan government, because it would be paradoxical for us to produce autos in Uruguay for export to other countries without having the possibility to sell them within Uruguay."

Meanwhile, the government -- in an effort to encourage manufacturing and other investment -- is going ahead with plans to construct a long-awaited bridge linking Buenos Aires to the Uruugayan town of Colonia. The long-awaited puente, as it's called in Spanish, would span 50 kilometers of the RŪo de la Plata, drastically cutting the driving time between Argentina and uruguay and providing a badly needed boost to the economies of both countries.

"We have made the decision to build the bridge through the public works bidding system," said Uruguayan President Julio MarŪa Sanguinetti, who sees the bridge as "a fundamental link within a broader concept of the integration process."

In addition, Sanguinetti is currently urging his three Mercosur partners to choose Montevideo as the trade pact's permanent administrative seat. Both Argentina and Brazil favor the proposal, thought Paraguay -- which has similar aspirations for Asunciůn -- seems lukewarm to the idea. Carlos Pťrez del Castillo, Uruguay's deputy foreign minister, said he'd like to see Montevideo emulate the European Union's Brussels, adding that Argentina has already donated its former embassy in Montevideo, a stately 19th-century mansion, to be used as Mercosur's headquarters.

Rafael Patrick Anssens, sales manager for Motores Internacionales S.A. in Panama -- which has exclusive Lada distribution rights for 24 Latin American and Caribbean nations -- said Lada decided to locate in Uruguay because "it's a small, manageable coun-try" with a progressive government and tariff policy, with easy road and river transport to Argentina and Brazil.

Another advantage: factory wages in Uruguay average $901 a month compared to $1,005 a month in Argentina, according to the World Bank.

If Mercosur indeed brings prosperity back to this so-called "Switzerland of South America," the country might someday resemble the heydays of the 1930s and 1940s, when Uruguay became rich from wool and beef exports to Europe. During that time, the country's elite bought expensive cars; the economy's general worsening since the 1950s has forced consumers to keep those cars as long as they can -- inadvertently making Uruguay an antique-car capital. That, in turn, has spawned a side industry: the fixing up of 1937 Cords and other classics for wealthy buyers in the United States, Europe and Japan. Restoring a Cord to mint condition costs about $40,000 in Uruguay, compared with about $150,000 in the United States.

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