Outlook for Córdoba's automotive sector

Córdoba is one of the most active provinces in the country in terms of industry, and it places a particular emphasise on automotive manufacturing, representing as much as 30% of total production. Its strength in this regard stems from a mixture of specialised human resources and a well-established network of suppliers, with more than 250 auto parts companies in operation in the province.

Manufacturing Culture

The auto industry has been built upon a pioneering manufacturing history specific to the area, beginning with a military aircraft factory in 1927, and stretching to the presence of major automakers such as Renault, Nissan and VW today. “The industrial culture can be felt here,” Leonardo Destéfano, manager for external relations and communication at Fiat Chrysler Automobiles (FCA) Argentina, told OBG. “Other automotive centres around the world take much longer to develop a new model or start a new project. This is because some regions do not have an industrial culture in the same way Córdoba does,” he added. This extends to local politicians, including Omar Dragún, the general secretary of the Syndicate of Mechanics and Related Automotive Transport of Córdoba, who have a strong sense of the sector’s needs: Dragún was the minister of labour in Córdoba’s previous administration.

Geographically, almost 64% of automotive production occurs in the Central Region of Argentina, which includes the provinces of Córdoba, Santa Fe and Entre Ríos, where one out of three cars produced in the country are manufactured. This industrial culture is a significant reason why President Mauricio Macri invited the region to join a national programme launched in 2016 that aims to produce 750,000 cars in 2019 and 1m per year by the end of 2023.

Current Needs

Despite these historical advantages, productivity has been falling since 2013, when 228,800 cars were produced. In 2016 just 96,800 units were made, the fewest since 2009. It has become apparent that auto companies need to modernise their facilities and processes, and understand that adaptation capabilities are essential when it comes to a specialised industry such as automotive. With this in mind, FCA has invested $500m in improvements to their manufacturing processes.

Neighbourhood Watch

However, with the neighbouring automotive market of Brazil offering competitive prices, Córdoba’s manufacturers are struggling to meet the terms of international agreements signed by the federal government, and are not yet able to take full advantage of industrial reforms at the national level. For example, National Act No. 27,263 of 2016, on the Development and Strengthening Regime of Argentine Autopartism, allows for manufacturers to reimburse up to 15% of their investment, but only if the acquired pieces hold 30% national content. However, according to Destéfano, the manufacturers are not able to get their reimbursements since many of the pieces are not yet available on the local market.

Flex Regime

At the national level, Argentina and Brazil have yet to renew their Auto Pact for 2020-22. The current agreement attempted to correct trade balance disorders that affect automotive companies and is valid through June 30, 2020. This version states that for every $1m in cars and parts sold to Argentina without tax, Brazil must purchase $1.5m in cars and parts, also without tax. This is the so-called flex regime or flex rate. However, the Brazilian authorities have announced their objections, requesting a $1.7m-1.8m rate instead of the previous $1.5m. As of August 2018 negotiations were ongoing.

Given this situation, firms such as Toyota, the only company in the province able to reach the current flex regime, have adapted their business units to produce sport utility vehicles and pickups. While specialisation seems to be the future for the Argentine market, it is also projected that Latin America will be the most profitable in 2018-23 due to FCA’s Jeep manufacturing landing in the region.

Sustainable Growth

The OECD responded to a direct request from the local authorities in 2016 to review and offer recommendations on how to develop sustainable economic growth and reinforce their institutions with six recommendations. The government of Córdoba responded by following the OECD’s recommendations to improve its infrastructure network for better connectivity, increasing access to financing, education and innovation, while creating opportunities for increased competitiveness and productivity. It is hoped that these proposals will be adapted and implemented at an even larger scale.

Public Works

The province is executing the largest infrastructure plan in its history, ranging from utilities to health and education projects. This plan aims to provide Córdoba’s inhabitants with the social and productive infrastructure they need to invest and to prosper. In 2016 the government initiated the Integral Programme for Provincial Gas Infrastructure, investing around $534m to supply at least 98% of its population, businesses and industries with natural gas. Encompassing two initiatives that include regional and trunk gas pipelines, the authorities have already built a total of 2800 km, benefitting 238 urban areas and 962,000 citizens. Although there is currently 97% drinking water coverage and 50% sewage coverage, the government has estimated that a further $38m contribution is required to give 605,000 inhabitants access to drinking water.

ICT Education

The state is also a key actor in promoting linkages between education and technology. The Ministry of Education recently launched its Advanced Education Programme with an emphasis on ICT. There are now 15 buildings hosting the programme, which is being delivered to 12,000 secondary students, some of whom are already on their fifth year of studies. The building and incorporation of 25 more schools is expected by 2019. The programme has established multiple relationships, including with Córdoba’s technology cluster, as an incentive for students to enrol in science, technology, engineering and mathematics courses, thereby helping to meet growing demand for specialised professionals.

“There is unsatisfied demand for human resources, locally as well as globally, even though it is a sector that offers full employment. That is why we work closely with the government and the Advanced Education Programme,” Diego Casalli, president at Dicsys and Córdoba Technology Cluster, told OBG. Indeed, the Córdoba Technology Cluster ICT Monitor indicates that software companies in the province, even without including multinationals, generate significant demand for specialised workers, totalling 3800 specialised professionals in different fields, led by Java and .Net developers, testing analysts and the developers of other languages.

Connectivity

The government of Córdoba has decided to incorporate connectivity infrastructure into the 2300 km of gas pipelines currently under construction and the existing 2800 km, laying the same length of fibre-optic cabling to benefit unconnected public buildings in 175 urban areas. According to the undersecretary of telecommunications, Ignacio Rafael Gei, this network will be inaugurated by end-2018. In cases where fibre-optic cables will not pass close to towns or settlements, the programme aims to make use of other technologies. Local authorities have therefore signed an agreement with Arsat, a state-run satellite telecoms firm, to install of special equipment that will provide free internet service to 107 public schools and around 21,100 students. Opportunities for other investors are sure to arise. “The service could be concessioned, once gas pipelines under construction are ready,” undersecretary of articulation and management control, Gabriel Ignacio Roberi, told OBG.