Daniel Herrero, CEO, Toyota Argentina; and Hernán Vázquez, CEO, Volkswagen Argentina : Interview

Interview : Daniel Herrero and Hernán Vázquez

How would you characterise the growth potential of the automobile industry?

DANIEL HERRERO: The average number of automobiles per 100 inhabitants in Argentina is 27. This is higher than Latin America’s average of 16, but lower compared to Mexico, which stands at 30, and the US at 85, signalling opportunities for growth. Additionally, we should factor in the positive economic direction the country has taken, which is supported by strategic sectors that hold a lot of potential for expansion, such as agriculture, energy and mining. One can therefore infer that fleet volume will inevitably increase in the medium term.

There are certain aspects we need to continue improving in order to boost competitiveness, such as high inflation, labour costs and tax pressures. Nevertheless, these are all issues that are being gradually addressed by the current administration, and we remain confident that the long-term impact on local auto production will be positive. As private players, we need to focus on our long-term investment plans to grow operations, expand production lines and boost internal efficiencies in order to compete with regional and global markets. VÁZQUEZ: Argentina has a strong automotive industry with great export potential. We are the seventh producer of pickup trucks in the world, and we have achieved excellent levels of quality, allowing us to access many varied markets beyond our strategic partner Brazil. We have seen many terminals announce strong investments, and in the case of Volkswagen, we have committed $800m to our two domestic plants since the end of 2017.

We celebrate that the government has taken on a new approach regarding our industry, as evidenced by the tax reform law and the infrastructure plan targeting the reduction of logistics and port costs that directly affect factories and dealers. Another example is Act 27.263 on the Development and Strengthening Regime of Argentine Autopartism, which encourages the localisation of parts and the development of tooling to reach a greater level of competitiveness. To achieve this, we will also need to improve national integration, attract further investment and boost sustainable growth.

What more could be done to improve Argentina’s competitiveness as a major auto manufacturer?

HERNÁN VÁZQUEZ: I understand that the biggest challenge is to become more competitive as a car-producing country. We believe that Argentina should continue to grow and develop the national industry by continuing to boost production, open new export markets, train staff and develop new technologies.

The idea is to grow the local automotive value chain by producing more compatible parts. For this to happen, sustainable growth along the entire production chain is necessary. This is not something that can be achieved over a short period, but the initiatives we have in place show that we are continuing to work towards this goal.

Key to this success will be the effective collaboration between players along the value chain, the government and unions. Industry 4.0 is already a reality in the sector, and we must look at ways to protect jobs, while at the same time improving efficiency and productivity. Finding this balance will ultimately ensure the sustainability of our plants.

HERRERO: The main thing is to work closely with both the staff and the labour unions. Employers need to be committed to their employees, guaranteeing job security but at the same time demanding high-quality work. Some people may think that the application of automated technology in our industry will have a negative impact on employment numbers, but that is not necessarily the case. In fact, technology could help boost production volumes, which in turn would create more job opportunities.

In order to become more competitive, we need to strike a balance between company growth and community development. Similarly, the relationship with labour unions needs to be based on trust, in order to create an environment of real collaboration. Therefore, all topics concerning labour unions should be handled at the office level and not at the plant, as this may cause delays in production. As a result of such efforts, Toyota Argentina has been able to reduce labour absenteeism to 2.6%.

What areas and strategies should be targeted to ensure the sustainability of the industry?

HERRERO: Sustainability in the local automobile industry requires a long-term vision and strategy, along with investment and broadening export markets. We are in a region that has experienced cyclical economic development, and we must adapt to such conditions by increasing exposure to international and complementary markets that allow for specialisation. By pursuing product specialisation, potential inefficiencies can be eliminated, thereby allowing for greater economies of scale. VÁZQUEZ: The Brazilian market began to show real signs of recovery in 2018, and we hope it will continue to develop given its importance for our industry. Argentina must work hard to enhance productivity and efficiency. From the automotive sector’s perspective, I believe it is important to work on sectoral agreements. Regarding the opening of new markets, efforts are being carried out in North Africa and Canada with the target of improving access. Agreements have already been reached with Colombia, and new agreements with Mexico and the EU are being negotiated.

We have a very diversified portfolio at Volkswagen Argentina as we continue to export the Amarok pickup truck to markets such as Australia, New Zealand, South Africa and Europe. The transmissions produced in the province of Córdoba are exported to China and India, among other nations, and we have a new product from the transmissions plant that will be exported solely to Europe.

How would you characterise the domestic development of electric and hybrid vehicles?

VÁZQUEZ: Electric vehicles are a reality in the world and clearly are the future. We are working with the Association of Automotive Makers and the government to generate the necessary conditions and develop the ecosystem for these new technologies to evolve quickly. We applaud government efforts to lower tariffs from 35% to 3% on these vehicles.

Volkswagen Argentina is working hard to make electric vehicles a reality in our market over the short term. We are cooperating with energy companies and different suppliers to ensure rapid implementation. The Golf GTE will be the first step in the development of electric mobility in our country. Subsequently, the range and supply of this model will be expanded, and by 2025 we will be launching our products globally in line with our vision to become a leader in sustainable mobility.

HERRERO: Argentina’s energy matrix needs to be revised, and the country is moving towards that direction. As of mid-2018, 40% of Toyota’s international fleet are electric vehicles – including hybrid, plug-in and hydrogen fuel cell models – and we are determined to have non-conventional engines in all of our production lines by 2050.

The technology available today is rapidly advancing and becoming more accessible. The government has also eliminated import duties for hybrid vehicles. These factors have a direct positive impact on the final price for buyers. It is true that there are other countries that are more advanced than Argentina in the development and deployment of hybrid vehicles, but we are nevertheless part of this global trend.