One thing you notice when you travel to South America is that the companies selling cars are not just Toyota, Nissan, and Ford. Here the American would see brands they might never have heard of, like Mahindra from India or Chery from China.
Chinese automobile and truck manufacturers have moved into South American in a big way with BYD, Chery, and Great Wall selling automobiles while Shacman sells heavy vehicles. Chinese electronic products are sold here too, as they are in rest of the world. But the biggest of these manufacturers have built plants in Argentina, whose government favors boosting domestic producers and joint ventures and has put restrictions on imports.
Beyond that, there are several reasons why Chinese manufacturers have expanded into the region, even when Japan and others suffered declining sales at the start of the 2008 economic recession. One reason is that Chinese vehicles are, in the words of China.org, “price competitive.” Another reason, Reuters says is, “China’s state-run policy banks usually provide loans for network infrastructure in emerging markets.”
In 2007, at the start of the American housing crisis, credit dried up overnight. General Motors and Chrysler went bankrupt; they required a government bailout. Ford barely escaped. But Latin America, whose banks in Chile and Colombia are among the safest in the world, recovered quickly and did not suffer the many-years of slow or no growth that still affect Europe and, to a lesser extent, the USA. Here in Latin America they say, “When the USA sneezes, we get a cold.” Fortunately, that head cold did not develop into the flu.
In this article, we look briefly at some Chinese manufacturers operating in Latin America. Specifically, we will examine those who build trucks and automobiles, most of which are not even sold in the USA, for a variety of different reasons, including that country’s complicated dealer franchise system and the relative wealth of the American buyer. Plus we look at some of the Chinese electronic firms who have set up shop in tax-free Tierra del Fuego, a region at the bottom of Argentina more known for its endless pampas, penguins, and broaching blue whales that tablet computers and cell phones.
BYD
BYD builds cars, electric buses, and vehicle batteries in Brazil as well as equipment for solar energy production. They have made the first large-scale sale of an all-electric urban transport, selling 40 buses to Bogota, Colombia with more on order. The company is building the buses in Brazil. BYD sells electric buses powered by an iron-phosphate battery, which is a technological breakthrough that lets a heavy bus run all day (Tesla and other electric vehicles like the Chevy volt use Lithium batteries.). BYD sells electric buses in the USA and Europe, but the company does not sell any consumer vehicles in the USA.
Asked about their operations in Latin America, BYD America’s Vice President Micheal Austin said, “BYD is focused on selling fleet vehicles in Latin America, pure-electric taxis, and pure-electric buses across Latin America. BYD is selling consumer cars in Chile, Peru, Paraguay through InduMotora and in Costa Rica through Cory Motors.”
Asked whether the American system, where there are 50 distinct markets (states) and rules that prohibit direct sales to consumers, was a barrier to entry there, Mr. Austin replied, “The resources required to partner with dealerships is certainly a concern for a consumer focused market. However, we have chosen to focus on selling fleet vehicles, pure-electric taxis, and pure-electric buses across the US, because the cost-benefit is largest for high-utility vehicles like these. The TCO (total cost of ownership) for electric vehicles is lowest in these applications.”
Mr. Austin is referring to the battery, which is expensive, but has been shown to cost less that diesel or gasoline vehicles over the vehicle’s life span.
Chery
Chery is a government-owned Chinese manufacturer of automobiles. This car company is brand new. Founded in 1997, they have no US dealers. Chery builds the Land Rover in China, and The Economist notes, “Its prime customers are in emerging economies, such as Brazil, Indonesia, Egypt, Pakistan, Ukraine and Russia.”
Chery cars are certainly less expensive that similar Japanese and American brands. Nissan and Honda, for example, are particularly expensive in Latin America and American muscle cars, like the Dodge Charger, are considered luxury items. Chery’s Grand Tigo SUV is Chery’s most expensive vehicle. It costs just under $20,000 at $19,100 in Chile. The 1.3-liter Beat is priced just under $10,000. Clearly these are priced at a dollar conversion rate that brings them in under those psychologically important $10,000 and $20,000 price points.
Great Wall
Great Wall builds automobiles and pickup trucks. Their main competition for pickup trucks in their price range would appear to be India’s Mahindra, whose all-white boxy, and rather tall pickup trucks are popular. The gasoline-powered Wingle 5 model 2.5 Double Cabin 4×4 Diesel sells for just shy of $30,0000 in Colombia. This is $2,000 more than the similar, albeit diesel, Mahindra model and significantly less than the $43,000 Chevrolet diesel 4×4 pickup. Notably, the government pays a subsidy for diesel fuel in Chile.
Shacman
Shacman is another name for Shaanxi Heavy-duty Automobile Group. On their website they say their major markets are Eastern Europe countries, Africa, Southeast Asia, Central and South America and the Middle East. They entered the market in Chile only in 2012. In China, they build Cummings diesel engines.
Shacman was at the Chilean Mining Exposition this year to showcase their large heavy-duty vehicles. In Chile and in Peru, Caterpillar and others sell giant bulldozers and dump trucks to work open pit copper mines. The trucks are so tall that pickup trucks working there are required to erect a yellow flag on a pole and a blinking red light so they do not get run over as the operator driving the larger vehicle can hardly see the ground, let alone a tiny Mitsubishi pickup and an even smaller Chilean miner.
Chinese Manufacturers in Tierra del Fuego
Brazil abandoned its protectionist posture under former President Luiz Inácio Lula da Silva. That and rising prices for natural resources pushed that country into economic growth (until the recent slowdown), lifting millions out of poverty, and vaulting Brazil into what we now call the BRICS (Brazil, Russia, India, China, and South Africa) nations, whose hope was to lift the global economy out of the European, Japanese, and American malaise. Brazil might not be growing strong anymore, but Peru and Colombia certainly are, while growth in Chile has slowed.
In Brazil, the incumbent president, a not-so-popular handpicked successor to Luiz Inácio Lula da Silva, is trailing in the polls for a second term to a candidate who has said she will refocus Brazil on free trade and market economics. The election is in October.
In Argentina, the populist government of Cristina Fernandez de Kirchner put sharp restrictions on imports. That country has negative economic growth now. Its president will leave office next year, ending 11 years in power shared between herself and her late husband. The leading candidate to replace her said he wants a Chilean-style, centrist government. So while it might have been difficult to buy an iPhone in Argentina in the past due to import restrictions, perhaps that could change in the very near future.
While Argentine Peronist politics might have created a barrier for Apple and other manufacturers unwilling to locate their plants there, the Chinese saw an opportunity.
Radio Victoria is an Argentine firm whose Chinese partner includes TCL. Together they build TVs and other electronics and household appliances. Huawei, Lenovo, and Radio Victoria/TCL have built manufacturing plants in Tierra del Fuego (which means “land of fire”). Huawei and Lenovo both sell lots of consumer devices in the USA that are made in China. Huawei has not found a market in the USA for their carrier-grade telecom switching equipment, so it has focused on Europe, the second largest market of consumer electronics in the world, for that.
Latin America’s expanding middle class market is snapping up Chinese cars, trucks, and electronic appliances at a rapid clip. Only a generation ago people could only afford East German Trabants, Russian Ladas, or even just a horse-drawn cart. Now, those same people can think about buying a luxury Roewe W5 from SAIC Motor, when that model becomes available in South America.
