The Lack of an Automotive Industry in Brazil and Argentina

Florianopolis Travel Blog

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JB Boonstra
Hannah Cho
Ryan Martinez
Noberto Pontiroli

Car Industry Blog

The economies of both Argentina and Brazil are growing each year as each nation becomes more and more industrialized.  Argentina and Brazil alike are competing in the world market and play much larger roles in international economics today than in the recent pass.  However, as each country strives to spark even more industrial investment within their respective countries, they will likely never have a national car industry in either country.

Currently, the major car companies are based in the United States, Japan, Germany, South Korea and other European countries.  Undeniably, the United States is the leading economic power today and has a large national and international market base for their car industry.  The main American brands that can be found around the world include, Ford, General Motors, Dodge and Chrysler to name a few.

There are numerous historical reasons for national car industry growth in the aforementioned countries.  Much of this revolves around the outcomes of World War II.  After the war the United States emerged as a world superpower along with the Soviet Union.  Competition between these two politically and ideologically distinct nations led the United States to grant loans to certain nations after the war used to rebuild their countries and their economies.  This was known as the Marshall Plan and was a strategy used by the US to better American sentiments around the world and to discourage potential USSR alliances.  These loans came with certain stipulations designed to carry out these objectives against the United States rival and to hinder the spread of communism in Europe and elsewhere.  Japan and Germany as well as many other European countries received money from the Marshall Plan.

South Korea received money from the United States via the IMF in the 1960’s to build their economy and bolster democracy in order to defend against the threat of communism from their northern aggressors such as North Korea, China and the Soviet Union. The US also aided the South Korean economy and industry by becoming a major purchaser of Korean products.

As one can see, all of the countries mentioned were able to bolster their internal economies and to industrialize their nations, in part because they had obtained the money to do so with help from the IMF and other sources.  Japan, Germany, South Korea and the other European countries that received these loans and aid were able to build and establish significant industries, such as automotive, that today are able to compete on the world market. Indeed, their products can be found in most countries across the world.

On the other hand, neither Argentina nor Brazil received the same kind of loans or aid from the United States, the IMF, or elsewhere. For one reason or another, after World War II the US did not include Brazil or Argentina in its Marshall Plan or other aid programs.  Argentina and Brazil lacked the essential money and capital required to build a national brand automotive industry, partly because of this fact.  Large amounts of money are needed to establish an internal car industry, since automotives is an overwhelmingly capital dependent enterprise.

Along with aid from the IMF, different levels of ISI were undertaken by the successful nations in building competitive car industries.  Japan, Germany and South Korea were able to use ISI to create substantial progress in internal industrialization.  This was especially true for their automotive industries as new car manufacturers began to market their brands around the world.  With the combined help from ISI, the US, and the IMF, new car makers emerged such as Kia, Hyundai, Honda, Toyota, BMW, Volkswagen and Mercedes.  These companies are considered the success stories for ISI since they were able to become efficient in their production, competitive in the domestic and world markets, and able to export their products around the globe for an actual profit.  Obviously, this was not the situation that arose in Argentina or Brazil as neither country possesses a national car industry today.

It becomes apparent that money flow into a country is very essential for generating industrial growth and acquiring capital to facilitate this growth.  Although capital is an important factor for developing a national car industry, there is also another major requirement in order to succeed:  the ability to compete on the world market.  In order to survive an Argentine or Brazilian car manufacturer would have to be able to keep up with the leading car industries of the United States, Japan, Germany and South Korea that were mentioned earlier. It would be extremely difficult for a Latin American car company to gain any minute share of the world automotive market because of their lack of experience and the overwhelming “head start” the dominate car companies have been given. This demonstrates path dependency theory. America, Europe, and Asia have established their own respective car companies, which will most likely continue to grow and earn a profit. Latin America, on the other hand, was not given the same opportunities and to establish a national car industry in Brazil or Argentina today would require a huge amount of money and risk. So large, in fact, that it has become both impractible and implausible.

There are other obstacles in place that also hinder Argentina or Brazil from creating and establishing a national car industry.  Major foreign companies have manufacturing plants and other investments in both countries that account for a notable chunk of their economies.  The cars sold in Latin America are usually manufactured locally.  Therefore, the development of a national car brand would come as a threat to the traditional, foreign ones and could cause the foreign companies to lose space in the Argentine and Brazilian markets. Indeed, the aforementioned foreign car industries in Argentina and Brazil have large amounts of investment in the two countries and, with the emergence of a new national car industry, these veteran companies would be economically hurt on some level. This would discourage further investments from foreign auto makers, which could be problematic for both countries’ economies.  One of the main goals of MERCOSUR is to promote investments in the region.  So, conversely with the creation and insertion of a national car industry within the Argentine and Brazilian economies, the countries who are members of MERCOSUR would stand to gain less than they would lose from these types of actions, at least in the short run.

These traditional car industries that now have major stakes in Argentine and Brazilian economies possess a large amount of power since there is so much money involved in these actions.  Consequently, these manufacturers already established in both countries have the ability to influence and hold the lobby power to block any initiative to aid in the creation of a national car industry.

Subsequently, it is not only extremely difficult for Argentina and Brazil to procure a national car industry; it would economically harmful for them to do so.  For these reasons it is highly unlikely that either country would pursue creating a national car industry due to the many obstacles in place and the low chance of successfully establishing a competitive car manufacturer given today’s world market with the industry’s leading producers.

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