Q-1: Mr. Klima, the head of the Human Resources at Volkswagen, Peter Hartz, said a few days ago that your designation as president of VW Argentina was a clear sign of the company's commitment towards Argentina. Can you tell us more about your experiences in this country?
A-1: I was here once before, but I did not have enough time to visit the country. I did not have the chance to experience the country and its people. However, I have been appointed to serve as president of Volkswagen Argentina for at least the next five years. This is a new experience and also a challenge for me. I am very happy to be in a country that, in my opinion, has such a strong potential. The educational level in Argentina is above Latin America's average. They (handlabor) are very flexible, but the economic situation is really critical. There are three main reasons that explain this situation. When the people elected De la Rúa, they were voting for non-corrupted
politicians that would promote economic and political changes. Maybe they (the electorate) had very high expectations, but the truth is that their expectations were not fulfilled. Currently, there is a lack of confidence whithin local consumers and the result of that is a decline in the level of consumption. This lack of confidence had an impact as well on the domestic, international and financial markets. Apart from that, credit is very expensive in Argentina. The small and medium size companies cannot make investments as the interests rates charged to those companies usually stand around 15% to 25%. The government has also to promote higher productivity and also look for new technologies. The Argentinean government is thinking about incorporating the Euro to the basket of currencies they peg their own currency to. I do not know whether this is the right decision because it is better to attempt to change monetary policies in times of strength, and, as we can see, right now the economic situation is at a really critical stage. Shifting to basket of currencies would not be a good idea because it could lead to higher inflation and the devaluation of the local currency. This situation could thus have a negative influence on the country's trade balance. Less than 10% of the country's GDP relates to exports. Anyway, I believe the country still has a good chance because of its abundant natural resources and the high educational level of its inhabitants. Argentina is an agricultural country as well as developer of consumer and investment products for export. The politicians have to negotiate better trade agreements.
Q-2: Recently Argentina signed an agreement with Mexico, which allows Argentina to export 90.000 car units, 10.000 of which will be exported by Volkswagen. Is this information accurate, and how will the Cordoba plant that produces them benefit from this additional output?
A-2: Yes, 10.000 units. We are one of the potential exporters. Cordoba is a good example because it shows that you can produce very good cars and autoparts at reasonable prices in Argentina. We are producing more than 120.000 transmissions, and we are exporting them to Germany, Spain, and Mexico. This is one of the biggest investments that we have done in the last three years. We invested 200 million dollars for additional production and transmissions. Anyway, there are a lot of problems that need to be solved in the car industry. Apart from that, we decided to
produce only the Polo Classic for the Argentine market. We will be the only producers of the Polo Classic. We also have the chance to export cars to Austria, Israel, and Turkey. The Argentinean government wants to negotiate car agreements with countries outside the Mercosur. I think that it is also very important to negotiate with the European Union. In my opinion, the world will be separated in five co-operating poles, which will very competitive in economic terms. South America has the chance to become one of these poles during this century. If they can foresee how important it is to achieve a trade and a political union, Mercosur could become an important economic pole. The problem with the Mercosur is Brazil, because this is a dominant country. Brazil has not understood that if they want to succeed within Mercosur, they need to co-ordinate efforts and policies with its smaller partners. On the other hand, the Europeans are always talking about free trade, but they tend to be very protectionist regarding agricultural trade agreements. There is a new government in Argentina, but it is facing a difficult political situation because new group of ministers have just been incorporated to the government in the past few weeks. Perhaps its could
eventually help Argentina succeed.
Q-3: Ferdinand Piech announced record earnings in the year 2000 of almost US$ 3 billion, a 4,6% increase compared to 1999; Argentina and Brazil represented 12% of this figure, which stood at the same level in 1999. Nevertheless VW is pursuing a global rationalization strategy. In Argentina, this will particularly affect the plant in Pacheco. How are you planning to reduce costs in Argentina?
A-3: Our costs of production increased a lot in Pacheco. So we decided to prove our competitiveness by cutting expenses and seeking financing to meet other costs. The cost reduction is around 25%. We are negotiating with the European Investment Bank to finance our investments
in Cordoba. Another important problem to solve is the cost of raw materials. The Argentinean suppliers are 30 to 40% more expensive than their Brazilian counterparts. That is why we have plenty of discussions with the Argentinean suppliers. Close to 60% of the materials that we use in our plants come from other countries. On the other hand, in order to further reduce costs, we developed an early retirement program, including employees whose ages range from 63 to 68 years. We have also developed a special program to transfer some employees to Cordoba because we realized that we needed fewer people in Pacheco and additional workers in Cordoba. As a consequence, we will transfer 100 blue-collar workers to Cordoba. The management area was affected by an income reduction. The car industry is suffering like the rest of the country. Argentina was very proud of its strong middle class, which despite that, has been suffering a lot for the last three years. We do not have any problems with the demand for premium cars but the lower price sector has certainly experienced a decrease in demand. In my opinion, the recovery of the car industry will take from one to two years.
| Q-4: Volkswagen has a 14% market share in Argentina, ranking third within the local market. The GOL model was the most successful car, with more than 22.000 units sold in the domestic market. What are the main reasons for its success?
A-4: I think it is its' price, as it is one of the issues that currently lead the markets. You can buy a Gol with 11.000 dollars. It has all what a family car needs and at a reasonable price. And the same works for Brazil. In Volkswagen, we try to understand that these markets are different from the European market. In Europe, the most sold cars are the ones that come with additional technology details.
Q-5: The production capacity of VW Argentina is significantly higher than the domestic demand. Does the company focus on exports to Brazil and Mexico in the future?
A-5: We strongly rely on our exports to Brazil, but in the last three years they have decreased a lot. That is why I decided that we should focus on other Latin American markets. We will export the Polo Classic to Mexico, Chile and Venezuela. The Gol will also be exported to Mexico. Anyway, I think that if Brazil has the chance to produce the car at lower cots, they will do it.
Q-6: What is your forecast for export figures in the coming years?
A-6: About 30 to 50% of the production should be exported. That is the reason why we have started the discussion about which model should be produced in Argentina by the year 2005. Today, we produce one line in two opposite platforms and in five different models. We are producing the Polo Classic, the Gol, the Cordoba and another two models. This is a limited and highly complex production. The strategy is to focus on the production of one model increasing its productivity and reducing its complexity. We are thinking about starting a discussion with our headquarters in Germany.
Q-7: Can you compare the image of Volkswagen Argentina with the image of Volkswagen Germany? Can you imagine what does the consumer think about it?
A-7: The image of Volkswagen Argentina is not as intense as the one Volkswagen enjoys in Germany. I think that the first thought of the consumer in Germany is to test the quality. Volkswagen is a rather new brand in Argentina, because we have been in the market since 1995. This is a disadvantage, although we have been working together with Ford Autolatina in the last ten years. That is why we try to invest as much as we can in making the brand more popular among local consumers. We have a lot of support from our headquarters. The market penetration and the perceptions of the Brazilian and Mexican consumers are stronger because Volkswagen has a long-standing tradition in those countries.
Q-8: Mr. Klima, the new minister of economy, Domingo Cavallo, announced some measures aimed at jump-starting the country's much belated economic recovery in the next few months. Some of the measures, which were announced as part of the competitiveness law, are supposed to protect some sectors of the national industry. What is your assessment on those measures?
A-8: In my opinion, the different methods being applied to protect the local market might not be useful in the long term. I think that these measures will be helpful for the small and medium size companies because they will give them the chance to regain competitiveness and increase productivity. The small and medium sized companies and the exporting industries have been suffering a lot after the devaluation of the Brazilian real. This situation changed the rules of competitiveness. The first thing that Cavallo has to do is to open the productivity market. If the car industry becomes more competitive, the prices will decrease. Cavallo decided to protect the local suppliers by forcing them to incorporate 30% of locally-made autoparts. One idea is for the Argentinean politicians think about the creation of a development bank to help the small and medium size companies. This bank would have to analyze projects for small and medium size companies by giving them credits at low interest rates. This institution should be also clean of political influences or corruption.
Q-9: Can you suggest what the government should do, in order to support the automotive industry?
A-9: I think that a tax reduction would be necessary. It is also necessary to renegotiate the trade agreements in order to enhance production, competitiveness and exports. The local suppliers also need support from the government. Otherwise, we will have to import all the cars from Brazil. The Plan Canje”, for example, was a very important program that was based on giving all owners of cars made before 1990 up to u$s4.000 dollars who decided to turn them in exchange for a new car. The government spent 500.000.000 dollars in implementing this plan, which yet has to offer results.
Q-10: Mr. Klima, you have been for many years chancellor of Austria and held as well other leading political positions in Austria. Being far away from Vienna, what do you miss the most?
A-10: I miss my friends. I do not have enough time to visit them. A lot of our friends are coming to Argentina and they are discovering the country. They are really surprised and impressed not only because of its beauty but also because of all the possibilities that the Argentinean cities have.
NOTE: World Investment News Ltd cannot be held responsible for the content of unedited transcriptions |
