The US automaker joined companies expressing concern that economic turmoil in Venezuela and Argentina could spell trouble for 2014 profits.
Consumer prices jumped more than 50 % last year in Venezuela and private analysts say inflation reached 25 % in 2013 in Argentina, fuelled by weakening currencies in both countries that have rattled global financial markets.
The high inflation in Argentina and Venezuela, along with concern about how the two countries’ governments will try to steady their economies has Ford rethinking its annual forecasts for South America. Ford’s financial outlook first presented six weeks ago called for the company to repeat 2013’s performance in South America, when it lost $34 million before taxes, compared with a profit of $213 million in 2012. Ford’s fourth-quarter losses in South America ballooned to $126 million.
“Since December, we’re more concerned,” about company performance in South America, Ford Chief Financial Officer Bob Shanks told reporters as the company reported an overall annual pretax profit of $8.57 billion.
Shanks said the company is poised to respond in “real time” to the changing economic landscape in both Venezuela and Argentina.
GM’s newly installed Chief Financial Officer Chuck Stevens recently said that GM’s South American operations had a second straight profitable year in 2013, but also said that continued volatility in Argentina and Venezuela present financial risk. More details may emerge with GM reports earnings next week.
The exchange rate on the black market is nearly twice the official exchange rate, said Guido Vildozo, IHS Automotive analyst based in Massachusetts. This led to people selling dollars on the black market and then buying cars at the official exchange rate, “an investment in a durable goods that will maintain its value even if currency inflation continues,” said Vildozo.
This led to a short-term gain for Ford and other automakers in the Argentine market last year, but Shanks said that the company hopes that the government institutes longer-term changes that while biting into new vehicle sales will make more sense for consumers and the companies that sell to them.