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Auto Execs Look to Mercosur Region for Long-Term Profits

2 December 1997

Continuing Downward Pressure on Costs, More Mergers to Keep Region Competitive

       Auto Execs Say Mercosur Region Outlook Strong Despite Recent Dip

    SAO PAOLO, Brazil, Dec. 2 -- Recent turbulence in the
Mercosur's automotive industry will force a short-term decline in production,
but long-term prospects for the region are solid.
    This is according to the results of a survey conducted with over
100 automotive executives from the region.  The study was conducted by
consulting firm A.T. Kearney, Inc.
    Nine out of 10 executives surveyed said automotive production in Brazil
and Argentina would fall by up to 10 percent during the first half of 1998.
Sixty-three percent of the respondents, however, said that production numbers
should return to the original forecast of close to 3 million units annually by
the turn of the century.
    "There's no question that the Mercosur is emerging as a major player in
the global automotive marketplace," said Manfred Tuerks, president of A.T.
Kearney's Global Automotive Practice.  "There will be somewhat of a downturn
over the next year or so, but the three to five year outlook is extremely
promising," said Tuerks.
    While OEMs and suppliers continue to invest in Brazil and Argentina, there
is concern over growing competitive pressures.
    A majority of OEM executives polled believed that cost reductions of 10
percent needed to be achieved over the next several years.  Over one-third of
OEM respondents said that cost reductions of up to 20 percent must be
achieved.
    Supplier executives were in general agreement that similar cost reductions
would need to occur in the next three years.

    Other findings from the survey include:

    -- Eighty percent of respondents said the significant merger and
       acquisition activity in the region would continue.

    -- Over half of respondents said additional modular sourcing would be
       beneficial.

    -- Forty-seven percent said they would look increasingly to the
       aftermarket to generate additional revenues.

    -- OEM executives said financing and insurance at the retail level would
       provide most of the profits for dealers over the next three years.

    A.T. Kearney is a global management consulting firm.  The company employs
4,000 worldwide and has Latin American offices in Brazil, Argentina, and
Venezuela.

SOURCE  A.T. Kearney, Inc.