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Tierra del Fuego collapsed: more factories stopped, half a million TV in stock and the worst sale of cell phones in 10 years

Tierra del Fuego collapsed: more factories stopped, half a million TV in stock and the worst sale of cell phones in 10 years
The brands that operate on the island foresee a sharp drop in production for this 2019. Rates, dollar and uncertainty, the combo that hits them
14.03.2019 19.13hs Innovación

Deactivated production lines, employees with crossed arms and overcrowded warehouses.

The scenario that can be observed could not be more devastating in the pole that operates in Tierra del Fuego and that is responsible for supplying nearly 90% of consumer electronic goods that are sold throughout the country.

The projections handled by 2019 the main brands installed in the south are scary. So much so that they work with a production goal 35% below the record of last year, as in the case of televisions.

This business unit, in fact, is the one that is being hit hardest today. Much more even than what happens with air conditioning and cell phones.

"The market is very affected, we have a warehouse full of units that we manufactured last year," acknowledges iProUP, the commercial director of one of the main companies operating in the Tierra del Fuego region.

Unable to finance operations in interest-free installments and in a context of increasing uncertainty, the brake on demand has been so strong that the Argentine electronics industry was practically terminal.

Proof of this is what happened with BGH, which was forced to apply a suspension plan for its production at the Rio Grande plant until April 18 and which will affect 830 employees, who will charge 70% of their salaries.

This case is far from being an isolated one: Brighstar is another one that reduced working days in March and evaluates doing the same in April.

In parallel, Carrier, which produces air conditioning equipment on the island, was at the center of the controversy after advancing with ten layoffs, a measure that violates the agreement signed between the companies and the union, as reported from the UOM. And most worrying is that the list of companies in trouble does not stop expanding.

The numbers handled by the sector really worry: before the consultation of this medium, from a leading brand say that, between the retail and the fueguinas plants, there are more than half a million televisions resting in the deposits.

"We are talking about between 500,000 and 550,000 units, it is alarming and also the cost of having all this merchandise stopped is very high," says the CEO of another leading fueguina company.

It happens that, when so much stock is gathered, the production lines automatically slow down or work well below the actual capacity. Meanwhile, wages must be covered. As the plant is inactive and there is not enough cash (due to the fall in sales), companies have no choice but to resort to financing.

But that's where they run into another very serious problem: interest rates in the market are high that became practically unpayable. Thus, the combo "low income + very expensive credits" leaves companies on the verge of collapse.

"Today we can say that producing in Argentina is not a business, especially in the case of televisions," says one of the sources who agreed to dialogue with iProUP under strict off the record.

When asked for details, the manager says: "We are selling equipment at prices that do not reflect the jump of the dollar last year." The level of pass through (transfer of the devaluation to prices) was very low, because the purchasing power suffered a lot and the demand does not validate the rises, "he says.

"This considerably reduced the profitability, turning the TV category into a volume business, but the volume, precisely, is not, so today nobody is making money with this," he explains.

Last year, 3.3 million units were produced between the Ushuaia and Rio Grande plants, 100,000 more than in 2017, basically due to the Global effect. However, after this sporting event came the crisis, causing a collapse of retail sales, which left half a million teams that today is a drag on the brands.

That is why, for this year, the goal that they handle in the sector is to manufacture barely 2.2 million units. To put it in perspective:

- It represents 1.1 million less than in 2018

- And it is the lowest figure since 2009, when the subprime international crisis hit the Argentine economy hard

Do the promotional actions-like the "Electro Fest"-serve to lower that very high and very expensive inventory? When iProUP consulted different executives about the scope of this commercial action that the main retailers of the country activated for three days to lift sales with rebates and interest-free installments, the answers were collated in the same direction.

"It is an aspirin for a much more serious illness, because there are structural questions that are maintained and that do not allow us to suppose a change of tendency", synthesizes one of them.

"We have to be clear: we are operating with a use of installed capacity that does not reach 60%, there are plants that will remain inactive for two months and others that have had to reduce working hours." Solving this requires a much more solution background than a marketing action, "he adds.

The levels with which the island is operating are very much in line with the general average of the industry, which in January recorded a capacity use that was the worst in 17 years. That is, the lowest since 2002.

Cell phones, down
The concern that invades the sector responds to the problems are not encapsulated in what happens with the television category. The bad perspectives are expanding to two other wheelies of Tierra del Fuego: cell phones and air conditioning equipment.

In the case of telephones, which is the device that moves the largest volume, brands expect to produce just 7.5 million units throughout the year.

In 2018, 8 million devices were manufactured. That is to say, the goal they set is that the sector could suffer a drop of half a million teams.

But, to put it in context, in 2012, when peak demand was achieved, the Fuegian pole had reached the historic mark of 14 million units.

So, if the target set for this year is confirmed, the volume would be located 50% below the record. But there is a more worrying fact: it would be the weakest record in almost a decade: we would have to go back until 2010 to observe a lower number.

That is, when the administration of Cristina Kirchner was just re-launching this industrial promotion regime.

Cold for air conditioners
This category is also being seriously hit. In addition to being expensive equipment -with models that comfortably exceed $ 30,000-, the high cost of financing also plays against.

To this the climatic factor was added: the heat arrived late and went away quite fast, so that there were not great inducements for this item.

The last great year of production had been in 2015, when almost 1.8 million units were manufactured, very close to the 2011 record.

What level do brands aim to achieve this year? The consensus estimate is only 850,000 teams. Not only represents 1 million less than the previous period but it would be the most negative record since Tierra del Fuego was re-launched, back in 2009.

No light at the end of the tunnel
Will the coveted turning point come? Are there reasons to anticipate a change in trend?

One of the sources consulted by iProUP provides a convincing answer: "I do not think the situation will change in the first semester, for the second it may improve something, although we will have to monitor closely four key issues: rates, inflation, dollar and, very important, how the electoral climate influences ".

"Similarly, when we talk to managers of other companies, no one in the industry is seeing any factor that allows us to anticipate growth in sales, and less that can be sustained over time," he says.

For the time being, to pass this storm, the companies managed to redefine some terms of the agreement they signed with the Metalworking Workers' Union, which will be valid until June 2020:

- On the one hand, plants can reduce working hours from 200 to 140 hours per month

- In addition, they are authorized to suspend production up to 90 days, provided they pay 70% of the net salary

In parallel, the companies agreed to grant an "extraordinary" salary increase of 24%, in order to face the loss of purchasing power.

The original agreement had frozen the parity for two years, a measure that became unfeasible after the trigger of inflation.

At the commercial level, actions such as the Electro Fest or the Hot Sale - whose next edition will take place from May 13 to 15 - help to reduce the stock and give some more oxygen to the box of some brands.

But this far is to encourage an audience that during this election year is much more concerned about the dollar, rates and employment than to acquire a new cell phone or change the TV.

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