Economic conditions vary widely among the MERCOSUR member states. Despite these asymmetries, the members agreed to strive for economic stability through political, fiscal and monetary policies, a wider opening of the economy to global competition, and modernization of the economies through deregulation and privatization. The implementation of economic reforms (that stabilized and liberalized the Brazilian and Argentinean economies) and specific governmental policies, such as commercial agreements, were the political and economic bases for a new structure in the supply chain of the automobile sector. These measures contributed to new environmental factors such as the increase in domestic demand and the industrial modernization of both countries. The new scenario in MERCOSUR favored the activities of automotive assemblers in the region. Business executives in the MERCOSUR countries had to adapt distribution channels, consider a broader market, learn about new consumers and take into account the complementarities of their MERCOSUR partners.
The reduction of tariffs among the member countries opened new opportunities for multinationals. MERCOSUR allowed Argentina to increase its exports, and Brazil to engage in international trade at an accelerated rate. The emergence of MERCOSUR led to a substantial increase in foreign investment in Brazil from major multinational car makers. Major new players in the Brazilian market includes GM, Fiat, Renault, Mercedes Benz and Toyota, all with their own manufacturing plants. In addition, other major players began direct investment in Brazil and Argentina, or announced that they would locate in these countries: Asia Motors Inc., Audi AG, Honda Motor Co., Hyundai, Toyota and Mercedes-Benz. Meanwhile, the products of Autolatina, built for a protected market, fell out of step. Brazilian consumers began to show a preference for lower-cost small cars, and pricing competition intensified as a result of the abundance of competing small cars.
Both GM and Fiat launched popular cars for less than $7,000 (Corsa and Uno). The table below presents the variety of offerings by four leading companies. Although Autolatina had succeeded in reviving the VW Beetle, customers deserted “the bug” in droves for lower-priced competing brands. With increased competition, customer’s choices were expanded beyond low cost, increasing the pressure on manufacturers to improve quality and offerings. Company Market Segment Products Volkswagen Small Mid-sized Large Beetle, Gol Logus, Pointer, Voyage Santana Ford Mid-sized Large Escort, Verona Versailles General Motors Small Mid-sized Large Corsa Kadett, Monza, Vectra Omega Fiat Small Large Uno Tempra Conflicts between the Partners In addition to dynamic changes in the market, conflicts arose in the strategies of Ford and VW. Ford dealers in Brazil had been begging for smaller cars that are better suited to Latin American consumers.
But Ford avoided the erosion of Autolatina’s profits by competing with VW’s Gol (from which it was receiving half the profits). Volkswagen management, on the other hand, was reluctant to share its subcompact design with Ford so that Ford could use it in other markets. Mutual Willingness to share technological knowledge and other key competences with each other declined over time. Differences in the organizational cultures of the two partners also contributed to deteriorating relationships between Ford and Volkswagen. The German and the U.S. organizations had different histories and origins, as well as different management styles. Within the boundaries of the Autolatina, VW and Ford were reasonably well integrated operationally, even exchanging model fabrication. However, external to the relationship, suppliers continued to serve the two companies independently, as well as the dealerships.
Autolatina was not fully integrated with suppliers or the dealers, leading to inefficiencies in the supply chain. For example, the dealerships were not consolidated, a potential for reducing administrative costs. Furthermore, the partners could have consolidated their supply base, gaining scale economies. The suppliers continued to serve Autolatina independently of the two partner companies. In addition, VW and Ford continued to compete with each other in the worldwide market, making it really difficult to share any technical knowledge, jeopardizing internal collaboration. Outside of the Autolatina collaboration, the partners were even competing against each other by launching new cars in the same category. The End of Autolatina In 1995, Ford and VW decided to end their alliance.