LINKEDINCOMMENTMORE

Cars and trucks are selling at a brisk pace in the United States at a pace not seen since before the recession. But political turmoil and economic uncertainty in South America, Russia, Thailand and the Middle East have automakers worried about selling cars, losing money, protecting workers and recruiting new suppliers.

Sales in those troubled regions are expected to decline through the rest of the year — down 8 percent in South America, 10 percent in Russia and 27 percent in Thailand, said Troy-based forecasting firm LMC Automotive.

Of those areas, LMC expects good news only in the Middle East, where it counts only Iran and Egypt in its forecasts: Sales are expected to be up 18 percent, largely because of eased sanctions in Iran.

Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles LLC all sell — and in some cases build — cars in those regions.

“For those OEMs (original equipment manufacturers) that have operations there, it’s an issue,” Jeff Schuster, senior vice president of forecasting for LMC Automotive, said in an interview. “It creates nervousness around these spots and some reluctancy to commit long-term until there’s stability.”

Most automakers say they’re in it for the long haul. But analysts say they at least will have to scale back or revise plans.

Each of the troubled regions has its problems.

In Russia, political issues with Ukraine continue, and recent sanctions on financial, energy and defense sectors threaten to further hurt the economy.

In Thailand, a political coup in May capped months of social unrest that pushed the economy to the brink of recession.

The Middle East continues to be a trouble spot. Iran, which had placed strict sanctions on auto sales, recently lifted them, giving automakers hope of setting up operations there soon.

In South American countries — especially Brazil, Venezuela and Argentina — unfavorable exchange rates and other currency-related issues have led to weak economies.

Those problems are affecting sales numbers and the bottom line: Ford, GM and Fiat all reported second-quarter losses in South America.

Ford lost $259 million in South America in the second quarter this year, compared to the $151 million it lost in the same period a year ago. The automaker cited slower sales of cars and trucks, an unfavorable exchange rate and higher costs. It expects a larger loss for the year there than it previously estimated.

The Dearborn automaker posted a small second-quarter profit in Europe, which includes Russia. It expects to be profitable there next year, but Chief Financial Officer Bob Shanks said Russia presents a challenge: “The current environment is clearly difficult, but it remains a large and important market.”

GM reported a pre-tax loss of $81 million in South America during the second quarter, down from a pretax profit of $54 million in the same 2013 quarter.

GM Chief Financial Officer Chuck Stevens recently told industry analysts that the auto industry continues to weaken in Brazil and Argentina. Stevens said there was “fundamentally no production” in Venezuela during the first half of the year, though he thinks that will change during the second part of 2014. Stevens said GM slowed production in Brazil before the soccer World Cup, “because fundamentally, the country shut down.”

Stevens expects “slightly improved performance” in South America in the second half of 2014.

On Fiat’s second-quarter earnings call, CEO Sergio Marchionne said the company was faring better than its competitors in South America, and he hoped for continued success.

Russia represents one of the top five markets for Chevrolet. The Chevy Cruze, Tahoe, Captiva, Aveo and Niva are sold there. GM also sells Opel- and Cadillac-branded vehicles.

Tim Mahoney, Chevy’s chief marketing officer, said the brand is doing well, but he’s keeping an eye on Russia.

“It’s an important place to be, but any time you operate outside the 50 states, there’s political issues you have to be mindful of,” he said.

Schuster said foreign political and economic tensions could affect more than car companies. Their suppliers, he said, may be hesitant to follow automakers who set up manufacturing operations overseas.

Hau Thai-Tang, Ford’s group vice president of global purchasing, said many suppliers have already followed Ford into some of the world’s troubled areas. But he said some who are not yet in Russia, South America or the Middle East are hesitant to expand there.

He said Ford can help sway unsure suppliers by being clear and transparent about its projections for those markets.

“The nature of emerging markets is that they tend to be more volatile,” he said. “We tend to look at it as a long-term outlook and we’re still very bullish on those regions. It’s of great benefit to all of us to invest there and be there.”

Leaving a country because of political unrest is not out of the question.

GM and Ford ceased operations in South Africa in 1986 and 1988, respectively, because of apartheid. Both began selling again there in the mid-’90s.

“When situations occur in other countries, automakers either have to adjust their business models ... or there are times where they pull out of the market altogether,” said Michelle Krebs, a senior analyst with AutoTrader.com. “It’s almost like a chess board where you’re moving the pieces.”

Still, Detroit’s automakers appear committed to the regions they’re in.

“It’s not healthy for the brand when they stick their toes in, pull back, and then stick them back in again,” GM’s Mahoney said. “It’s important to make decisions with a cool head and to be smart about it.”

Schuster said car companies can overcome sales and revenue declines by broadening their reach and ramping up sales and production in more stable parts of the world.

“For those that have truly global operations, some of that loss is being offset by the success in the mature markets,” Schuster said. “If you can increase your competitiveness in the markets that are doing well, while the other markets are down, that’s one way you can manage it.”

Melissa Burden contributed.

LINKEDINCOMMENTMORE
Read or Share this story: http://detne.ws/1oIbp5W