Friday, June6th2014– 08:16 UTC

Argentina agreed to sign a one-year deal with Brazil to regulate vehicle trade between both countries, after a meeting held between Industry Minister Débora Giorgi and her Brazilian counterpart, Mauro Borges. The agreement will be signed on June 11 in Buenos Aires.

Meanwhile, manifesting the auto sector’s current woes, Honda and Volkswagen on Wednesday a new round of suspensions at their factories, while the ADEFA, car factory chamber, reported a 36% drop in production.

The deal between the two governments implies that for every dollar Brazil imports from Argentina in the auto sector, it will export between 1.6 and 1.7 US dollar, a source at the Brazilian government revealed. The agreement is more attractive for Argentina compared to the previous pact, which forced the government to import 1.95 per dollar exported to Brazil.

Brazilian automaker chamber Anfavea wanted to raise the figure to 2.05, while the Argentine government sought to lower it to 1.3, according to Brazilian media. Nevertheless, both governments agreed to be more flexible in negotiations to reach an agreement.

The new deal only covers the real value of auto parts and components. The previous one also included the value of wages and marketing expenses, leaving the door open for companies to hire fewer local suppliers. It was signed only for one year, as the Argentine government seeks to receive guarantees from Brazil over re-addressing the trade balance currently favoring Latam’s largest economy, before signing a longer agreement.

Argentine Cabinet Chief Jorge Capitanich said at a Congressional hearing that the government is getting ready for “imminent announcements” for the sector.

“We believe there’s a positive outlook, and we are working on several angles,” Capitanich said, hinting that the upcoming announcements would include not only the agreement with Brazil but also other moves that could benefit the auto-parts sectors and “domestic market prices.”

Japanese car and motorcycle maker Honda announced on Wednesday it was stopping production in Argentina for a month at its two plants and suspending 800 employees but paying them their full income while the measure lasts. The measure was decided as result of the large stock of vehicles that have accumulated at the factories due to plunging sales.

Volkswagen followed the same path, deciding to halt the production of gearboxes at its Córdoba plant, affecting 900 workers. A deficit in auto parts to build the gearboxes was the reason behind the measure. The plant produces 3,640 gearboxes per day which are mostly exported.

Meanwhile, the auto workers union, SMATA agreed with General Motors to accept a once-a-week suspension of 2,700 workers at plant in Santa Fe, for the rest of the month, paying them their full wages during those days. The measure could be extended into July, if General Motors feels it is necessary.

The suspensions came on the back of ADEFA’s figures, which indicated that production dropped 36% in May compared to the same month last year, and decreased 13.9% compared to April. A total 50,938 units were manufactured in Argentina, 30,130 of which were exported, 39.2% less than the same month last year.

Wholesale figures showed a similar trend to production, with a 40.9% drop reported for May compared to the same month last year. The dealerships’ chamber also reported a 40% drop in May retail sales.