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Economist Provides Status of Puerto Rico Economy at Auto Industry Seminar

By on January 25, 2019

Editor’s note: The following originally appeared in the Jan. 24-30, 2019, issue of Caribbean Business.

Puerto Rico’s United Automobile Importers Group (GUIA by its Spanish acronym), which brings together members of the auto-sales industry on the island, last week presented the results on new-car sales during 2018, as well as industry projections for 2019.

The group’s president, Ricardo M. García, said 2018 ended with 107,941 new vehicles being sold on the island, while in 2017, there were sales of 84,080 units, which represented a 28.4 percent increase over the previous year. Fleet sales, meanwhile, represented 11.8 percent of total sales, with about 12,712 vehicles sold, or a 26.3 percent increase compared with the previous year.

The sport utility vehicle (SUV) segment reflected a significant increase of 42.4 percent last year, when compared to 2017. The commercial vehicle segment, which includes pickup trucks, minivans and cargo trucks, rose 50.9 percent last year, while the four-door sedan segment only grew 11.1 percent in relation to 2017.

“The year 2018 was a pleasant surprise for the industry because [the sale of] 100,000 units had not been reached since 2013. However, we believe 2019 is a year full of challenges,” García said.

Nonetheless, the organization projects that for the current year, the industry will barely be able to sell 90,000 units as a result of several factors, including delays to access federal recovery funds assigned in the aftermath of Hurricane Maria, and the island’s population decline and economic contraction.

“This confirms our concerns that we were in a short-term economic bubble. I have faith in the industry’s resilience and in the customary support of government entities and financial institutions to continue to support and facilitate the country’s economic growth through an industry that creates over 300,000 direct jobs,” the industry representative said.

‘The money is not arriving’

Gustavo Vélez, an economist with Inteligencia Económica, the consulting firm that was commissioned for a second-consecutive year to conduct a study on the auto industry, said Puerto Rico has been in a continuous economic depression for 11 years. He emphasized the difference between a depression and an economic recession.

“A recession is cyclical. Historically, the ones we have had in Puerto Rico have lasted 12-18 months. The island has always had recessions that have lasted 24 months at most. When this began, it was said that it was a normal recession and many of us rested on the idea that it was that [way]. Twelve years later, we are in this room seeing that it is an economic depression, because it is a continuous contraction in the productive activity of our economy,” he explained during his speech at GUIA’s first seminar of 2019, the fourth in a series titled “Investing in Puerto Rico: The Driving Force for our Future Growth.”

Vélez concluded that the economic growth that Puerto Rico experienced during 2018 was largely a result of the injection of money for the island’s recovery after the natural disasters of 2017.

“Thanks to Hurricane Maria, a federal process was begun to raise recovery funds that would give the economy a rebound of about $80 billion, which in turn would create an economic dynamism over a period of 10 years, together with the natural dynamism that occurs in an economy after it is struck by a hurricane, Puerto Rico can see the light at the end of the tunnel. We saw it with [Hurricane] Hugo in 1989 and [Hurricane] Georges in 1998,” he assured.

“In other words, in 10 years, we would return to 2006 in aggregate terms, and that would help the entire economy, including the automotive industry, see some relief. The economy would then operate in a context of expansion,” he added.

However, Vélez stressed that the problem with this equation is that for rebuilding, the money, in the form of federal funds, has yet to be fully disbursed, delaying recovery efforts.

“The money is not arriving,” he reiterated. Vélez mentioned several factors that have made the disbursement of these funds impossible, with the most notable being the federal government’s record-breaking partial shutdown and the refusal of the administration of President Donald Trump to disburse the long-awaited funds.

“The reality is that the federal government agencies that are supposed to disburse those funds are now inoperative because of the federal government’s closure, and we recently learned that President Trump disallowed the federal Housing Department from delivering those funds. To that, we add the [possibility that the] U.S. economy may go into recession, which will eventually lead to a more complex scenario,” the economist predicted.

“Although the trend is positive 15 months after the hurricane, the economy of Puerto Rico, from a productive point of view, has not entered into positive territory yet. It is very important because the performance of the local automotive industry is not tied to this economy being better after the impact of the hurricanes,” he added, emphasizing that the economy’s temporary improvement is a result of the injections of money from the government and insurers during recovery efforts.

He further argued that once that money starts coming to an end, and the federal funds are not received, Puerto Rico’s economic index would reflect a drop, as soon as March, once that temporary stimulus concludes.

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