President Cristina Fernandez said in an address to Congress that Argentina would benefit from the formation of a strategic alliance with Brazil in the automotive industry.

"The principal factor affecting the automotive industry is the drop in exports and especially demand in Brazil," the president said.

Fernandez denied that the higher taxes imposed by her administration were to blame, but she added that "if we have to correct something, we are going to correct it."

The automakers operating in both Brazil and Argentina are owned by multinationals that import high-cost parts from their home countries, leaving the domestic industry with "the assembly of the autos plus the manufacturing of lower-cost parts," the president said.

Brazil should join Argentina in forming a strategic alliance "to get long-term contracts in the auto parts area that allow companies to obtain research and development financing from the banks," Fernandez said.

Austria is an example of a country that has suceeded in carving out a niche in producing high-end auto parts, the president said.

Argentina has the capacity to manufacture "the most sophisticated auto parts, as it does software, the GPS (devices)," Fernandez said.

The South American country sold a record number of automobiles last year, but the drop in exports to Brazil hurt automotive industry firms and reduced the trade surplus, the president said.

Argentina's industrial activity fell just 0.20 percent in 2013, compared to the previous year, but automobile production plunged 28.4 percent, the National Statistics and Census Institute, or Indec, said. EFE