What is in this article?:
- Brazil Rolls Through Volatile Market With Record Production
- Rising Production Costs, Lower Growth Rates
- Automakers Remain Bullish
True to its history of rise, fall and rise again, Brazil’s auto industry has no intention of fading away, despite a stagnant economy that remains unaffected by the postponement of the government’s IPI tax increase on vehicles.
GM has been producing and selling vehicles in Brazil under Chevrolet brand for nearly 90 years.
Automakers Remain Bullish
None of this is stopping automakers from increasing their investment in Brazil. GM, for example, opened a new BR356 million ($175 million) engine facility in Joinville do Sul, Santa Catarina, this year to make 1.0L and 1.4L engines, as well as aluminum heads, that will be shipped to its plants in Gravatai, Rio Grand do Sul and in Rosaria, Argentina.
, reacting to what it sees as a rising middle class, will launch a new 200,000-unit capacity plant in the state of Pernambuco next year that will focus on production of higher-end cars.
“I’m not as negative as some people are on the mid- to long-term performance of Brazil,” Marchionne says. “We’ll live through periods of volatility…but fundamentally the underlying economics are in good shape.”
German importeris building an assembly plant in the state of Santa Catarina as well. Output will begin in 2014 with a 30,000-unit annual capacity for its 3-Series sedan, 1-Series hatchback and X1 CUV. announced plans in September to construct a factory to produce Mercedes compact cars.
is expanding its lineup in Brazil and transforming legacy products with revamped versions. The new models are performing well, Chief Financial Officer Bob Shanks says, listing the new Ranger pickup, Fiesta small car and EcoSport compact CUV among keys to the automaker’s higher volumes and increased share to 9.5%.
Revenue, operating margin and profit all were up through the first nine months. Nevertheless,CEO Alan Mulally cites expectations for below-trend growth in Brazil in his forward-looking outlook.
Ford, GM, Fiat and Volkswagen are feeling particular pressure. The four have dominated the Brazilian market for decades with a combined 70%-plus share, but now are being crowded by rivals that include, and , as well as a growing number of Chinese and Indian car companies.
“(Brazil) is a place where the Asians, particularly, always looked at it and said, ‘We don’t understand it. We can’t play there,’” says Xavier Mosquet, global leader-automotive at Boston Consulting Group.
“But for those who are there, who understand the market and have enough market share – the Fiats, the GMs, the Fords – it’s sustainable. If I were a new player, I might say, ‘Let’s wait and go somewhere else, such as Russia, instead.’”
Arguably, the fact the country’s GDP now tops $10,000 per capita is not lost on the newcomers. Indeed, Anfavea expects vehicle sales to surge 68% from 3.4 million units in 2011 to 5.7 million by 2016. And despite its conservative short-term forecast, Roland Berger predicts Brazil soon could overtake Japan to become the world’s third-largest car market after China and the U.S.
Those who understand the market know the auto industry’s journey in Brazil never has been about rolling downhill, but rather riding out the peaks and valleys.
“Brazil has been, I think, 30 years of that story,” Mosquet says. “Again and again. It’s going to continue. But it is still a big market. It is still attractive. It will continue to grow, but we have to realize there will be hiccups along the way.”
– with James M. Amend and David E. Zoia