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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.
Brazil long has been an enigma and never more so than in 2013 as the country struggles with internal and external forces that continue to play havoc with South America’s largest auto industry.
Once a darling among the world’s four strongest emerging markets, coined the BRICs, that include China, Russia and India, Brazil’s coming of age has lost some of its promise as upstart automotive regions in Southeast Asia, South Africa and the Middle East vie to take its place.
Yet true to its history of rise, fall and rise again, Brazil, the world’s fourth-largest auto market, has no intention of fading away, despite a stagnant economy that grew just 0.9% in 2012 and which remains unaffected by government stimulus measures this year. That includes the postponement of the onerous IPI tax increase on vehicles through December, which is estimated to cost the country BR2.2 billion ($1.09 billion) in lost revenue.
Brazil’s overvalued currency, the real, along with high interest rates and slowly easing inflation – down to 5.86% in September from 6.70% in July, according to the Brazilian Institute of Geography and Statistics – also are stalling consumer demand for new cars.
Meanwhile, the industry continues to see profitability slide as new government rules on output and sales drive up competition. The result is smaller margins for suppliers and automakers as costs climb and vehicle prices remain flat.
Regardless of the potholes, WardsAuto/AutomotiveCompass is forecasting record light-vehicle production this year of 3,475,000 units, beating the market’s previous best of 3,411,258 in 2010 and up 8.8% on 2012’s 3,193,712. Output in 2014 should remain strong at 3,754,448 builds, which bodes well for Brazil’s economic future.
Among analysts who study the market, there is agreement Brazil’s vehicle sales and production will continue to grow for the foreseeable future. The country’s auto industry trade group Anfavea in September predicted 2013 output of 3.79 million cars, trucks and buses, up 11.9% from year-ago, crediting a surge in exports and a drop in imports. The group previously forecast a 4.5% rise.
Through October, total vehicle sales were running just 0.6% behind like-2012’s pace, totaling 3,110485 units. Light-vehicle deliveries, which accounted for 2,951,825 of the total, were off a slightly higher 1.4%.
Among the big-volume LV players, Volkswagen (down 13.1%) and Fiat (off 7.9%) suffered the steepest declines through the first 10 months of 2013.(up 1.8%) and (up 3.1%) managed to remain ahead of year-ago, while the biggest gainers included (121.7%), Toyota (65.7%) and German luxury brands Audi (42.2%), BMW (48.6%) and Mercedes (13.3%).
A recent study of the industry’s profitability by strategy consultancy Roland Berger shows despite the gains on 2012 the current economic scenario in Brazil indicates a more conservative outlook for 2013 and 2014, particularly for the parts-making sector, which is forecast to see extremely thin margins of 1%-2% for 2013 due to slow overall industry growth.
Brazil is entering “a period of uncertainty we haven’t seen in six or seven years,”- CEO Sergio Marchionne says, citing the upcoming election as one wild-card factor that is making the market “a little nervous.
“We do not expect the market to deteriorate…but we also don’t think 2014 will be phenomenally higher than 2013.”