Brazil finally is achieving what it long has been seeking: stability, growth and a thriving middle class, and as a result sales and production of new light-vehicles this year are setting records.

The Brazilian association of vehicle manufacturers, Anfavea, predicts annual output for 2010 will hit 3.39 million vehicles, up 6.5% from year-ago, increasing by at least 100,000 units in 2011. The group also forecasts record sales this year of 3.4 million new vehicles, 8.2% ahead of 2009.

Anfavea built 329,100 units in August, the best for the month in the group’s history. The result also marked a 3.4% gain on July and 11.5% ahead of like-2009.

Additionally, August output was the second-best month in Brazil’s automotive history behind March’s 339,700 units, when consumers rushed to buy vehicles before the government cancelled its industrial production tax discounts on April 1.

Ward’s data shows the industry sold 1,589,107 total cars through August.

Sustained by government tax cuts and industry loans, auto makers last year saw vehicle sales grow 11%, according to Anfavea, setting a third-straight annual record despite coming off one of the world’s worst recessions and as more-established markets faced historical lows.

South America’s largest car market and the world’s 10th biggest economy, Brazil is forecast to jump to fourth place by 2050, skipping over Germany, Japan and the U.K., according to a report by Goldman Sachs.

Many analysts say the country has turned a corner, armed with the economic chops to become a global power, leaving the bad old days of see-saw prosperity behind.

But cautious economists are taking a wait-and-see attitude following October’s presidential election, as 64-year-old President Luiz Inacio Lula da Silva steps aside after making Brazil a serious player on the world stage.

Consumer demand, thanks to government incentives and the federally ordered loosening of credit, barely suffered a ripple during the global financial crisis, with the country’s economic growth this year reportedly expected to hit 6% after dipping a mere 0.2% in 2009.

Riding the wave of the ongoing economic boom, the automotive industry reportedly plans to spend $11.2 billion over the next three years through 2012, topping the $8.1 billion spent in the three preceding years.

Cledorvino Bellini, Anfavea’s president, said in a statement earlier this year the fresh investment will be used to develop new product and increase production, which stood at 4.3 million vehicles at the time. The goal not only is to meet domestic demand but also growing consumption in other developing markets.

Among announced plans, Toyota Motor Corp., a latecomer to the market, reportedly will spend $600 million to build its third assembly plant to be located in Sorocaba, Sao Paulo state. The facility will produce a newly developed compact car in second-half 2012 that will share a platform developed for emerging markets. It first will be seen underpinning the new Etios small car in India this year.

Ford Motor Co. is spending $281 million to develop a small SUV for export at its Bahia state-of-the-art facility. The platform for the new EcoSport, based on the new Fiesta’s B-platform that will underpin up to five other global vehicles, accounting for 1.6 million cars annually by 2014, the company says.

Ford also is planning to invest $250 million between 2010 and 2012 to fund improvements to its Pacheco, Argentina, assembly plant to build an all-new vehicle “currently not in production in any part of the world,” the auto maker says, noting the model will be manufactured for Latin American markets.

Additionally, Ford is investing $350 million in its engine and transmission line at its Taubate plant to develop a new family of small engines for export.

The auto maker reported a 14% jump in South American vehicles sales in the year’s first quarter, with 88,000 deliveries in Brazil. South America contributed a pre-tax profit of $285 million in the second-quarter after earning $86 million in 2009 as volume and pricing improved.

Mitsubishi Motors Corp. will spend $454 million in the next five years to build a 4-wheel-drive Pajero Dakar SUV and the Lancer sedan. The auto maker also reportedly is considering producing its iMiEV electric car in Brazil.

Additionally, Hyundai Motor Co. Ltd. has plans for a new plant in Piraciccaba, Sao Paulo, that will build a small car based on the i20, with assembly to begin in 2012.

New models that were expected to be introduced this year include Automobiles Peugeot’s Escapade pickup truck, General Motors do Brasil Ltda.’s Chevy Agile small car and Volkswagen do Brasil Ltda.’s Amarak pickup. Fiat Automobile SpA, which sells a quarter of its annual vehicle output in Brazil, began offering Chrysler Jeeps in June.

General Motors Co., one of the top-three leading auto makers in the country and looking to put more emphasis on one of its major markets, announced in June it was splintering off a new regional organization from its former Latin America, Africa and Middle East operations to form GM South America.

The new entity is independent of the GM International Operations team, which will concentrate on Asia, the Middle East and Russia. The South America unit, employing 29,000 workers, headquartered in Sao Paulo and led by Jaime Ardila, is tasked with overseeing sales and manufacturing operations in 10 countries.

GM says it sold 471,404 light vehicless during the year’s first nine months in its major market of Brazil, representing a 20% market share. March was its best month, when 70,040 units were delivered. Its best-selling car remains the Chevrolet Celta, with 112,037 deliveries through September.

GM says it is not discussing forecast numbers right now, but Ardila tells Bloomburg BusinessWeek he expects Chevrolet sales in Brazil to grow to 650,000 units this year from nearly 600,000 in 2009 and then surge to the 1 million mark in 2014.

The auto maker plans to increase deliveries “in line with the market or a little bit ahead” as total Brazilian light-vehicle sales advance to 4 million in 2014, he adds.

Ardila earlier in the year said GM planned to invest more than BR5 million ($3 million) in its Brazilian operations in the coming years for new products and increased capacity, including a new family of small cars for export.

Prosperity aside, Brazil is not without its problems, and how the new political regime steers the country through coming headwinds will determine which direction the auto industry charters its future course.

Many economists have been critical of government spending, which they say will bring inflation, a slowdown in growth and higher interest rates – all roadblocks to automotive sustainability.

While there is political consensus to avoid mistakes of the past, many observers say the new government is not expected to stray far from current economic policies, maintaining a blend of pro-business rules and social-welfare programs, according to The Wall Street Journal.

Brazil’s turnaround has seen millions rise from poverty to create a thriving middle class, and that is expected to continue. Oil output is predicted to double in coming years, generating billions more dollars in new revenue. And the less-prosperous northeast now is outpacing the rest of the country in growth, opening up opportunities for business expansion and new jobs.

Nonetheless, pundits say Brazil’s crime and corruption continue to undermine national stability, and the country’s lack of infrastructure is stunting industrial growth. The coming World Cup in 2014 and Summer Olympics in 2016 likely will force some of these issues to be met.

Long-term, Brazil’s auto makers are expected to increase their drive toward exports, while keeping a sharp eye on Socialist Venezuelan President Hugo Chavez’s influence on the Mercosur regional pact, which according to a report by the U.S. Council on Foreign Affairs is becoming increasingly politicized and losing its focus on free trade.

Chavez in January announced a dual exchange rate for the bolivar that devalues the currency, with the lower rate to be used for basic goods, such as food and medicine, and the higher rate (B4.3:$1) applying to durable goods, such as imported cars and assembly kits.

The move is a significant blow to Ford, which operates a plant in Carabobo that assembles nine different models for domestic and export sales. The facility employs 2,000 workers. Chavez has been quoted as insisting companies manufacturing products in the country “must be ready to transfer technology to us.”

But Jim Farley, Ford’s global sales and service chief, tells Ward’s “Ford absolutely plans on remaining in the country.”

Such worries are not expected to be apparent at Brazil’s 50th annual auto show in Sao Paulo in late October, the sixth-largest such event in the world. The exposition will display 450 vehicles, of which nearly 50% represent new launches in the domestic market.

Although Brazil produces close to 100 models that run on an ethanol/gasoline mix, show cars will include hybrids and electric vehicles. The city of Sao Paulo signed an agreement with the Renault Nissan Alliance in June to provide a fleet of EVs to help reduce pollution in the region, which includes 11 million inhabitants and nearly 7 million vehicles.

Nevertheless, industry observers say the importance of EVs in Brazil remains a question mark, as the government and sugarcane industry have a vested interest in producing biofuels vehicles. Blackouts in the country’s electrical grid, dependent on hydropower, also are a problem during the dry season.

mcclellan@wardsauto.com