Brazil, South America’s largest vehicle market, saw a strong year in 2005, setting a number of records despite struggles with free-trade talks, high interest rates and the strengthening of the real, Brazil’s currency, which squeezed profits on exports.
The country sold 1.72 million vehicles in 2005, an 8.6% gain on the prior-year’s 1.58 million deliveries. Brazil’s leading auto manufacturers, buoyant from the successful year, predicted sales of 1.84 million vehicles for 2006 and production of 2.55 million units.
Brazil earned bragging rights in the year by leading the world in the manufacture and sale of vehicles that ran on any mix of gasoline and ethanol, which was distilled from the country’s sugarcane crop, unlike the U.S., where ethanol was made from corn.
Cars with flex-fuel capability represented 78% of the total number of vehicles sold in the year, Tom Stevens,Corp.’ group vice president-GM Powertrain, told Ward’s.
The year marked the first time ever Brazil’s biofuel cars outsold gasoline-only vehicles, with total sales of 866,267 units, compared with 328,379 in 2004.
Popularity of Ethanol Cars Soared
While some Brazilian vehicles long have run on sugarcane alcohol alone, flex-fuel models, which are powered by gasoline, ethanol, or a mix of the two, were launched in 2003 and demand grew steadily.
Flex-fuel vehicles proved so popular in 2005 they caused a spike in sugar prices. Sucden Ltd., a global sugar-trading company based in the U.K., predicted sugar prices would rise 10% worldwide, as Brazil, the world’s largest sugar producer, reduced its exports to focus on producing the biofuel.
Sales of flex-fuel cars were driven by a 45% hike in the price of domestic gasoline, the Association of Vehicle Manufacturers (Anfavea) reported. The cost of ethanol in Brazil was about 60% the cost of gasoline at the pump, and many Brazilians were said to fill their tanks with 100% alcohol fuel.
Although demand for flex-fuel cars nudged total vehicle sales to their fourth best-ever year, the industry fell short of the record 1.9 million vehicles sold in 1997, a benchmark that continued to evade the Brazilian market.
However, December sales were the best on record at 183,600 units, a 16% increase over November. Interest-rate cuts to 18% from 19.8% by the Brazilian Central Bank in August helped stimulate the market.
was the top-selling brand for the year, with 25% of all light-vehicle sales. do Brasil Ltda.’s Chevrolet brand was second, followed by Volkswagen and , Anfavea reported.
The 10 top-selling cars in descending order of sales included the VW Gol, GM Corsa,Palio, GM Celta, Fiat Uno, Fiesta, VW Fox, Ford EcoSport, Fiat Siena and Fiat Strada.
Some analysts believed GM Brazil, which was the best-selling domestic auto maker in 2004, could have overtaken Fiat Automoveis SA if not for a shortage of flex-fuel engines for its popular Celta, built at the Gravatai plant in Rio Grando do Sul.
GM in the year offered 43 models with flex-fuel engines, compared with VW do Brasil Ltda.’s 27 and Fiat’s 25.
Not only did GM Brazil not grow its market share, it lost some ground to just under 22%, Maureen Kempston Darkes, president, General Motors Corp.’s Latin America/Africa/Middle East region, told Ward's in an interview.
"We…said going in, (2005) would be tougher because we had to wait on some of the flex-fuel engines, but I am proud of Brazil in the second half of the year and what we did," she said.
Despite a slow start, the auto maker came on strong in the second half with the introduction of the all-new Brazilian Epica and Vectra, third-generation S10 pickup and new 1.0L flex-fuel Celta.
Maureen Kempston Darkes, president, GM Latin America, Africa and Middle East predicted flex-fuel cars would continue to dominate sales in 2006, because they were considered a better value. "We need to prepare to service a market that is going to rely on multi-fuels," she said.
Demand for flex-fuel cars also pushed Brazil’s production to a new record for the second-straight year, Anfavea reported. Output rose 10.7%, reaching 2.45 million units.
Vehicle exports set a third-consecutive record, at $11.2 billion, an increase in value of 33.5% over 2004 exports, Anfavea said, forecasting exports worth $11.5 billion in 2006.
Despite the industry’s positive year, there were frustrations. Negotiations between Brazil and Argentina over a new free-trade agreement remained at an impasse at year’s end.
The region’s 10-year Mercosur pact that included several other countries was due to expire in 2006, and Brazil was looking to fill the void with a new free-trade automotive agreement with Argentina.
Argentina, whose vehicle market was beginning to recover from several devastating years of economic and political turmoil, said it wanted to delay the new FTA until 2008.
Old Trade Pact Extended
The two countries finally agreed to extend the old pact into the first two months of 2006 while they continued negotiations. Argentina said its primary concern was a trade imbalance favoring Brazil.
In the year’s first 11 months, Brazil exported cars and components totaling $32.3 billion to Argentina, while importing like-products worth $1.4 billion, Brazil’s National Association of Car Parts Manufacturers, Sindipecas, reported.
Argentina’s major auto makers included GM, Ford Motor Co., DaimlerChrysler AG andAG. Its main export market in 2004 was Mexico, which received 43% of the country’s vehicle exports, followed by Brazil with 30.2%.
However, Argentina’s shipments to Brazil in the year’s first five months represented 39% of total vehicle exports, surpassing the 35.4% sent to Mexico, the Argentine Association of Vehicle Manufacturers, Adelfa, said.
Argentina’s best-selling vehicles were the Ford Focus,Hilux pickup, Peugeot 307 and Mercedes Sprinter van, accounting for 97% of exports.
The country in 2005 sold a total 402,690 vehicles, including exports, a 29.1% rise on 2004, Adefa reported. Vehicle production for the year reached 319,755 units, climbing 22.8% ahead of the prior year.
Ford in Argentina said its General Pacheco plant turned out 69,376 vehicles in the year, for 22% of the country’s total production, with 50,149 units targeted for export, accounting for 27.6% of total exports. These included 27,959 Ranger pickups and 22,190 Ford Focus passenger cars.
GM in Argentina reportedly expected industry and company sales in 2006 to rise 7%, as the country continued to rebound. The auto maker in November said it expected to produce close to 60,000 vehicles in 2005.
Despite surging predictions for 2006, the industry still had about 50% idle capacity by the end of 2005. GM said it was using only 55% of its installed capacity.
to Invest $61 Million
Toyota Motor Corp. in Argentina said it planned to invest $61 million to expand production from 45,000 units annually to 65,000 in 2006. The Japanese auto maker also spent $9 million on upgrading its Sao Bernardo do Camp, Sao Paulo, Brazil, plant, which made parts and components for the Hilux.
Venezuela, South America’s third-largest vehicle market and the world’s fifth major oil producer, also saw sales soar in the year thanks to subsidized fuel prices. New-vehicle sales jumped 70% to 228,378 units, up from 134,357 in 2004, the Venezuelan Automobile Chamber said.
Ford’s South American division, with units in Brazil, Argentina and Venezuela, reported 2005 profits of $96 million, up 62.7% compared with the prior year. Ford South America President Antonio Maciel Neto said although the South American market still had problems, the auto maker had recorded seven consecutive profitable quarters.
"This shows that our operations in the region are solid," he said. "We will continue investing in products to sustain this positive industry."
Additionally, Ford in Brazil confirmed it was jointly developing a new vehicle, reportedly a small cross/utility vehicle based on the EcoSport, with engineers and designers in the U.S. that solely was focused on exports to North America.
The Brazilian auto maker also said it was working on a new small car for the domestic market that could be considered for other global markets.
"If the Brazilian industry can make a quality entry-level car at low cost, the demand would be impressive,” said the subsidiary’s new president, Barry Engle.
Despite the industry’s satisfaction, South America, and particularly Brazil, spent much of 2005 looking over its shoulder at emboldened China, considered a major vehicle-manufacturing competitor.
Brazilian auto makers complained much of their parent companies’ financial resources were going toward boosting operations in Asia.
But there was another reason for the region’s interest. China signed its first-ever FTA with a non-Asian country in November, choosing tiny Chile, not considered a major player in the global economy by any measure.
But Chile’s experience with FTAs reportedly was thought to be helpful in China’s efforts to become familiar with the complexities of maintaining workable trading relationships.
Further, the overlapping regions of Latin and South America already had benefited from China’s investment in steel making, mining and oil ventures. Reports said Chile would be expected to buy more manufactured goods from China, including Chinese-made automobiles.
South America in 2005 remained staunch about protecting its economies and continued to resist U.S. efforts to establish a 34-country Free Trade Area of the Americas.
Venezuelan President Hugo Chavez spent much of the year attempting to scuttle the proposed agreement, claiming it would crush local farmers and industries.
An elusive 25-nation European Union-South America trade accord also failed to reach agreement by year’s end.
Unlike the U.S. proposal, however, Brazil’s trade minister said Mercosur countries had made an offer of quotas for duty-free European cars, and he was confident there was goodwill to move ahead.
– with Sol Biderman in Brazil