Ford, GM Upbeat About Brazilian Market’s Second-Half Prospects

General Motors estimates the Brazilian market for light vehicles should increase 3% in the year’s second half over the weak performance in the first six months, ending 2012 with sales up slightly.

But Fenabrave, the national automotive distributors’ association, is lowering its projection for cars, pickups and vans from a 3.5% increase to a 0.4% drop. That would be the first decline in yearly sales in Brazil since 2004.

“I do not agree with this forecast. The automotive industry practically moved sideways in the first half of the year,” says Marcos Munhoz, vice president-government relations for GM Brazil.

“The peak of buyers with payments in arrears or with nonperforming loans has fallen, and we are now expecting fewer negative reports from Europe, which has been affecting consumer confidence here. In the second half of the year it looks like there will be a 3% increase over the first half, which would result in annual growth between 1% and 1.5%.”

After the first-half sales slump, which obliged auto makers to reduce production and the government to cut the industrialized products tax on cars until the end of August, Munhoz says there are indications of growth in demand, supported by a decline in imports.

“Aside from this, Argentina should record sales of 850,000 cars this year, which is an extraordinarily large number,” he says. “And the biggest supplier of cars in Argentina is Brazil.”

Munhoz also notes Toyota and Hyundai will open new factories this year, in Sorocaba and Piracicaba, Sao Paulo, respectively. Honda is growing its sales of Civic, Fit and City models produced in Brazil.

Honda reports sales of 900,000 units since its plant came online in 1997 in Sumare, Sao Paulo. The auto maker has invested more than BR1 billion ($500 million) in that factory and related operations.

Ford Brasil and Mercosur President Marcos de Olveira also is optimistic about the country’s auto industry, based on improved credit availability and lower rates of payments in arrears. He believes middle-class consumers interested in buying their first family car will continue growing.

De Oliveira also says government measures to contain excess credit are effectively inhibiting would-be car buyers who cannot honor their long-term debts. The nonperformance rate among new buyers who finance their cars is 3.8%, compared with 7% for the overall Brazilian retail market.

The main reason for this improvement is the recent increase in down payments for cars. The new measure imposed by the federal government in December requires that buyers of cars with 24- to 36-month payment terms pay a 20% deposit, and 40% for 48- to 60-month loans.

The Ford president also believes auto makers are benefiting from upward social mobility in Brazil. Since 2003, at least 36 million Brazilians have risen from the poverty level to the middle class, growing vehicle demand in the country.

But dealers are concerned that buyers increasingly are using the Internet to purchase cars in Brazil. Online sales have climbed 23.4% a year since 2005, nearly double the 11.8% gain in retail deliveries, according to a study by Bain & Co.

This trend likely will continue. Online sales in Brazil totaled BR19.9 billion ($9.8 billion) and should reach BR44.7 billion ($22 billion) in 2016, increasing at a rate three times faster than retailers’ income.