Full year results are likely to show Brazil as the 5th largest automotive market; it could even hold on to 4th place for a second year, depending on Germany’s full year results. Unlike Germany and other big automotive exporters such as South Korea, however, Brazil relies mostly on its internal market for growth.
After decades of high inflation, high interest rates and even default on international loans, Brazil’s economy began to improve in the mid-1990s with the creation of the new Real currency. Getting inflation to one digit was key to increasing consumer confidence and buying power. The stabilisation of the economy and the government’s increase of the minimum wage enabled the expansion of Brazil’s middle class, which in the last eight years saw 36 million people move from the lower D/E classes up to the C class; additional jobs were created with the expansion of all business sectors. Unemployment, which was 13% a month in 2003, gradually improved and last November reached a record low of 5.2%.
Full year results are likely to show Brazil as the 5th largest automotive market; it could even hold on to 4th place, depending on end-of-year results in Brazil and Germany.
International reserves have also improved considerably. Once indebted to the IMF, Brazil paid off its loans, and now commands international reserves of US$352bn, up US$147bn from 2008. Thanks to improvements in the economy, Brazil received an investment grade credit rating for the first time from Standard & Poors in 2008, Fitch and Moody’s soon followed. All three agencies further improved Brazil’s ratings in 2011, and in December 2011, the UK-based Centre for Economics and Business Research (CEBR) said its latest World Economic studies indicate that Brazil overtook the UK in 2011 as the world’s sixth largest economy.
But there’s still room for improvement in the economy. Even though Brazil’s interest rates have come down, they are still among the world’s highest. Furthermore, whilst the strengthening of the local currency has helped commodity sales to countries like China, it has also made imports cheaper, affecting the local industry.
The automotive industry, however, has benefited from the stabilisation of the economy and the expansion of the middle class, which can now afford new car purchases. According to Fenabrave, the national dealership association, vehicle sales in 2011 totalled 3.633 million, a 3.3% increase over 2010. This includes 3.425 million units of cars and light commercial vehicles, and 207,400 trucks and buses. Fenabrave forecasts light vehicle sales to rise 4.5% in 2012, with a 9.6% rise in HCV sales.
The UK-based Centre for Economics and Business Research (CEBR) said its latest World Economic studies indicate that Brazil overtook the UK in 2011 as the world’s sixth largest economy.
The growth of the automotive market, and the relatively closed nature of the Brazilian market, has seen light vehicle OEMs and truck manufacturers plan combined investments of US$26bn from 2010 to 2015. New plants are being set up by Fiat, Nissan, Toyota, Hyundai, Suzuki and Chery, as well as expansions to existing plants by GM, Ford, Mercedes-Benz, Volkswagen, MAN, PSA Peugeot Citroen, Mitsubishi, Renault and Volvo. Other brands are planning to establish manufacturing facilities, such as JAC Motors, BMW, Foton Trucks, Navistar (International), Paccar (DAF), Shacman and Sinotruk.
Suppliers will follow the OEMs, and plan to invest US$12bn from 2010 to 2015. Some of these investors are giant multinationals, such as Delphi, which saw its local revenue rise from US$300m in 2003 to US$1.2bn in 2010, and Magna, which had sales of US$120m in 2009, and is forecasting US$1bn by 2014.
There appears to be some truth in the words of former President of Brazil, Luis Inácio Lula da Silva, speaking during the 2008 crisis: “With our current economy, a tsunami in the northern hemisphere will only cause little waves in our country”; and current “economic tsunamis” in Europe appear to be causing only very little waves in South America’s largest country.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Julian Semple is a Senior Consultant and Manager at CARCON Automotive in Sao Paulo, Brazil.
Julian Semple’s eight years as an automotive industry consultant were preceded by 27 years in automotive industry management positions, with responsibility for business strategy, cost management, manufacturing and product development at large corporations including Visteon and Ford in South America and North America.
CARCON Automotive specialises in market intelligence, product and business strategy in the Brazilian and Argentinean automotive markets. Clients include major automotive OEMs and Tier 1 suppliers.
Learn more about CARCON Automotive at www.carcon.com.br
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