As the year draws to a close, there’s time for a little reflection on the performance of the automotive market in Brazil, a market which has delivered a mixed bag of results.
In January, analysts were forecasting a 4% GDP growth for the full year. However, as we moved into the second quarter, estimates dropped to 1.2%. The first five months saw a year-to-date drop of 4.8% on vehicle sales, which in turn triggered government incentives such as a reduction in the industrial tax (IPI) of, on average, 5-7%, depending on engine size.
This has been an important year for new model launches from OEMs established in Brazil, and in particular Brazil-specific vehicles either developed locally or in global headquarters for the Brazilian market
Imports were also hurt by the 30% increase in IPI tax introduced back in December 2011. In the year to November, total sales of imports, from countries subject to a 35% import tax, were down 33.5% year-on-year. However, imports from countries that have a trade agreement and are not subject to the import tax – like Argentina and Mexico – improved by 1.9%. Imports from Mexico increased 75% this year, forcing the government to take measures to restrict the number of cars coming into Brazil. In April, import quotas not subject to the import tax were defined between the two countries, rising from US$1.45bn in 2012 to US$1.64bn by 2014. Vehicles that exceed this quota, however, are subject to the 35% import tax.
Heavy commercial sales were also affected due to a slowdown in industrial activity and lower than anticipated ‘pre-buy’ of Euro 3 emissions vehicles in 2011 ahead of the price increases that were to come with the implementation of Euro 5 in January 2012. The heavy commercial segment faced a 19% drop in sales overall this year, but a recovery has been seen in the last two months thanks to lower financing rates and industry recovery.
Local automotive production has seen a drop of 2% compared to last year, which was attributed to a 20% drop in exports. Overcapacity in many global markets makes it more difficult to export, but it must be noted that export markets account for only 13% of local production, unlike many other countries that rely mainly on exports.
Driven by incentives, the market recovered after a slow start, and the year is set to end with a 5.2% growth in overall vehicle sales
On a more positive note, this has been an important year for new model launches from OEMs established in Brazil, and in particular Brazil-specific vehicles either developed locally or in global headquarters for the Brazilian market. Highlights included the Chevrolet Onix, Fiat Grand Siena, Ford new EcoSport, and Hyundai HB20.
Hyundai opened its first wholly-owned plant to build the new HB20 compact car. Toyota also inaugurated its second plant to produce the Etios compact car, first launched in India. And other OEMs, including BMW, Chery, Fiat, JAC Motors and Nissan, are building new car plants that will open in the next two years.
Driven by incentives, the market recovered after a slow start, and the year is set to end with a 5.2% growth in overall vehicle sales. The outlook for Brazil in 2013 is for GDP growth of 4%, and the same rate of growth is expected for both vehicle production and sales.
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. Learn more about CARCON Automotive at www.carcon.com.br. Email: jgsemple@carcon.com.br.
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