It may be too soon to tell, but the recent 30% increase in Brazil’s IPI (industrial product tax) announced in September, already appears to be having a significant influence on the sales of imported cars in the country. As mentioned in an earlier article, vehicles with less than 65% local content manufactured outside the South American Mercosur trade region or Mexico are about to be subject to a price hike due to the tax increase. The government claims the measure is aimed at “protecting local industry”, and at encouraging the local production of parts.
Vehicle prices are “about to” be increased because, right after the changes were announced, many importers and OEMs which have begun establishing local manufacturing activities in Brazil protested against the measure, claiming they needed time to organise and expand their stocks. By “time” they meant at least 90 days. The courts agreed, and the measure will now come into force on 15 December 2011.
Sales of imported cars fell by 41% in October compared to September…Even with this marked fall in sales, the total number of import sales in the ten months to October 2011 is still up by 98.3% compared to the same period a year earlier.
Even with the regular prices still valid, consumers have been alarmed by the constant speculation and flow of information concerning a subject which has dominated the media for the last two months. As a result, sales of imported cars fell by 41% in October compared to September, according to Abeiva, the Brazilian association of motor vehicle importers.
Even with this marked fall in sales, the total number of import sales in the ten months to October 2011 is still up by 98.3% when compared to the same period a year earlier. However, comparing the total number of import sales with sales of domestically-built vehicles raises questions about the threats really posed by imports: vehicles imported by Abeiva members (with no local maufacturing) currently account for just 5.92% of Brazil’s total vehicle sales.
For November and December, trends indicate a recovery in sales of imported vehicles, mostly because of December historically being a strong sales month. At the end of the year, many Brazilians spend their “13th salary”, a kind of bonus instituted by law. More money, more chances to buy. The projection is that by the end of the year, 200,000 imported vehicles will have been sold in the country.
There are those who say Brazil is taking a 30-year step back, to when the market was closed to imports. Now may be too soon to tell, but it will not be long before the real picture becomes clear.
What about 2012? Much has been discussed about the tax increase, with many pros and cons being listed every day. There are some concerns about price increases once domestic products face no competition whatsoever in the near future. One interesting development will be the opening of new local factories by foreign – mostly Chinese – companies, which aim to reduce costs on vehicles that would otherwise need to be imported, as well as parts.
Let’s hope the impacts of the tax increase turn out to be more positive than the various scenarios suggested by industry analysts and commentators. Will the market and consumers adapt to the new reality? There are those who say Brazil is taking a 30-year step back, to when the market was closed to imports. Now may be too soon to tell, but it will not be long before the real picture becomes clear.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Jeannette Galbinski is the Director of Setec Consulting Group (www.setecnet.com.br). Setec Consulting Group is one of the largest consulting, training and auditing companies in Latin America. Founded in 1994, it is headquartered in Sao Paulo, Brazil, with offices in Manaus (Brazil), Buenos Aires (Argentina) and Santiago (Chile).
Jeannette Galbinski has a doctorate in Production Engineering from the University of Sao Paulo (USP), M.Sc. Quality and Reliability from Technion Institute of Technology and a degree in Statistics from USP, and she specialised in Industrial administration at Fundacao Vanzolini. Jeanette is a certified Master Black Belt and international consultant specialised in implementing Quality Systems and Tools and Six Sigma projects. Jeannette also writes for Banas Qualidade, Brazil’s most recognised quality magazine.
E-mail: jgalbinski@setecnet.com.br
Twitter: www.twitter.com/Setecnet
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