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Brazil Autos Report Q4 2011
Business Monitor International, Sep 2011, Pages: 73
Business Monitor International's Brazil Autos Report provides industry professionals and strategists, corporate analysts, auto associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Brazil's automotive industry.
BMI’s core view about the Brazilian passenger car sales heading for a significant cooling in H211 is beginning to play out. In what is seen as the first signs of a cooling in Brazil's so far resilient vehicle demand, market leader Fiat has revealed it will be looking to decrease production in Brazil and Argentina. Although Fiat says this is 'a technical stop', it has also indicated it is suspicious about the trade row between Brazil and Argentina.
However, BMI’s concerns for Brazil stem from the ongoing macroeconomic issues domestically. Much of the growth in the Brazilian vehicle sales has been fuelled by rampant credit growth. However, there are fears that debt problems in Brazil could be on the rise and if there is a sharp uptick in non-performing loans, availability of credit will become very limited. This will be made worse by the soaring inflation in the country, which exceeded the upper limit of the government's target range for the third consecutive month in June 2011, to 6.71%, according to national statistics agency estimates. BMI therefore expects end- 2011 passenger car growth to be limited at 8.4% y-o-y, followed by a more moderate 7% growth in 2012.
Meanwhile, the slowdown in production to a modest 4.1% y-o-y rise, to 1.71mn units, in H111has prompted BMI to slightly revise down its 2011 forecast to a 6% y-o-y growth in production, to 3.87mn units. There is downside risk to this forecast, however, if the appreciation of the real and the consequent loss of competitiveness results in slowing demand for Brazil’s auto exports.
Despite these concerns, Brazil stands firmly on the third position of BMI’s Risk-Reward ratings for the autos industry in the Americas, with a total score of 70.3 points – mostly on the back the size of its autos market, overall consumer optimism and the credit boom making it one of the significant outperformers in the region.
Going forward, Brazil is expected to maintain its position as the market retains its attractiveness to new and existing industry players. In May 2011, US truck maker Paccar recently revealed plans to invest close to US$200mn towards building a truck plant in Brazil in the next two years. In the same month, Indian firm Bajaj Auto announced plans to make inroads into the Brazilian motorcycle segment through the launch of its KTM Duke model by the end of this year. Meanwhile, France's Michelin has allocated a hefty EUR800mn (US$1.16bn) investment towards local manufacturing in Brazil, which is one of the tyre maker's priority markets, alongside China and India. Michelin's investment comes less than a month after Continental announced plans to make a US$210mn investment in Brazil in March 2011.
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