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Here is another fact illustrating that Brazil is not helping that image many had of BRIC countries being the engine of global growth: for the first time since 2009, Brazil is poised to build less than 3 million light vehicles. From last year’s 3,459,283 units, 2014 will face a 13.6% drop, to 2,987,193 cars and light commercial vehicles. In comparison, five years ago, the country made 2,929,445 units.

What went so bad this year? There are internal and external factors that need to be taken into account. Let me start with Brazil’s own challenges.
Last year, new vehicle registrations slid 1.6%, signaling that demand was cooling down. This year, they are forecast to dip another 8.6%, to 3,260,750 units. With these numbers, Brazil should end 2014 behind Germany, falling to the fifth place in the global ranking. Some reasons that explain this year’s bad performance are:

  • Consumer confidence in Brazil has been at the same level as in 2009 – and reached 2008 percentages in November
  • Banks tightened credit, and credit is critical for the Brazilian auto industry. Around 70% of new cars leaving the dealer network are financed
  • Inflation is above the Central Bank’s target, forcing it to raise interest rates and impacting car finance. According to the Central Bank, BMW offered the lowest interest between November 24th and 28th, at a yearly rate of 10.7%, followed by Renault (12.7%)
  • New light vehicles got more expensive to comply with new safety regulations requiring them all to have airbags and ABS
  • Brazil hosted the World Cup, which made registrations plummet 17.4% in June alone compared with June 2013, as consumers were more focused on the games rather than purchasing vehicles. On top of that, days when the national soccer team plays during a World Cup shut down the country, with businesses closed
Light vehicles made in Brazil are basically sold just in Brazil, with only about 20% of production being exported. So exporting helps the country’s output only if Argentina does well – at least 40% of Brazil’s exports go to Argentina. That is what happened in 2013: while local demand was cooling down, registrations in Argentina soared 12.4%. But that country is now dealing with its own economic problems. New taxes were put in place and made cars more expensive. Argentina had been limiting imports, and the government has restricted access to foreign currency even more after the country went into a default.

For 2015, production in Brazil should benefit from new plants coming online. It will the first full year of production at Nissan, Chery and BMW plants, and Fiat and Honda will open their second production facilities in the country. New products will also help to boost the numbers – and many of the new entries, such as the Honda HR-V, the Peugeot 2008 and the Audi A3 are aimed at the higher end of the market. Buyers of more expensive vehicles still have access to credit, which helps the industry to keep going.
Localizing vehicles such as the Nissan Versa and the Volkswagen Jetta and launching products will help output to grow 1.6% next year. However, light vehicle production forecasts from IHS Automotive indicate that Brazil will go back to the 2013 level only by 2018.
Most certainly, OEMs, suppliers and dealers are happy that 2014 is coming to an end. IHS Automotive foresees a still challenging 2015, but better times will be ahead. Happy holidays!
Augusto Amorim is senior analyst, South American light vehicle production forecast, IHS Automotive
Posted December 16, 2014

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