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Daimler broke ground on a new passenger car plant in Iracemápolis, Brazil on 5 February, where it will assemble the Mercedes-Benz C-Class and GLA. Production starts in 2016, when the company will celebrate its 60th anniversary of industrial production in Brazil. The make has always grabbed a huge share in the commercial segment, but was not been very successful building cars. Between 1999 and 2010, more than 150,000 A-Class, C-Class and CLC were made in Juiz de Fora, a plant now used for heavy trucks.
However, local production will not translate into more affordable vehicles, Daimler officials have said that the cars made in Brazil – which will not be exported – will cost the same as those imported from Europe. Daimler is not the only one with this strategy. Recently, many OEMs have opened plants or localized production, but there have been no changes in the pricing policy. Import Tax in Brazil is 35%.
In July 2013, Mitsubishi localized the ASX (called Outlander Sport in the U.S.) in its Catalão plant. As a result, the prices went down between 1.1% and 1.5%, depending on the trim level. In that year, the crossover registrations were down 6.2% from 2012; last year, they grew 20.1%. In absolute numbers, that growth was of just 2,035 units.
BMW started assembling the 3-Series and the X1 in Araquari last year, but did not lower prices. Land Rover has announced that the Discovery Sport that it will assemble in Itatiaia starting in 2016 will cost the same as the one being imported from the United Kingdom until then. Chery surprised many when it said that the vehicles built at the new Jacareí plant will cost more than the ones imported from China.
How is that possible? Should customers pay less, considering that vehicles now do not pay the high Import Tax? OEMs say that it is expensive to produce in Brazil – labor, electricity, transportation of parts to the plants and of cars from the plants to dealers -- to which many refer as “Brazil cost.”
Local production should help companies to expand for reasons such as availability in the dealer network, which is expected to grow out of the main cities. But prices will still be an obstacle, mainly for the luxury market. The announced price for the Discovery Sport, for example, is BRL179,900 (approximately USD65,000 as the dollar reaches its highest value since 2004).
In a market that plummeted 7%, registrations of luxury vehicles soared 18.2% in Brazil last year. But they were only 1.7% of the industry. For 2015, we expect them to reach 2.1%, but our light vehicle forecast does not account the luxury segment with more than 3% until 2025.
Augusto Amorim is senior analyst, South American light vehicle production forecast, IHS Automotive
Posted February 10, 2015

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