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Brazil/Argentina: combined production capacity to reach 5.87 million units in 2014
New vehicle sales in Brazil grew to 3.14 million in 2009,
manufacturers launching more vehicles designed for South American Market

Combined production capacity in Brazil and Argentina totals 4.78 million a year; plant...
Fiat, VW, and GM each to increase annual production capacity in Brazil to 1 million; Ford...
Renault increasing vehicles produced in Argentina; likewise for PSA in Brazil
Toyota started constructing new plant in Brazil, Honda and Hyundai Motor resume construction...

Collaborative report with IHS Global Insight

Mid-term Production Forecast

Executive Summary

  In 2009, sales of new vehicles in Brazil increased 321,000 units year-on-year, to 3,141,000, surpassing the 3-million mark for the first time. Among this figure, Light Vehicle flex-fuel vehicles accounted for 88.2% of all vehicles sold. This is up 1 percentage point year-on-year. The volume of vehicles exported from Brazil fell by 259,000 units, to 475,000, with production volume declining 33,000 units, to 3,183,000. The decrease in exports is due to the slumping markets in both Argentina and South Africa, two of Brazil's major export markets.

  In December 2009, the Brazilian Association of Automotive Vehicle Manufacturers (ANFAVEA) announced its forecast for 2010. It estimates that new vehicle sales, exports, and production will grow by 9.3%, 12.2%, and 5.4%, respectively.

  In Argentina in 2009, unit sales of new vehicles fell by 125,000 year-on-year, to 487,000. The volume of vehicles exported also fell, by 29,000, making the yearly total 322,000. And production volume was down by 84,000 units, to only 513,000.

  The combined production capacity of major auto makers in both Brazil and Argentina is 4.78 million units a year, with Brazil accounting for 3.9 million and Argentina for 880,000. The top selling auto manufacturers (Fiat, VW, GM, and Ford) are all planning to expand their existing production facilities. Fiat, VW, and GM are each planning to boost their production capacity to 1 million a year in Brazil.

  In addition, Toyota, Honda, and Hyundai Motor will construct new plants. And China-based Chery Automobile announced that it has plans to build a plant in Brazil. As a result, the combined production capacity in Brazil of all manufacturers will increase by 1.05 million by 2014 and surpass the 5-million mark. In Argentina, the combined production capacity is expected to grow by 30,000 by 2014 and reach a level in the 900,000s.

  In line with each auto manufacturer increasing its scope of production, each is actively developing and launching new vehicle models designed for the South American market.

■Major auto manufacturers' production and development activities on new vehicles designed for South American market

■Combined production capacity in Brazil and Argentina totals 4.78 million a year; plant expansion and new plant construction projects will increase capacity by 1.08 million

  In early 2010, the combined annual production capacity in Brazil and Argentina of major auto manufacturers was 4.78 million, with Brazil accounting for 3.9 million and Argentina for 880,000. Auto manufacturers having large production capacities include Fiat at 1.02 million (800,000 in Brazil and 220,000 in Argentina); VW at 900,000 (800,000 and 100,000), GM at 900,000 (800,000 and 100,000), and Ford at 590,000 (500,000 and 90,000).

  In Brazil, Fiat, VW, and GM are each planning to boost the production capacities of their existing plants in the range of 200,000 a year, while Ford is planning to boost it in the range of 50,000.

  In Brazil, Toyota is currently constructing a new plant that will be capable of producing 150,000 a year; and in Argentina, Honda is building a new plant that will be capable of producing 30,000 a year. Also in Brazil, Hyundai Motor is planning to begin constructing a new plant in the first half of 2010 capable of producing 100,000 a year. In May 2009, China-based Chery Automobile announced that it plans to build a plant in Brazil, which will have a production capacity of 150,000 per year.

■Brazil: major auto manufacturers' plants

■Argentina: major auto manufacturers' plants

■Fiat, VW, and GM each to increase annual production capacity in Brazil to 1 million; Ford also plans to boost capacity

■VW announces plans to increase annual production capacity in Brazil to 1 million; launches production of new pickup in Argentina

  VW is planning to enhance its two plants in Brazil so as to boost its production capacity by 200,000 by 2014, when it will have a total capacity of 1 million. In Argentina, the company started producing its first proprietary pickup, the Amarok, in December 2009. It plans to export it to Europe starting in the summer of 2010.

■In Brazil, VW boosts its production capacity from 800,000 to 1 million a year

■GM boosts annual production capacity in Brazil to 1 million; produces new vehicle, the Agile, in Argentina

  GM is planning to boost its production capacity in Brazil by 200,000 units to achieve 1 million a year by 2012. In addition, the company will develop two new vehicle models designed for South America under the Chevrolet brand. In September 2009 in Argentina, it started producing the Chevrolet Agile, a new vehicle model that it developed in Brazil.

■GM in Brazil will develop two new vehicle models designed for South America, with plans to enhance its Gravatai plant

■Ford developing new models to be produced in Brazil; company boosting annual production capacity by 50,000, for yearly total of 550,000

  Between 2010 and 2014, Ford will revamp its plants in Brazil and develop new models that it will produce in Brazil. The company will boost the production capacity of its Camacari plant by 50,000, so the yearly total will reach 300,000 a year. The combined production capacity, which includes that of its Sao Bernardo do Campo plant, is planned to reach 550,000 a year.

■Ford increases annual production capacity of its Camacari plant in Brazil from 250,000 to 300,000

■Fiat develops successors to Palio and Uno in Brazil

  Fiat is currently developing successor vehicles to the Palio and the Uno in Brazil, expecting to start production of them in 2010. The company is also considering producing Chrysler's pickup, the Dodge Dakota, in Argentina.

■Fiat to develop and produce successors to the Palio and Uno in Brazil

■Renault increasing vehicles produced in Argentina; likewise for PSA in Brazil

■Renault's Argentine plant positioned as an export hub for the Clio/Symbol and Kangoo

  In February 2009, Renault began producing the Symbol in Argentina. The company has positioned its Santa Isabel plant in Argentina as an export hub for the Clio/Symbol and Kangoo.

■Renault starts producing the Symbol at Argentine plant

■PSA will produce a new MPV and pickup in Brazil

  PSA is planning to start production of a new MPV and pickup in Brazil in 2010.

■PSA will produce a new MPV and pickup in Brazil

■Toyota started constructing new plant in Brazil, Honda and Hyundai Motor resume construction of their new plants

■Toyota is expected to produce a new vehicle model, the Etios, at its new plant in Brazil starting in 2011

  In August 2009, Toyota began constructing its new plant in Sorocaba, Brazil, planning to start operations in 2011. The new plant is expected to manufacture the Etios, a new vehicle model designed for the BRIC countries and unveiled in India in January 2010.

■Toyota's second plant in Brazil to come online in 2011: plant expected to produce a new vehicle model, the Etios

■Honda's new plant in Argentina to come online in spring 2010; company adding the City to production lineup in Brazil

  Honda's new plant in Argentina will commence operations in the spring of 2010, about half a year later than originally planned. Honda suspended construction activities at the plant in 2009. However, the exact timing when the plant will start full commercial production is still not known. In Brazil, where Honda manufactures its current Fit and Civic models, it added the City to its production line up in July 2009.

■Honda's new plant in Argentina to come online in April 2010

■Hyundai Motor to begin constructing new plant in Brazil, plans to start operations in the latter half of 2011

  Hyundai Motor will begin constructing a plant in Brazil in the first half of 2010, planning to start operations in the second half of 2011. The new plant, which will be capable of producing 100,000 units a year, is planning to produce the i20 and others.

■Hyundai Motor is expected to start constructing new plant in Brazil in the second quarter of 2010

(Appendix)

Mid-term Production Forecast by IHS Global Insight

Brazil: Light vehicle production by Manufacturing group (IHS Global InsightForecast)

(Unit)

	Brand	2008	2009	2010	2011	2012	2013	2014	2015
AGRALE	AGRALE	231	105	205	244	274	290	321	331
CHERY	CHERY	0	0	0	0	0	2,715	25,214	27,641
DAIMLER AG	M-BENZ	27,095	16,110	20,998	17,152	14,184	0	0	0
FIAT	FIAT	722,447	763,744	766,803	794,116	818,974	838,451	857,240	887,925
	IVECO	6,834	5,805	5,431	5,482	5,567	5,620	5,983	6,467
FORD	FORD	297,206	319,366	314,521	302,203	327,001	351,384	352,205	357,816
GM	CHEVROLET	579,507	589,102	590,647	580,382	595,758	603,661	613,487	632,237
HONDA	HONDA	131,139	137,346	157,406	154,033	164,415	158,076	130,878	130,214
HYUNDAI	HYUNDAI	0	6,950	12,169	12,716	12,548	56,911	61,767	60,246
MITSUBISHI	MITSUBISHI	37,203	32,891	39,479	40,487	40,957	42,552	45,029	47,077
NISSAN	NISSAN	5,316	17,644	19,731	21,264	21,648	22,193	22,765	22,558
PSA	CITROEN	63,332	47,779	60,777	88,837	103,265	104,952	103,997	106,848
	PEUGEOT	83,489	72,740	89,058	88,379	87,043	87,555	87,510	89,776
RENAULT	RENAULT	128,621	120,411	113,654	102,819	110,748	112,282	125,424	141,655
TOYOTA	TOYOTA	66,983	61,795	60,043	79,579	164,017	167,901	185,178	188,693
VW	VW	717,009	773,591	799,809	840,212	846,169	850,525	852,796	882,084
Total		2,866,412	2,965,379	3,050,731	3,127,905	3,312,568	3,405,068	3,469,794	3,581,568

Argentina: Light vehicle production by Manufacturing group (IHS Global InsightForecast)

(Unit)

	Brand	2008	2009	2010	2011	2012	2013	2014	2015
DAIMLER AG	M-BENZ	31,159	12,070	15,422	17,786	19,423	23,358	24,499	25,127
FIAT	FIAT	28,700	75,397	60,188	59,285	52,983	53,805	56,287	59,165
FORD	FORD	83,643	74,994	78,869	79,969	80,160	88,300	90,872	96,109
GM	CHEVROLET	111,911	80,085	105,694	104,298	105,622	109,422	109,482	110,011
HONDA	HONDA						12,650	40,253	41,888
PSA	CITROEN	41,548	32,331	41,167	45,237	48,387	51,168	52,157	52,577
	PEUGEOT	90,243	48,528	63,668	75,861	79,337	84,163	88,452	90,134
RENAULT	RENAULT	73,336	64,377	76,640	93,832	96,774	98,126	102,200	108,582
TOYOTA	TOYOTA	64,539	62,264	60,180	61,662	64,052	68,527	71,821	74,376
VW	VW	63,156	52,619	95,629	105,812	107,862	108,833	112,188	120,197
Total		588,235	502,665	597,457	643,742	654,600	698,352	748,211	778,166

Source: Global LV Production Data (as of January 27, 2010)
(Note)
1. Data indicate figures of only small-size vehicles, including passenger cars and light commercial vehicles with a gross vehicle weight of under 6 tons. Trucks and buses in the segment of larger than medium-size vehicles are not included.
2.Data for 2009 are based on estimated figures.
3. All rights reserved. Reproduction of any data will require permission of IHS Global Insight.

IHS Global Insight Report (Released on 11 Jan 2010)
Brazil: Brazilian Light-Vehicle Sales Finish 2009 with 51.1% Y/Y Jump in December; Production Skyrockets 164%
Brazilian vehicle sales ended 2009 on a high note, while production soared as automakers attempted to catch up with the increase in demand.

IHS Global Insight Perspective
Significance	Despite the elimination of tax incentives, vehicle sales remained strong in December, up 51.1% year-on-year (y/y), meaning that full-year sales were up 12.6% from 2008.
Implications	December 2008 was not a great month for sales, making the y/y comparison somewhat skewed, but the fact that sales remained high last month despite the ending of government tax incentives is encouraging.
Outlook	Brazil's strong economy and quicker recovery than the rest of the world have led to positive sales and production forecasts for 2010.

Production rose dramatically during December as automakers rushed to meet returning demand. Light-vehicle production soared 163.9% y/y to 237,239 units, although this was 13.6% lower than November's 237,010 units. Overall for the year, production was up only marginally, by 0.7% to 3.025 million units. Exports, a mainstay of the economy, also saw some return to growth in the final month of the year, but again this was against a low base of comparison as December 2008 was a terrible month. Light-vehicle exports were up 22.3% y/y in December 2009 at 50,407 units, with the tally rising 6.5% m/m. For the full year 2009, exports were down sharply, by 33.6% to 451,924 units, as the rest of Latin America cut back on purchases. A return to sustained export growth is the biggest challenge for the Brazilian market, according to Schneider, especially in the face of a 34% appreciation in the value of the Brazilian real against the U.S. dollar. This is also likely to make imported vehicles more of a threat to locally made products. "We will have to fight to get back our pre-crisis market share because of difficult market conditions and the strength of the Brazilian real", said the executive.
Last month, Schneider stated that Anfavea expected sales of 3.4 million vehicles in 2010, and production of 3.39 million units. "The forecasts are positive and realistic because we expect higher incomes and more consumption in Brazil next year", he said. These forecasts have been maintained following the December results, according to reports. In a tough global market, Brazil's robust performance has been a bright spot and a saving grace for the big four vehicle manufacturers operating in the country—Fiat, Volkswagen (VW), General Motors (GM), and Ford. VW finished 2009 on top of the Brazilian market with sales of 627,915 cars, up 19.1% y/y. Fiat came second with sales of 619,017 and more modest growth of 11.0% y/y; GM sales rose 7.2% y/y to 502,320 units; and Ford registered 22.7% y/y sales growth to 235,063 units. In December, the sales title went to Fiat, however, which recorded a 54.2% y/y boost to 54,440 units, while VW posted a weaker increase of 39.7% y/y to 51,952 units.

Outlook and Implications
December's sales numbers were strong, but the percentage gains must be taken in context: December 2008 was one of the weakest months in years, distorting the y/y comparisons. Nevertheless, despite the gradual phasing out of tax incentives, the car market continued to witness very respectable demand during the month. The tax incentives provided by the government for new car purchases last year resulted in a roughly 7% discount for new vehicles, according to Anfavea. This helped Brazil weather the worst of the downturn quite well, and indeed it was able to report a third consecutive year of record growth. This was largely thanks to the government's astute strategy in combating the recession. The overall Brazilian economy is looking significantly stronger than many of its counterparts, although the government must remain cautious with regards to the extension of its anti-crisis measures. However, it is indicating that it will continue doing whatever it can to protect vulnerable sectors and stimulate faster economic growth, as demonstrated by the decision to maintain some incentives in the car market.
The growth in the Brazilian vehicle market last year underlined the success of the government's significant and multi-layered approach to stimulating sales. The extended suspension of the IPI purchase tax, coupled with the Central Bank of Brazil's efforts to underpin car financing operations in the country, lifted new car buyers' confidence, as did the significant drop in car prices. Nevertheless, Anfavea and other observers, including IHS Global Insight, remain concerned that the interim reduction in the purchase tax will result in a conclusive drop in sales volumes now that this support has been withdrawn completely. However, this sentiment is tempered by the better-than-expected results for 2009: Anfavea had expected production to fall by 5.2% y/y last year, the first decline since 2002, yet production actually slipped by only 1.0%, including heavy commercial vehicles, buses, and trucks.

 

The cost of the IPI tax break to the government amounted to roughly 1.36 billion reais (US$612.8 million) per quarter. The automotive industry accounts for roughly 8% of GDP in Brazil, which has made support for the sector a government priority. At the same time, the government has worked aggressively to reduce the spread on automotive credit lines, with banks, including the Central Bank of Brazil, reducing short-term interest rates (SELIC). The SELIC has been heavily discounted in recent months and currently stands at 8.75%. IHS Global Insight now expects some moderate growth in 2010, given the reduction in interest rates, which is making borrowing cheaper, while financing plans of 72 and 84 months are surfacing again, which should also boost demand despite the absence of the tax incentives that kept sales afloat during the recession months.

IHS Global Insight Report (Released on 13 Jan 2010)
Argentina: Argentine Vehicle Sales Rise 25% Y/Y in December, Production Leaps 112% Y/Y
Argentine vehicle sales rose for the second month in a row during December, although this was largely thanks to a low base of comparison.

IHS Global Insight Perspective
Significance	December's figures for Argentine vehicle sales, production, and exports are heavily distorted by a low base of comparison, but they nevertheless show that the market stabilised at a consistent level during the latter half of 2009.
Implications	Much of Argentina's production and exports has been reliant on its neighbour and key export market, Brazil, which has performed well thanks to a strong economy underpinning demand in the market.
Outlook	Stability in production and exports is likely in 2010, but the outlook for the domestic market is more cautious, particularly as political meddling worsens, with a likelihood of further mild contraction this year.

Argentine vehicle sales at the wholesale level (manufacturer to dealer) rose for the second successive month in December, helped by the extremely low base of comparison provided by the December 2008 data. According to data from local industry association ADEFA, light-vehicle sales rose 25.4% year-on-year (y/y) to 44,850 units in the month, which also equates to a 7.3% rise from November, when 41,818 units were sold. The December 2008 total was one of the lowest in Argentina for years as the country was in the grip of the global financial crisis and credit crunch, which affected many markets across the world. Light-vehicle sales at the retail level (dealer to consumer) were also up in December, by 18% y/y, but at the significantly lower level of 22,117 units, according to data from dealer association ACARA. The discrepancy between wholesale and retail sales is typical for December as dealers stock up for the strong sales month of January; furthermore, ADEFA includes heavy-truck and bus data in its figures. The ADEFA data put wholesales for the full-year 2009 down 20.4% y/y at 487,142 units, some 135,000 units lower than in the same period last year, while ACARA data show that retail sales at the light-vehicle level were down some 14.3% y/y at 492,905 units.

Argentine vehicle production meanwhile also rose for just the second time in 2009 during December, jumping 99% y/y to 53,152 units as the weak base comparison month of December 2008 again distorted the statistics. Production was again down slightly month-on-month (m/m), slipping 5.9% from November's 56,493 units. Production for the full year was down 14.1% y/y, but it appears evident that the crisis is subsiding and demand from the key export market of Brazil is helping normalise production levels in the Argentine auto industry. Exports rose by 112.3% y/y in December to 34,559 units, underpinned by the aforementioned demand from Brazil, although again the statistical rise is largely meaningless against the anomalous data of December 2008. Meanwhile, exports fell 12.1% m/m from November's 39,337 units. However, exports to all markets were down in full-year 2009 compared with 2008, by 8.1% y/y to 322,495 units. Nevertheless, this represented a considerable recovery from the situation earlier in the year and was largely thanks to the robust Brazilian economy and the successful stimulus packages operating within Argentina's neighbouring market.

Outlook and Implications
Argentina's vehicle market recorded its second rise of 2009 in December as the impact of the financial crisis that began in the final quarter of 2008 distorted the statistics. December's sales were marginally lower than the November total, which was itself a little lower than the October figure, but this is typical for this time of year and the figures underline the fact that sales have stabilised in Argentina at around 40,000-45,000 units per month, not a bad result given the fragile nature of the political and economic landscape.

The government's financial stimulus package, worth some 3.1 billion pesos (US$806.7 million) and intended to boost new vehicle sales in the country, has failed to have the desired effect despite offering cheap loans to first-time car buyers and driving the purchase of cheaper and fuel-efficient cars. Argentina's over-complicated and narrowly focused stimulus plans contrast sharply with the Brazilian government's package of measures, which has had clear success in mitigating the worst effects of the downturn. Dealer association ACARA has highlighted a local media study of the stimulus plan that indicated that only about 5% of planned sales were completed thanks to the new government loan package. Dealerships say that the loans are too complex and apply to too few cars to boost sales. Indeed, local media have reported that public banks have had to return around 200 million pesos in government funds because of a lack of consumer interest in using the money to buy cars.

Overall economic expansion has slowed since September 2008 and there is little doubt that the global economic and financial crisis has taken its toll on Argentina. Lower commodity prices and weaker demand for the main Argentine exports have reduced both export and fiscal revenues, affecting growth prospects and the government's capacity to stimulate the economy. At the same time, expansion of domestic consumption, an important engine of growth in Argentina, has been decelerating as consumer confidence has shrunk in response to the deteriorating business climate. Worst of all, the financial system has become more cautious in its lending policies as non-performing loans (NPLs) are increasing, making it more difficult for consumers and firms to find adequate sources of financing. On the domestic front, the adverse business environment created by the government has hurt consumption and investment decisions, reducing domestic demand precisely when it is most needed. Moreover, far from saving the money accrued from fiscal surpluses during the last years of the boom --money that could now finance fiscal programmes during the downturn-- the government conducted an aggressive policy of fiscal expansion, creating unnecessary distortions in the economy. Furthermore, the government has now destabilised the role of the central bank by ousting its head without following the proper procedure over a disagreement on spending.

IHS Global Insight expects Argentine GDP to have contracted by 1.9% in 2009, before recovering to growth of 2.0% and 4.2% during 2010 and 2011, respectively. For this reason, IHS Global Insight is not projecting a return to 2008 light-vehicle volumes in the foreseeable future. Our initial forecast for the Argentine market in 2010 is for another decline, of around 470,000 units compared with 2009.