Brazil extends tax breaks to achieve 4 million record-high sales in 2013
Import restrictions impact Argentina's sales results
In Brazil and Argentina, the automotive industry has been influenced by the governments' protectionist measures and complex tax systems.
Brazil's vehicle sales in 2012 reached a record high of 3.8 million units despite a stagnant economy. The government tax breaks on car purchases introduced in May 2012 helped achieve record sales. On the other hand, production in the same year declined by 1.9% y/y to 3.34 million units.
In May 2013, Brazil National Association of Motor Vehicle Manufacturers (ANFAVEA) released the 2013 automotive market outlook. Thank to tax breaks extended until the end of the year and expected GDP growth of 3%, ANFAVEA forecasts that Brazil's auto sales volume in 2013 should rise 3.5% to 4.5% from a year ago to around four million units and production to 3.5 million units, up 4.5% y/y (including mid-sized/large commercial vehicles).
Recently, the Brazilian government decided to raise the industrial products tax (IPI) rate for imported vehicles by the end of 2017 to protect the domestic auto industry. Brazil's new automotive policy for 2013-2017 also encourages domestic vehicle production by exempting the aforementioned IPI tax rate increase for the automakers that commit to localizing their production processes and investing in research and development in the country. In response to the new policy, Fiat, VW, GM, and many other OEMs which already have their plants in Brazil, have boosted their production capacities while BMW as well as a number of Chinese manufacturers including JAC and Chery plan to build new factories. Among Japanese OEMs, Toyota has completed construction of its new plant and launched a new compact Etios; Nissan is scheduled to produce the March and the Versa at a new plant with an annual capacity of 200,000 units; and Honda has been enhancing research and development capabilities in Brazil.
Argentina's auto sales in 2012 fell by 6.0% y/y to 830,000 units while its production for the year dropped to 764,000 units, down 7.8% y/y. Sales of imported vehicles significantly declined due to the government's import restriction measures. A fall in production should be attributable to late deliveries of the parts affected by the import restrictions and vehicle sales downturn for the first half of 2013 in Brazil, Argentina's top export destination. For the period from January to April in 2013, Argentine sales and production have increased over the same period last year.
According to LMC Automotive's forecast disclosed in Q1 2013, light vehicle sales in Brazil for 2013 are expected to increase by 3% y/y to 3.8 million units, supported by an economic recovery. In Brazil, growing protectionist tendencies, structural problems, and twin deficits (current account and budget) remain major concerns for long-term investment and economic growth. An expected recovery in investment ahead of the 2014 Soccer World Cup and the 2016 Olympic Games will help support job creation and income growth, in turn helping to sustain vehicle sales growth. LMC Automotive anticipates that sales should reach 4.6 million units by 2016 and continue to increase until 2020.