Brazil: Vehicle sales decline for second consecutive year due to weak economy
Policies to protect domestic industries lead to continued investments in Brazil
Automotive industry at crossroads
Brazil became the world's fourth largest vehicle market, overtaking Germany in 2010. The country is also ranked 7th worldwide in terms of vehicle production volume in 2013, and has established itself as one of the major countries in the automotive industry in recent years.
In 2013, however, its new vehicle sales fell for the first time in 10 years to 3.77 million units, a fall of 0.9% from a year earlier. In addition, the government has repeatedly extended a policy designed to protect automakers which build vehicles locally. This also affects the country's automotive industry.
Outlook for 2014 sales to decline, influenced by weaker economy, inflation and World Cup soccer
New vehicle sales in Brazil in the first half of 2014 continues to decline, down 7.6% to 1.66 million units year-over-year(y/y). This decline in sales is due to a sluggish economy, high inflation and a credit squeeze as well as more public holidays because of the World Cup soccer.
In response to weak sales, the Brazilian Association of Automotive Vehicle Manufacturers (ANFAVEA) revised downward its estimate for vehicle sales in 2014 to 3.56 million vehicles, down 5.4% y/y. Brazil Automobile Dealers Association (Fenabrave) also revised down its sales forecast to 3.46 million vehicles, a y/y decrease of 8%.
These forecasts were made before the Brazilian national team suffered a defeat and finished in fourth place at the World Cup. It is of interest how this defeat against Brazilian's expectations will affect consumer confidence.
Brazil's domestic industry protection policy and increased investments on local production
In order to protect its domestic industry, the Brazilian government raised the Industrial Production Tax (IPI) rate for imported vehicles by 30 percentage points until the end of 2017. In addition, in its New Automotive Policy for 2013 through 2017, the government states that it will exempt the 30 percentage point increase on IPI on condition of the localization of the manufacturing processes and investments on research & development, thereby urging local production of vehicles. In response, the three German premium brand automakers are building their local plants. Many other automakers are also making efforts to expand their production capacities and increase local procurement in Brazil.
Japanese suppliers in Latin America (Part 2): Trends in Brazil and Mexico (Mar. 2014)