Brazilian government increases tax rate for imported cars
Restricts tariff-free imports from Mexico
The following reports mainly the activities during the last one year in Brazil and Argentina. The protectionist measures by the two governments are currently having a huge impact on the automotive industry.
In 2011, sales of vehicles in Brazil totaled 3.633 million units, up by 3.4% year-on-year. Yet, sales of vehicles in Brazil made a year-on-year decrease in the October-December period; those in the January-March period of 2012 also fell by 0.8%. In 2011, sales of imported cars increased by 30.0% to 858,000 units due partly to appreciation of real; the ratio of imported cars surged to 23.6%. Among imported cars, imports of vehicles made by Korean and Chinese OEMs, which do not produce vehicles locally, surpassed 200,000 units.
The Brazilian government increased the tax rate of "IPI (Industrialized products tax)" for imported cars by 30 percentage points in December 2011 in order to minimize the increase of imported cars and to protect employment and investment in Brazil.
In March 2012, the Brazilian government also reached an agreement with the Mexican government, asking for restrictions on surging imports from Mexico. During the three years from March 2012 to March 2015, the government sets a ceiling on the value of tariff-free imports from Mexico (the 2012 ceiling is 70% of the 2011 actual import value).
In 2011, Korean and Chinese OEMs significantly increased imports and sales in Brazil, but since the tax rate of IPI for imported cars is increased, several OEMs are currently planning to produce vehicles locally in Brazil.
In 2011, Argentina produced and sold the record highs of 829,000 and 884,000 vehicles, respectively. More than 60% of production are exported; imported cars continue to account for more than 60% of vehicles sold in Brazil. The Argentine government requests that OEMs that produce vehicles locally should increase exports and that the Mexican government should take the same measure to limit exports as it does to Brazil.
Vehicle sales in Brazil register year-on-year decline starting in October 2011, while sales of imported cars increase.
In 2011, sales of vehicles in Brazil increased by 3.4% year-on-year to 3.633 million units. Yet, in the October-December period, sales in Brazil made a year-on-year decrease due to measures against economic overheating including loan restrictions. Also in the January-March period of 2012, sales fell by 0.8%. Among vehicles made in Brazil and imported cars, sales of imported cars grew by 30.0% to 858,000 units due partly to appreciation of real (32% higher against the dollar than the rate at the beginning of 2009), while sales of vehicles made in Brazil fell by 2.8% to 2.775 million units. The ratio of imported cars climbed to 23.6%.
Among imported cars, sales by OEMs which do not produce vehicles locally, but which sell only imported cars (they are not members of ANFAVEA (Brazil National Association of Motor Vehicle Manufacturers) and are mainly Korean and Chinese OEMs) almost doubled to 202,000 units.
Since sales of vehicles made in Brazil declined, Brazil's vehicle production increased only slightly by 0.7% in 2011, while it fell by 10.9% in the January-March period of 2012.
Production and Export in Brazil
|2007||2008||2009||2010||2011||Jan.-Mar. 2011||Jan.-Mar. 2012|
(Note) About three fourths of the exports are for Argentina.
Vehicle sales in Brazil
|2007||2008||2009||2010||2011||Jan.-Mar. 2011||Jan.-Mar. 2012|
Breakdown of the imported cars
|Non locally-manufacturing OEMs||25,383||40,842||54,430||110,604||201,932||36,743||36,031|
Source: ANFAVEA (Brazil National Association of Motor Vehicle Manufacturers)
Brazilian government raises the tax rate for imported cars and limits tariff-free imports from Mexico
The Brazilian government increased by 30 percentage points the tax rate of IPI (Industrialized products tax) for imported cars and locally-made cars with local-content ratio of less than 65%, which took effect in December 2011. This is a move to limit the number of imported cars and to protect employment and investment in Brazil.
Since three fourths of the imported cars are imported by OEMs that produce vehicles locally in Brazil and are exempted from the 30 percentage points IPI rise, this IPI rise is said to protect the top four European and US OEMs that produce vehicles locally in Brazil and is to be targeting Korean and Chinese OEMs, which are rapidly increasing the number of imported cars without manufacturing locally.
In addition, in March 2012, the Brazilian government reached an agreement with the Mexican government on the restriction of imports from Mexico, which is surging, and also requested that the standard of local-content ratio for tariff-free imports should be raised; the agreement came into effect on March 19 (the 2012 ceiling is 70% of the 2011 actual import value).
Among Japanese OEMs, this IPI rise is said to affect Nissan, Mazda, and Honda, which are currently planning to increase exports from Mexico to Brazil (Toyota does not export vehicles from Mexico to Brazil).
"IPI (Industrialized products tax)" is increased by 30 percentage points starting in December 2011
|Brazil imposes IPI (Industrialized products tax) on the import prices, which includes import duty (35%), and factory shipment value. So far, the tax rate has been 7 to 25% depending on the engine displacement, but as a temporary measure from December 2011 to December 2012, the government announced that the tax rate would be increased by 30 percentage points to 37-55% on imported cars and locally-made cars with local-content ratio of less than 65%.|
|OEMs are exempted from the IPI rise if they meet the requirements including the local-content ratio (parts made in Mercosur (Brazil, Argentina, Paraguay, and Uruguay)) of 65% and, at the same time, having a certain degree of R&D facilities in Brazil. Therefore, major OEMs that produce vehicles locally in Brazil are exempted from the IPI rise for locally-made cars and imported cars as well. The government talks with each of the OEMs that will newly build a plant in Brazil in the future in order to decide whether the IPI rise is applied or not.|
|In April 2012, the Brazilian government announced that it would continue the IPI rise in 2013 and later with tougher requirements. (1) the local-content ratio of "65%" currently includes costs that are not directly related to manufacturing, such as advertising expenses, but will be limited to costs that are directly related to manufacturing. (2) it will set standard for four items including "investment in R&D/innovation", and "investment in engineering and basic industrial technology", three of which must be met.|
The Brazilian government agrees with the Mexican government to limit the tariff-free exports of passenger cars during the three years from 2012
|Brazil and Mexico completely liberalized their trade of passenger cars in 2002 to eliminate the tariff. As a result, the exports to Brazil from Mexico, which excels in terms of production efficiency, have recently surged from USD930 million in 2009 to USD1.26 billion in 2010 and further to USD2.07 billion in 2011. In 2011, the exports from Brazil to Mexico were worth USD370 million; Brazil showed an excess of imports for USD1.7 billion.|
|In order to protect vehicle production in Brazil, the Brazilian government reached an agreement with the Mexican government on March 15th that the tariff-free imports should be limited and the standard of the local-content ratio for tariff-free imports of vehicles made in Mexico should be raised; the agreement came into effect on March 19th.|
|(1) The ceiling for the tariff-free exports from Mexico to Brazil is set at USD1.45 billion for the first year(from March 19, 2012 to March 18, 2013), USD1.56 billion for the second year, and USD1.64 billion for the third year, and then the ceiling will be eliminated.|
|(2) The local-content ratio for tariff-free imports of vehicles made in Mexico will be raised from the current 30% to 35% by March 19, 2013, and then to 40% by March 19, 2016 (the standard for the local-content ratio of tariff-free imports of vehicles from Brazil to Mexico is 65%). The two governments will study the possibility of increase to 45%.|
|Source: JETRO materials 2012.3.19/2012.4.13, Nihon Keizai Newspaper 2011.9.17/2012.3.17/2012.3.29|
|(Note) 1.||Mexico is currently the export base of OEMs worldwide because of NAFTA (North American Free-Trade Agreement) and the free trade agreement with Brazil and other countries. Since the rise of the local-content ratio affects the preconditions of investment by each OEM, the rapid rise is said to be difficult.|
|2.||In the meantime, the Brazilian government has been protecting production facilities built in Brazil, has been boosting the local-content ratio, and has been trying to supply vehicles stably to the large vehicle market in Brazil.|
|3.||In addition to the above-mentioned differences of the two governments' automotive measures, differences of production efficiency (Mexico excels Brazil) are said to be behind the rapid increase of imports from Mexico.|
Sales volume by OEM in Brazil
In 2011, concerning vehicle sales in Brazil, Renault/Nissan boosted sales significantly and sales of imported cars by OEMs that have not started local production, made a rapid increase. The total market share of passenger cars and light commercial vehicle by the top four OEMs in Brazil (Fiat, VW, GM, and Ford) shrank from 77.2% in 2009 to 70.2% in 2011, and to 70.4% in the January-March period of 2012.
Sales volume by OEM in Brazil (All segments)
|2007||2008||2009||2010||2011||Jan.-Mar. 2011||Jan.-Mar. 2012|
|Renault + Nissan||82,310||131,067||140,746||196,173||261,562||51,711||79,616|
|Sub-total (Note 1)||2,462,318||2,823,640||3,092,475||3,404,460||3,431,316||788,418||782,333|
|Other (Note 2)||25,383||40,842||54,430||110,604||201,932||36,743||36,031|
|(Note) 1.||OEMs included in "sub-total" are members of ANFAVEA, which have production facilities in Brazil. Sales volume includes each OEMs' imported cars.|
|2.||"Other" includes vehicles imported and sold by non-members of ANFAVEA, which do not produce vehicles locally in Brazil. Suzuki, Korea-based Kia, and China-based Chery Automobile and JAC are included here.|
|3.||Trucks and buses that are medium-sized or lager account for more than 79% of Mercedes-Benz's 2011 sales.|
Top four OEMs - Fiat, VW, GM, and Ford - plan to make a huge investment
Among the top four OEMs in the passenger car plus light commercial vehicle market in Brazil are Fiat, VW, GM, and Ford. During a few years they invested or will invest USD2.4-6.0 billion; Fiat, VW, and GM have announced that they aim to sell about 1 million vehicles in 2014.
In the last one year, Fiat announced the outline of construction plan for its second plant in Brazil, to be built in Goiana City, Pernambuco, in northeast of Brazil (announced in August 2011). The carmaker will invest 3 to 3.5 billion real, starting production at the beginning of 2014 with production volume of 200,000-250,000 units a year. The passenger car/light commercial vehicle market in Brazil is expected to be 4.7 million units in 2014. Fiat targets to sell 1.1 million units. The IPI rise for imported cars by the Brazilian government is welcomed since it limits the imports by OEMs that do not produce vehicles locally in Brazil.
VW had said that it would invest 2.3 billion Euros from 2009 to 2014, but, in October 2011, announced that it would invest 3.4 billion Euros by 2016.
GM will build a new transmission plant to begin production of 150,000 6-speed transmissions a year in 2014 (announced in February 2012). Half of the products will be used in locally-made cars in place of transmissions that have so far been imported and the remaining half will be exported to Europe.
Ford will invest 400 million real (USD214 million) to build an engine plant with production capacity of 210,000 units a year in Bahia, northeast of Brazil (announced in December 2011). The carmaker will also invest 800 million real to develop a new global model (which is said to be a successor of the Ka) and to launch it by the beginning of 2014 (announced in April 2012). Ford plans to make the entire model that it markets in Brazil into global models by 2015.
Korean and Chinese OEMs plan to begin local production
In 2011, Korea-based Hyundai and Kia and China-based OEMs increased rapidly sales of vehicles that they imported.
Each of the Korean and Chinese OEMs intends to promote local production in Brazil. Hyundai and Chery Automobile have already started construction of their plants. JAC announced a plan to build a new plant. Great Wall Motors and Lifan Motors are said to be planning to start local production.
Hyundai: starts operations of its plant in Brazil in the second half of 2012
|In February 2011, Hyundai began the construction of a plant with production capacity of 150,000 a year in Brazil. The new plant will be the seventh overseas plant that Hyundai constructs. The carmaker will invest USD600 million and will produce compact hatchback designed for Latin America starting in the second half of 2012. The production model will be a flex-fuel vehicle that can run either on gasoline or ethanol. Eight suppliers will also expand into Brazil, planning to employ a total of 3,800 workers.|
|Source: Hyundai Motor press release 2011.2.28|
|(Note) 1-1.||Hyundai currently produces about 20% of vehicles which it markets in Brazil at a local assembly manufacturer and imports remaining 80%. The carmaker is a member of ANFAVEA, but is not completely exempted from the 30% IPI rise for imported cars and is negotiating with the Brazilian government individually. The details are unknown.|
|1-2.||In the January-March period of 2012, Hyundai sold 21,521 units, down by 14.2% year-on-year.|
Chinese OEMs' expansion into Brazil
|JAC||In December 2010, JAC started importing and selling SUVs and light trucks. The carmaker announced that it planned to import and sell an accumulated total of 620,000 units by 2020. It sold 23,752 units in 2011.|
|In November 2011, the carmaker signed a framework agreement with Brazil-based SNS (a subsidiary of SHC, which is Brazil's largest car dealer) to establish a joint venture company. It will invest USD510 million to build a plant that is capable of producing 100,000 units a year, starting production in 2014.|
|Chery Automobile||Chery Automobile will invest USD143 million to start the construction of a new plant in July 2011, and to establish a production structure for 50,000 units a year and to start production by March 2013. The carmaker will invest an additional USD400 million, planning to expand production capacity eventually to 150,000 units a year.|
|Great Wall||In October 2011, Great Wall Motors announced that it would build a plant that is capable of producing 100,000 units a year in Brazil. The details including time to start construction are unknown.|
|Lifan||Lifan Motors will form an alliance with Effa Motors, its dealer in Brazil, planning to boost sales in Brazil. First, the carmaker will increase production of Lifan Motors' models at Effa Motors' plant in Uruguay. Then, it will construct an assembly plant in Brazil, planning to start operations as early as in 2014.|
Source: Media reports (Note) In addition to the above OEMs, Geely Automobile, BYD, Foton, and Sinotruck are said to be considering production in Brazil.
Sales volume in 2011 by Korean and Chinese OEM
|Hyundai Motor||Kia Motors||Chery Automobile||JAC||Dongfeng Passenger||Volvo Cars||Lifan||Hafei||Changan/ Chana||Changhe|
Source: Hyundai's sales volume is based on figures by ANFAVEA, others by MarkLines Data Center (Note) Volvo cars is owned by China-based Geely Automobile.
Nissan/Renault boosts sales significantly, also announcing large-scale investment
Nissan will build a new plant to start production with production capacity of 200,000 units a year in the first half of 2014. Nissan's sales in Brazil in 2011 increased to 67,268 units in 2011 (35,874 units in 2010) because of increased sales of its existing models including the Frontier and of the introduction of the March/Versa (imported from Mexico) in the fall of 2011. In the January-March period of 2012, Nissan's sales doubled to 27,299 units.
Renault will boost the production capacity of its Curitiba plant from 280,000 a year to 380,000 units in 2013. Because of the Sandero, which is a hatchback based on the Logan, and of the Duster, which is an SUV launched in the fall, Renault's sales also increased from 160,299 units in 2010 to 194,294 units in 2011; its sales grew to 52,317 units in the January-March period of 2012 from 38,331 units a year earlier,.
In the January-March period of 2012, Renault/Nissan sold 79,616 units of passenger cars and light commercial vehicles, which exceeded Ford's sales of 72,619 units (Ford also sold 6,278 units of medium-duty trucks).
Nissan/Renault announces a large-scale investment
|Nissan||In October 2011, Nissan announced that it would invest 2.6 billion real (USD1.5 billion) in Brazil to construct a new plant in order to build production capacity for 200,000 units of V-platform vehicles (the March hatchback and the Versa sedan) and that it would begin production in the first half of 2014. The carmaker will introduce 10 models by 2016 in order to increase the segment coverage rate to more than 87%, aiming to be the top Asian car brand in Brazil and to take at least 5% share of the market in 2016.|
|Currently, Nissan has production capacity of 59,000 units of its models at Renault's Curitiba plant, producing the Livina, Grand Livina, X-Gear, and Frontier. Production at the plant will be continued after the operation of Nissan's new plant in Brazil begins.|
|Renault||Renault will revise its 2010-2015 investment plan in Brazil, and will boost the investment from the original 1 billion real to 1.5 billion real and will also enhance production capacity from 280,000 to 380,000 units in 2013. The carmaker plans to boost its market share from 5.7% in 2011 to more than 8% by 2016.|
|Renault considers Brazil to be a development base for vehicles for Latin America. The carmaker already developed a Brazilian version of the Duster SUV, a model based on the Dacia Logan, and started marketing it in October 2011. It also plans to develop a pickup truck for Latin America based on the Logan.|
Source: Nissan press release 2011.10.6, Renault press release 2011.10.5 (Note) Upon the Brazilian government's decision to limit imports from Mexico, Nissan is currently considering starting production at its new plant in Brazil earlier than its original plan.
Other Japanese OEMs
Among other Japanese OEMs, Toyota and Honda produce products locally in Brazil, while Mitsubishi consigns production to MMC Automotores do Brasil. Toyota will build its second plant in Brazil, producing a small car based on the Etios, which it introduced in India, starting in 2012.
Mazda announced that it would enter the market in Brazil to start importing and selling its product in FY2012. After its new plant currently being constructed in Mexico starts operations (scheduled in FY2013), the carmaker also plans to ship products from the new plant.
Heavy-duty truck: Paccar builds a new plant while Daimler and MAN enhance production capacity
In Brazil, the demand for heavy-duty trucks has been increasing as agriculture, mining, and construction industry have been developing.
Paccar will build a new plant to begin production of vehicles under DAF brand in 2013.
Daimler expects that the heavy-duty truck (GVW of over 6 tons) market would expand from 162,000 in 2010 to 200,000 a year by 2020. The carmaker will employ 1,250 new workers at its heavy- and medium-duty truck plants in Brazil and Argentina and will also introduce a third shift at its Sao Bernardo do Campo plant in Brazil.
MAN announced that it would newly invest USD400 million in the enhancement of production capacity and R&D.
MAN Latin America: invests USD400 million between 2012 and 2016
|In October 2011, MAN Latin America announced that it would invest USD400 million (which is the largest ever for the company, including when it was VW's division) in the enhancement of production capacity of the Resende plant and in R&D between 2012 and 2016. The carmaker will expand the product lineup from the current VW models and develop products in the new segments, and will also develop products under MAN brand; it will build its own assembly line at the Resende plant, producing and marketing those products in Latin America starting in 2012.|
|In December 2008, MAN Latin America was established by MAN's purchase of VW's heavy-duty commercial vehicle division in Brazil. MAN Latin America employs about 7,000 workers and has production capacity of up to 82,000 units of heavy-duty trucks and bus chassis. VW holds a 55.9% voting right of MAN (as of November 9, 2011). VW intends to continue its heavy-duty commercial vehicle business through MAN and Scania, which are under its umbrella.|
Source: MAN SE press release 2011.10.21
Activities in Argentina: Production and sales hit record highs in 2011
In Argentina, production of vehicles increased by 15.7% from 716,540 units in 2010 to 828,771 units in 2011, and sales also grew by 26.5% from 698,404 units to 883,350 units. Production and sales volume hit new record highs. More than 60% of products are exported; imported cars continue to account for more than 60% of sales in Argentina.
In March 2011, Honda started production at its new plant, while Toyota boosted annual production capacity in November. GM also announced that it would increase annual production capacity by 25% in 2012.
The Argentine government requests that each OEM promote exports
In Argentina, the number of imported cars surged in 2010 and 2011; the automotive industry in Argentina showed an excess of imports for USD6 billion in 2010. The Argentine government aims for an excess of exports for USD4 billion in 2012, requesting that each OEM that produces vehicles in Argentina should export products equivalent to the financial amount of imported parts and finished vehicles. OEMs such as GM, VW, Fiat, and PSA have already agreed and Ford singed an agreement in 2011. Ford showed an excess of imports for USD250 million in 2009, but it will increase exports by 70% in 2012 and will also limit the increase in imports to less than 30%, planning that exports will exceed imports by USD90 million.
Each OEM ships most of their exports to neighboring Brazil.
Concerning trade deficits, the Argentine government requests that the Brazilian government should increase imports of industrial products made in Argentina including auto-parts and that the Mexican government should limit exports as it does to Brazil.
Production and Export in Argentina
Sales volume in Argentina
Source: ADEFA (Argentine Automobile Manufacturers Association)
Honda: starts production at its new plant in March 2011
|In March 2011, Honda started production of the City at its new plant in Campana, Buenos Aires, in which it invested USD250 million. The new plant has production capacity of 30,000 a year. The carmaker plans to export 60% of the products.|
|In July 2007, Honda announced that it would construct a plant in Argentina and that it aimed to start operations in the second half of 2009, but postponed the construction due to global recession.|
Toyota: boosts production capacity of its plant in Argentina
|Toyota invested about USD126 million and boosted the production capacity of its Zarate plant in Argentina, which produces the Hilux and the Fortuner in the IMV series, from 65,000 units to 92,000 units in November 2011. The carmaker has exported about 70% of the production volume to 10 countries in Latin America including Brazil, but says that it will export 75% of the products from now on.|
GM: enhances production capacity of its plant in Argentina by 25%
|GM announced that it would invest USD150 million to boost production capacity of its Rosario plant in Argentina(which produces Chevrolet Classic and Chevrolet Agile) by 25% in 2012 (announced in October 2011). GM produced 127,818 units in 2010 and 136,428 units in 2011 in Argentina.|
|At the same time, the carmaker increases the local-content ratio of parts in order to lower the financial amount of auto-parts import by USD150 million per year. Through these moves, it says that it can contribute to the improvement of trade balance of Argentina, on which it reached an agreement with the Argentine government.|
Source: Toyota press release 2011.12.16, Honda press release 2011.7.18, GM press release 2011.10.27
Sales volume by OEM in Argentina
Mazda Jaguar Volvo Land Rover
|61,851 18 20 175 213||65,867 17 203 244||77,472 12 443 227||78,460 4 425 187||65,598||85,518||106,691|
|72,782 11,194 747||76,228 9,391 21||94,399 9,618||96,634 9,330||78,078 7,385||112,213 6,060||146,814 1,860|
|DaimlerChrysler Mercedes Chrysler||12,058 10,747 1,311||13,823 12,023 1,800||16,980 13,943 3,037||15,049||9,321||14,366||15,621|
|43,255 3,652||58,988 2,932||68,740 3,933||74,591 5,795||64,372 4,155||97,369 10,942||124,162 13,775|
|(Note) 1-1.||OEMs included in "sub-total" are members of ADEFA, which have production facilities in Argentina. Sales volume includes each OEMs' imported cars.|
|1-2.||"Other" includes vehicles imported and sold by non-members of ADEFA, which do not produce vehicles locally in Argentina.|
|1-3.||Since Honda did not produce vehicles locally in Argentina before 2010, its sales volume is included in "Other".|
|2.||Mazda/Jaguar/Volvo/Land Rover are included in Ford. Suzuki and Isuzu are included in GM. Nissan is included in Renault. Mercedes and Chrysler are included in DaimlerChrysler until 2007.|
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