Brazil sales to drop 21% in 2015 due to weak economy
OEMs cut production, add capacity in hope of future growth
・In Brazil, vehicle market has been shrinking due to weak domestic economy. Recession in Argentina, Brazil's leading automotive trading partner, also has a negative impact. Besides, the Brazilian government's protective measures affect the country's automotive industry.
・As Brazil's automotive market continues to be stagnant in 2015, the Brazil National Association of Motor Vehicle Manufacturers (ANFAVEA) lowered its initial 2015 sales forecast disclosed at the beginning of the year twice to 2.78 million units, 20.6% down year-over-year (y/y) (announced in June 2015). The Association also adjusted its full-year production forecast downward to 2.59 million units, down 17.8% y/y, while it maintains its export forecast at 340,000 units, up 1.1% y/y (including medium- and heavy-duty commercial vehicles).
・Recently, the automakers locally producing their vehicles have cut production to cope with a decline in demand. In the mean time, many OEMs, anticipating Brazil's future growth, are implementing long- and medium-term investment plans to enhance their competitiveness and localizing production to avoid the IPI tax increase.
・According to LMC Automotive's forecast disclosed in the second quarter of 2015, light vehicle sales in Brazil for 2015 are expected to decline by 21% y/y to 2.6 million units. The company also pointed out that risks lie very much to the downside, and sales may further decline to 2.5 million units. Consumers are increasingly wary in the face of the rising unemployment rate and soaring inflation. Due to the severity of the economic downturn, sales are not expected to return to 3 million units until 2019.
Brazil and Paraguay: Construction of new plants and expansion of production capacity (Jul. 2015)
Brazilian sales drop 21% in Jan.-Jul. 2015 as tax breaks end
Brazil's automotive market shrank by 7.1% y/y to 3.5 million units in 2014. Vehicle sales plunged due to price hikes caused by legal requirements on installation of airbags and ABS since 2014, and fewer working days during the World Cup soccer games in addition to weak economy in Brazil. As the tax breaks on the industrial production tax (IPI) have ended in December 2014, vehicle sales declined 21.0% y/y to 1.55 million units for the period from January to July 2015
The ratio of imported vehicles to total sales has been falling from 23.6% in 2011 to 16.4% in the January to July period of 2015. Sales of imports are decreasing due to the IPI tax increase on imported vehicles since 2011 and the government's measures to promote domestic production such as "INOVAR-AUTO" new automotive policy introduced in 2013
Vehicle production in 2014 fell 15.3% y/y to 3.15 million units, of which exports accounted for 330,000 units, down 40.9% y/y. Production in Brazil declined due to stagnant demand in the country and a drop in exports to Argentina, a major destination of Brazil's exports. ANFAVEA is negotiating with other neighboring countries including Colombia and Uruguay as well as African countries to expand its export destinations. Brazilian production in the January to July period of 2015 fell 18.1% y/y to 1.49 million units, of which exports amounted to 230,000 units, up 10.7% y/y owing to the weak Real.
Brazilian vehicle production and exports
|2010||2011||2012||2013||2014||2015 (Outlook)||Jan.-Jul. 2014||Jan.-Jul. 2015|
New vehicle sales in Brazil
|Source: Brazil National Association of Motor Vehicle Manufacturers (ANFAVEA)|
|(Note)1.||Vehicle sales represent the number of vehicle registrations.|
|2.||The figures for 2015 (Outlook) are ANFAVEA's forecasts announced in June 2015. In April, ANFAVEA disclosed production forecast as 2,832,000 units, down 10.0% y/y, and then, adjusted it downward to 2,585,000 units, down 17.8% y/y, in June. The association has maintained its export forecast as 338,000 units, up 1.1% y/y.|
|3.||ANFAVEA projected sales for 2015 as 3,490,000 units, the same level as 2014, at the beginning of 2015. Later, the association revised it downward to 3,038,000 units, down 13.2% y/y, in April, and lowered further to 2,779,000 units, down 20.6% y/y in June.|
Top 4 OEMs' sales plunge; Hyundai and Toyota enjoy sales increases
Reflecting stagnant demand, the top four OEMs' light vehicle (passenger car and light truck) sales in Brazil significantly dropped in 2014. FCA's sales decreased by 8.5% y/y to 710,000 units; VW's sales fell by 12.5% y/y to 590,000 units; GM's sales declined by 10.9% y/y to 580,000 units; Ford's sales dropped by 8.0% y/y to 310,000 units. On the other hand, Hyundai's sales increased by 7.6% y/y to 260,000 units while Toyota's sales grew by 11.0% y/y to 200,000 units. Hyundai's HB20 compact hatchback which has been developed and produced in Brazil sells well. Toyota's Etios, a compact car for the emerging countries, boosted the company's sales. (Click here for "Light vehicle sales in Brazil by OEM and brand")
OEMs cut production to deal with falling demand
Since inventory has been accumulated in Brazil due to reduced demand, those OEMs locally manufacturing their vehicles are cutting production. While many OEMs are laying off employees or granting them collective vacations to reduce production, some manufacturers began dismissing employees. In other cases, some labor unions went on strike after receiving dismissal notices, resulting in retraction or modification of the OEMs' personnel cutback plans.
OEMs' recent activities related to production cut in Brazil (from July to September 2015)
|FCA||Betim plant: * In July 2015, 12,000 employees were granted collective vacations for 10 days. * In August 2015, 3,000 employees were granted collective vacations for 20 days. As a result, all the 19,000 employees at the Betim plant went on collective vacations in 2015.|
|VW||Taubate plant: In April 2015, 250 employees were laid off for up to five months. On April 27, 2015, 120 more employees were laid off for up to five months.|
|GM||Sao Jose dos Campos plant: In August 2015, 798 employees were given dismissal notices. After the union went on strike for 12 days, GM put the cutback plan on hold.|
|Daimler||Sao Bernardo do Campo truck plant: * For August 7-20, 2015, 7,000 employees were granted collective vacations. * Among 7,000 employees on collective vacation, 1,500 were given dismissal notices. * Daimler announced that it would reduce 2,000 jobs through the voluntary retirement plan from September 2015.|
|Chery Automobile||Jacarei plant: For the period from August 17 to September 5, 2015, 200 employees were granted collective vacations.|
Government launches INOVAR-AUTO policy to protect local production
The Brazilian government ended the tax breaks on the Industrial Production Tax (IPI) for new-car purchases at the end of December 2014. The tax breaks had been introduced in May 2012 to promote domestic sales in Brazil. From 2015, the IPI rates were put back to the set rates.
Besides, the government continues to raise the IPI rates for imported vehicles and domestically produced vehicles with a local content ratio of less than 65% until the end of 2017. Through its new automotive policy "INOVAR-AUTO" introduced in 2013, the government exempts the OEMs, which meet the requirements of localization of the manufacturing processes and investments on research and development, from the IPI tax increase.
Meanwhile, the Brazilian government agreed on extension and revision of the automotive pacts with Argentina and Mexico, respectively. In both cases, introduction of free trade for vehicles was postponed and trade with some restrictions will continue.
Brazilian government's automotive policies
|Domestic sales policy: end of automotive tax breaks||The Brazilian government ended the tax breaks of the Industrial Production Tax (IPI) for new-car purchases at the end of December 2014. Originally, it was a provisional measure for the period from May to August 2012. After it was extended six times, the IPI tax rates returned from 3-10% in 2014 to 7-13% in 2015.|
|Protection for domestic production: IPI tax rate increase on imported vehicles||The IPI tax rate was raised by 30 percentage points for imported vehicles and domestically produced vehicles with a local content ratio of less than 65% (for the period from December 2011 to the end of 2017). Initially, the OEMs producing their vehicles in Brazil were exempted from the tax increase for their imported vehicles. From 2013, those OEMs also had to meet the requirements specified by the new automotive policies to be exempted from the tax increase.|
|Promotion for domestic production: New Automotive Policies INOVAR-Auto||An automotive policy for 2013 to 2017, the "Program of incentive to innovation and densification of the productive chain in the automobile industry (INOVAR-AUTO)" was announced in April 2012 and revised in October in the same year. The OEMs which meet the following requirements are exempted from the IPI tax increase mentioned above.|
|Requirements that OEMs should meet to be exempted from the IPI tax increase (2015): * Investments in R&D and innovation: 0.50% of sales or more * Investments in engineering and basic industrial technologies: 1.00% of sales or more * Production steps to be performed in Brazil: seven out of twelve steps for passenger cars and light commercial vehicles; nine out of fourteen steps for buses and trucks * Vehicle labeling for fuel efficiency by INMETRO (a government organization): 64% of vehicles produced in Brazil or more (Note) Passenger car manufacturers should meet three out of four requirements while commercial vehicle manufacturers should satisfy two out of three requirements.|
|Enhancement of competitiveness for domestically produced vehicles: reduced tariff for imported parts||On December 19, 2014, the Brazilian government announced that it would cut the import duties on the automotive parts that are not locally produced. The import duties are reduced from 10-20% to 2%. The tariffs for other automotive parts including airbags and ABS are also decreased. In Brazil, vehicle production cost rose recently as installation of some safety features was required by law. Reduced tariffs will improve competitiveness of locally produced vehicles in the export market.|
(Note) The Japanese government disclosed on July 2, 2015 that it requested consultations with Brazil based on WTO's dispute settlement proceedings regarding tax advantages for vehicles in the country. The Japanese government claimed that the Brazilian measures violate certain provisions of the WTO agreements. The European Union also had filed a WTO complaint against Brazil on the same reason in December 2013.
Brazilian government's trade policies
|Automotive Pact with Argentina||The governments of Brazil and Argentina agreed on extension of the bilateral automotive trade pact in June 2015. This pact is effective from July 1, 2015 to June 30, 2016.|
|Similar to the pact reintroduced in 2014, the new pact determines requirements including rules of origin and a ratio of exports between the two countries to correct automotive trade imbalance. The export ratio remains to be "1.50". In other words, when Argentina exports USD 1 million worth of vehicles to Brazil, the pact allows Brazil to export USD 1.5 million worth of vehicles to Argentina without tariffs.|
|Automotive Pact with Mexico||The governments of Brazil and Mexico agreed on revision of the bilateral trade pact of the Mercosur-Mexico Automotive Agreement (ACE55) in March 2015. The two countries will continue to limit the amount of tariff-free export of light vehicles from Mexico to Brazil for four more years. As Brazil, hoping to protect its own industry, was reluctant to resume free trade, both countries reached an agreement on extension of the export limit until March 2019.|
|In 2015, the amount of tariff-free export is limited to USD 1.56 billion. The amount will be raised by 3% every year to USD 1.7 billion in 2018. If exports exceed the limit, 35% tariff will be imposed. The minimum local content remains to be 35% and will be raised to 40% in 2019.|
Top OEMs: FCA, VW and GM
FCA opens new plant in Goiana
In April 2015, FCA held an opening ceremony for a new plant in Goiana, Pernambuco state, located in the northeast of Brazil. Out of a total investment of BRL 7 billion, BRL 3 billion will be spent for an assembly plant, BRL 2 billion for a supplier park, and BRL 2 billion for product development. FCA plans to employ 9,000 people (of which 3,000 will be earmarked for an assembly plant) by the end of 2015.
The new Goiana plant is able to assemble up to three different models together with an annual production capacity of 250,000 units. FCA has started production of the Jeep Renegade compact SUV for export to the other Latin American countries since February 2015. The company is also planning to manufacture the Fiat brand models in the future. Through local production of the Jeep brand models, FCA aims to enhance its position as a market leader in Brazil.
FCA increases production capacity of Betim plant
In 2014, FCA added a new paint shop to the Betim plant. With this new facility, production efficiency of the plant improved, boosting its annual production capacity from 800,000 to 950,000 units.
VW increases annual production capacities of two plants
In August 2014, VW disclosed that it completed an investment of BRL 300 million in equipment at its Anchieta plant in Sao Paulo state. As a result, the plant's capacity to produce the Saveiro increased by 50%. The Saveiro is a pickup truck for the Latin American countries based on the platform of the Gol compact car.
In the first half of 2015, VW started production of the Jetta midsize sedan at the Anchieta plant. The company renovated a production line which is capable of producing 18,000 units of the Jetta per year.
Regarding the Sao Carlos plant, the automaker plans to make an investment of BRL 460 million in 2018 (announced in June 2015). It will be used for installing a production line for 1.0-liter 3-cylinder TSI flex-fuel engine, raising the production capacity of the plant, and building a production line for crankshafts.
VW starts exporting Brazilian-made up! to Uruguay
In June 2015, VW has started exporting the up! produced at its Taubate plant to Uruguay. The up! for Uruguay comes with only a gasoline engine. VW launched the up! in Brazil in the beginning of 2014 and began exporting the model to Argentina in the first half of the same year. In 2015, the automaker plans to export it to Mexico.
GM to double investment in Brazil for 2014-2018 to BRL 13 billion
In July 2015, GM announced that it would invest BRL 13 billion in Brazil for six years from 2014 to 2019. GM's investment in the country for the period will be doubled from previously planned BRL 6.5 billion.
The additional investment will be used for a part of the passenger car development project for emerging countries which GM and its Chinese partner, SAIC Motor, are conducting. The two automakers will invest USD 5 billion to jointly develop a new model under the Chevrolet brand. They aim to release the model for the 2019 model year. GM and SAIC Motor will develop multiple models based on the new model and launch respective models in Brazil, China, India, Mexico and other emerging countries. The new lineup will consist of the models which feature connectivity, safety and fuel efficiency.
European OEMs : PSA, BMW, Daimler and JLR
PSA starts production of Peugeot 2008
In March 2015, PSA has started production of the Peugeot 2008 crossover SUV at its Porto Real plant in Rio de Janeiro state. The automaker invested BRL 400 million in the plant to introduce state-of-the-art equipment for manufacturing the 2008. 80% of its parts are locally procured. The 2008 was launched in Brazil at the beginning of April 2015.
BMW starts production at its first automobile plant in South America
On October 9, 2014, BMW has started production at its new Araquari plant in Santa Catarina state, the first automobile plant for the BMW Group in South America. All of the production facilities will be completed by September 2015. The company invested EUR 200 million to build a plant with an annual production capacity of 30,000 units. The company launched production of the 3 Series Sedan in October 2014, the X1 in November 2014, the 1 Series in March 2015, and the X3 in August 2015. The MINI Countryman is scheduled to be produced at the same plant by the end of 2015.
Daimler builds a passenger car plant and expands commercial vehicle plants
On February 5, 2015, Daimler held a ground-breaking ceremony for a new passenger car assembly plant in Iracemapolis, Sao Paulo state. The company plans to start production of the Mercedes-Benz C-Class in the first quarter of 2016 and the GLA SUV in mid-2016. With a total investment of BRL 500 million, an annual production capacity of 20,000 units will be secured. Depending on the market conditions in the future, expansion of the plant will be considered.
Regarding its two commercial vehicle plants in Brazil, Daimler disclosed on October 10, 2014, that it would invest BRL 730 million. During the period from 2015 to 2018, the company plans to invest BRL 500 million in the Sao Bernardo do Campo plant in Sao Paulo state and BRL 230 million in the Juiz de Fora plant in Minas Gerais state to renovate and expand facilities at the two plants.
Jaguar Land Rover to start operations at new plant in 2016
On December 2, 2014, Jaguar Land Rover (JLR), a Tata's subsidiary, has begun construction of a new plant in Itatiaia, Rio de Janeiro state. The new plant is scheduled to be operational in 2016 and to start production of the Land Rover's Discovery Sport compact SUV. Assembly kits will be imported from the Halewood plant in the U.K. The Itatiaia plant will have an annual production capacity of 24,000 units and employ 400 people at the initial stage. The company also plans to build an education center at the plant. A total investment will amount to BRL 750 million by the end of 2020.
Japanese OEMs: Toyota, Honda, Nissan and Mitsubishi
Toyota to increase production capacity of Sorocaba plant
On January 30, 2015, Toyota disclosed a plan to increase the annual production capacity of the Sorocaba plant in Sao Paulo state, from 74,000 to 108,000 units by the beginning of 2016. The company will invest JPY 4.5 billion to address increasing demand for the Etios, Toyota's compact car for emerging countries. The automaker launched a sedan and a hatchback model of the Etios in September 2012 as well as the Etios Cross, a crossover model, in November 2013. At present, monthly sales of the Etios are 6,000 to 7,000 units. The model is also exported to Argentina, Uruguay and Paraguay.
Toyota to assemble Prius hybrid in Brazil
Toyota was reported to start assembling the Prius hybrid (HV) in Brazil in 2018 (Nihon Keizai Newspaper on March 25, 2015). The automaker plans to invest BRL 60 million in its parts plant in Sao Bernardo do Campo, Sao Paulo state, to build a vehicle assembly line. Toyota is now negotiating with the federal and state governments for incentives regarding local production of the Prius. The automaker aims to increase sales of the Prius by keeping its price down through local production.
Honda postpones start of operations at its second plant in Brazil
On April 9, 2015, Honda announced that construction of a new plant in Itirapina was completed. The company invested BRL 1 billion in the project including cost of 5.8 million-square- meter land and facilities. The new plant will have an annual production capacity of 120,000 units.
In July 2015, Honda disclosed its plan to postpone start of operations at the Itirapina plant. (Nihon Keizai Newspaper on July 31, 2015). While the company initially projected to start its operations at the end of 2015, the start will be postponed to March 2016. Utilization ratio will also be halved to 60,000 units per year. The plan was revised due to weak Brazilian Real and unstable economy in the country. Depending on sales after start of operations, capacity expansion will be considered.
Honda begins production of HR-V
In March 2015, Honda began production of the HR-V compact SUV (sold as the Vezel in Japan) at its Sumare plant. The HR-V for Brazil comes with a 1.8-liter SOHC i-VTEC flex-fuel engine and a CVT. 70% of its parts are locally procured.
Nissan starts production of Versa and 1.0-liter 3-cylinder engine
In January 2015, Nissan has started production of the Versa compact sedan at its Resende plant in Rio de Janeiro state. Following the March hatchback, the Versa is the second model manufactured at the Resende plant which opened in April 2014.
Also in January 2015, Nissan announced that it would produce a new 1.0-liter 3-cylinder engine at the Resende plant. It is a flex-fuel engine capable of operating on a mixture of gasoline and ethanol. The automaker invested BRL 100 million for production of the new engine. This engine is mounted on the Versa produced at the Resende plant from January. Nissan is also manufacturing a 1.6-liter inline four-cylinder engine at the plant.
Mitsubishi begins production of Lancer
MMC Automotores do Brasil Ltda. (MMCB), Mitsubishi Motors' exclusive distributor and assembler in Brazil, began production of the Lancer sedan in October 2014 at its Catalao plant in Goias state. As a result, 85% of Mitsubishi's vehicles sold in Brazil were locally produced as of November 2014. MMCB invested BRL 1 billion in the plant for the period from 2010 to 2015. With a paint shop added in January 2015, the Catalao plant's annual production capacity will increase from 50,000 to 100,000 units.
Chinese OEMs: Chery and BYD
Chery Automobile opens Jacarei plant
In August 2014, Chery Automobile has opened a new plant in Jacarei, Sao Paulo state. With an investment of USD 400 million, the company set up the annual production capacity at 50,000 units for the first stage and plans to increase it to 150,000 units for the second stage. Chery is now producing the Celer hatchback and sedan at the Jacarei plant. The company will start production of the QQ compact car by the end of 2015 and the Tiggo 5 SUV which will be transferred from its Uruguayan plant scheduled to be closed in 2016.
Chery has also opened a powertrain plant in Jacarei at the same time as the vehicle assembly plant. The automaker invested USD 130 million in the powertrain plant which will be fully operational during 2015. At present, 1,000 cc and 1,500 cc flex-fuel engines are produced. Chery plans to build transmissions in 2016.
In May 2015, Chery announced that it would construct a supplier park in Jacarei. The automaker plans to build it adjacent to the existing Jacarei plant and to open it in 2017. 25 suppliers are projected to move into the park on the site of 4 million square meters. With a total investment of USD 700 million by 25 suppliers, 5,000 new jobs will be generated by this project.
BYD signs agreement on building new plant
On July 14, 2014, BYD signed a memorandum of understanding on building a new plant in Campinas, Sao Paulo state, with an investment of BRL 250 million. The plant will have an annual production capacity of 500-1,000 units. It is scheduled to start operations in 2015 and to directly employ 450 people at the plant. In addition to an assembly plant for electric buses, batteries and solar panels, a research and development center will be set up. The products produced at the new plant are not only sold in Brazil but also exported to other Latin American countries.
Production Forecast by LMC Automotive: Brazilian light vehicle production to be 2.6 million in 2018
|(LMC Automotive、July 2015)|
According to LMC Automotive's forecast delivered in July 2015, Brazil's light vehicle production is expected to decline by 22% y/y to 2.3 million units in 2015. As the economic situation in Brazil continues to deteriorate, demand for new vehicles continues to decline. OEMs have taken measures to address this dire state of affairs by laying off employees, offering companywide vacations, and shutting down assembly lines. LMC Automotive is projecting an increase in manufacturing in Brazil in 2016 (+2% y/y), driven by the additional volume from new vehicle launches, such as Fiat's new small vehicle as well as the Jeep compact SUV. Light vehicle production in Brazil is expected to experience further growth after 2017, reaching 2.6 million units in 2018.
Brazilian light vehicle production forecast by make (LMC Automotive)
|Sales Group||Global Make||2012||2013||2014||2015||2016||2017||2018|
|Fiat Chrysler Automobiles||Fiat||818,037||755,476||675,190||462,053||459,241||484,359||505,119|
|Fiat Chrysler Automobiles sub-total||818,037||755,476||675,190||487,037||507,350||538,708||561,417|
|General Motors Group||Chevrolet||612,931||664,599||548,997||394,277||402,466||437,594||466,170|
|General Motors Group sub-total||616,286||664,599||548,997||394,277||402,466||437,594||466,170|
|Volkswagen Group sub-total||851,845||761,813||600,388||411,391||416,637||451,567||473,501|
|Ford Group sub-total||276,800||352,478||270,164||230,973||225,799||244,873||255,760|
|Renault-Nissan Group sub-total||285,187||296,768||247,713||221,921||220,363||236,970||237,155|
|PSA Group sub-total||99,994||146,423||94,387||73,817||66,468||77,125||77,856|
|BMW Group sub-total||0||0||1,316||9,907||12,777||14,059||14,877|
|Tata Group||Land Rover||0||0||0||0||7,952||8,535||8,996|
|Source: LMC Automotive "Global Automotive Production Forecast (July 2015)"|
|(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.|
|2.||All rights reserved. Reproduction of any data will require permission of LMC Automotive.|
|3.||For more detailed information or inquiries of forecast data, please contact LMC Automotive.|
Vehicle sales by OEM and brand in Brazil
|2011||2012||2013||2014||Jan.-Jul. 2014||Jan.-Jul. 2015|
|CNH Industrial (Iveco)||4,975||4,601||4,058||3,868||2,173||1,490|
|Mahindra & Mahindra||5,441||2,465||1,863||1,474||988||47|
|Mahindra & Mahindra||457||327||610||588||412||47|
Source: Brazilian Automobile Dealership Association (Fenabrave) (Note) Iveco's parent company, Fiat Industrial and CNH Global N.V. were merged into CNH Industrial N.V. in September 2013. Iveco is now a subsidiary of CNH Industrial N.V.
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