Brazil Picks Up Speed Driving Out of 2009 Global Recession

[NINETY EIGHT REGENCY]

Brazil Picks Up Speed Driving Out of 2009 Global Recession

By Barbara McClellan

WardsAuto.com, Mar 10, 2010 9:07 AM

Brazil’s stamina became the focus of the international auto industry in 2009, and the country continues to find itself in the spotlight among solid world economies in 2010, along with China and Germany, as it emerges quickly and mostly unscathed from last year’s global financial meltdown.

Indeed, sales of new vehicles in the first two months of 2010 climbed a record-breaking 9.4% over prior-year, to 396,820, according to the National Association of Vehicle Manufacturers, Anfavea, making Brazil the world’s fourth-largest in vehicle sales, surpassing Germany.

Anfavea credits Brazil’s President Luiz Inacio Lula da Silva’s swift action in helping South America’s largest vehicle market to break sales and production records at the same time more-established markets such as Japan, the U.S. and much of Europe were seeing new-car demand tumble at historic rates.

Affectionately referred to as Lula, the Brazilian president is seen to have reacted quickly to the crisis with a number of effective measures to bolster the industry and lure car buyers to showrooms, including a significant tax reduction that helped auto makers cut the price of their cars to consumers.

Lower interest rates, new car models and upgrades from Brazil’s Big Three, including Volkswagen AG and Fiat Automobiles SpA, also helped push a speedy recovery. A promise from General Motors do Brazil Ltda. to introduce a series of new cars to the market this year has prompted Anfavea to expect 2010 to be another record-breaking year.

The manufacturing group says vehicles sales rose 11.4% in 2009 to a record 3.14 million, thanks to the resilient domestic economy.

Brazil’s top-selling auto makers in order of passenger-car sales, according to Anfavea, were Volkswagen, Fiat, GM, Ford Motor Co., PSA Peugeot Citroen SA, Honda Motor Co. Ltd., Renault SA, Toyota Motor Co. Ltd., Hyundai Motor Co. Ltd. and Nissan Motor Co. Ltd.

VW, Fiat, GM and Ford all named Brazil one of their most-important markets in 2009. VW, which said it built 800,000 vehicles in the year, predicts the industry will sell 4 million vehicles by 2014, which would mark a 33% rise over 2009.

Fiesta to be first to receive Ford’s new Brazil-made engines.

Despite the economic crisis, auto makers launched 50 new or refreshed models last year, and GM plans to bring the Chevrolet Malibu to Brazil in April.

Nevertheless, production fell 1%, dragged down by plunging exports, to 3.18 million units compared with 3.22 million in 2008.

But total output still surpassed a long-sought after benchmark. Anfavea predicted in 1997 the country would be building 3 million vehicles annually by 2000. Changing economic and political regimes caused havoc to the market in the intervening years, but the 12-year goal finally has been met.

Exports were another matter. An unfavorable exchange rate for the Brazilian real of 1.73:$1 late in the year, along with the global financial crisis, impacted international sales, Anfavea says. Total 2009 vehicle exports tumbled 40.5% to $8.29 billion.

Flex-fuel-powered vehicles (FFVs), which run on gasoline or ethanol or a mix of both, accounted for 87.2% of export sales; gasoline-powered 7.4%; and diesel 4.5%.

At the same time, imports continued to grow, taking an even bigger slice of the domestic market, up 30.3% to 488,874 units last year and expected to climb to 544,000 in 2010.

The government again is credited for a positive 2010 outlook after extending tax breaks for environmentally friendly 1.0L FFVs through March. Tax credits for larger-engine cars were phased out at the end of 2009. FFVs represent a large part of the Brazilian market.

One unforeseen development that has the potential to hurt both the country’s economy and the availability of ethanol is the disruption of Brazil’s sugarcane harvest in late 2009 due to heavy rains.

Production of ethanol reportedly could drop from 6.6 billion gallons (25 billion L) to between 6 billion and 5.8 billion gallons (23 billion and 22 billion L) in 2009-2010, forcing the government to consider lowering usage in gasoline to 20% from 25%.

Ironically, Brazil, the world’s largest ethanol producer and also sitting on vast deposits of oil, could be forced to import ethanol from the U.S., according to Bloomberg.

Brazil’s success in navigating the world financial crisis in 2009, and also as one of the world’s key emerging markets, has boosted its profile among auto makers looking to increase investment.

Car companies requested BR9.2 billion ($5 billion) in loans from the National Development Bank to expand production last year. The state bank granted them BR5.5 billion ($3 billion) in the first nine months.

Market-leader Volkswagen do Brazil Ltda. announced in late November intentions to commit BR1.9 million to BR2.2 million ($3.5 million to $4 million) to modernize plants and increase its product range, with the goal of building 1 million vehicles by 2014.

Renault said it would spend BR1 billion ($600 million) to expand operations in Brazil over the coming three years. Plans called for the launching of two models, the Duster (2011) and likely a small pickup derived from the Logan to be designed at the auto maker’s new development center in Sao Paulo.

Chery Automobile Co. Ltd. said late last year it would launch its Tiggo cross/utility vehicle in Brazil in January. The Chinese CUV, with a design similar to the Toyota RAV4, was to be assembled in Uruguay, a member of the regional trade pact, and is expected to compete primarily with the popular Ford EcoSport.

Ford says it is investing BR640 million ($350 million) in its engine and transmission line at the Taubate factory to develop a new family of small engines for export. The new Fiesta is to be the first car to receive the new mill.

Already on sale in Europe, the Fiesta will be built in Mexico for North America. Mexico and Brazil share an automotive trade agreement, so there will be no import taxes on the engines.

GM’s decision not to sell its European Adam Opel GmbH operations late in 2009 was positive news for its Brazilian unit, as most of its models have been based on Opel designs and platforms.

James Ardila, head of the GM Brazil, in December cited the local operation as the U.S. auto maker’s most profitable, surpassing China. “We are finishing the year with a happy ending,” he said, “like the last chapter of many novels.”

link:

http://wardsauto.com/ar/brazil_speed_2009_100310/