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GM sees big boost in Brazil sales as luxury, strong economy drive consumer demand

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GM sees big boost in Brazil sales as luxury, strong economy drive consumer demand

Automotive News -- July 6, 2010 - 10:38 am ET

(Bloomberg) -- General Motors Co. expects sales in Brazil to grow by 68 percent to 1 million vehicles by 2014 as growth in Latin America's largest economy stokes demand for fancier cars, the automaker's South America chief said.

“Brazilians are getting richer and the currency is stronger,” Jaime Ardila, head of GM South America, said in an interview. The country will make a “significant contribution to the company's profits” in the next few years, he said.

GM predicts that sales of the Chevrolet brand in Brazil will rise to 650,000 vehicles this year from almost 600,000 in 2009, and then surge to the 1 million mark in 2014, Ardila said. The Detroit- based automaker plans to increase deliveries “in line with the market or a little bit ahead” as total Brazilian car sales advance to 4 million in 2014, he said.

GM is investing more than 5 billion reais ($2.8 billion) in Brazil through 2012 as a burgeoning middle class, a strong currency and more jobs spur demand for cars, Ardila said. The country's gross domestic product will rise 7.2 percent this year, according to a central bank survey published yesterday.

“South America is perhaps one of the most important assets and best returns on investment that GM has,” Ardila said in the interview in Paris, where he was attending an Economist conference. GM is focusing the investment on product development and spending 1.4 billion reais on two plants in the state of Sao Paulo to increase production.

Sales of GM's luxury brands, such as the Omega, Malibu and Captiva, have grown “tremendously” in Brazil in the past few years to more than 20,000 vehicles, Ardila said. The automaker sees “growing prospects” for premium cars, he said.

Volkswagen, Fiat

GM, the third-biggest automaker in Brazil after Volkswagen AG and Fiat SpA, boosted market share to 21.1 percent in May from 20.8 percent a year earlier, according to the National Vehicle Manufacturer's Association in Sao Paulo. VW's share fell to 25.4 percent from 26.2 percent and Fiat's declined to 23.9 percent from 26 percent.

Volkswagen, based in Wolfsburg, Germany, is investing 6.2 billion reais in Brazil through 2014 and expects sales to increase as much as 8 percent this year, Thomas Schmall, head of the automaker's Brazilian unit, said late last year.

Brazil accounts for 10 percent of GM's global sales volume and the carmaker has made a profit in the country for five years, Ardila said. Rising income and favorable loan conditions are helping GM accelerate sales growth from about 9 percent currently.

Average auto loan maturities in Brazil have risen to 45 months from 31 months five years ago and interest rates have dropped to about 31 percent from 36 percent, he said. The country has 110 million people with the potential to buy a new or used vehicle, he said.

GM veteran

The executive, 54, first joined GM in 1984 and rejoined the company in 1998 after a stint at Rothschild Bank AG. He became leader of GM South America earlier this month after serving as president and general manager of the division's predecessor. Under the new arrangement, the South America group has more power, including representation on GM's executive committee.

The automaker is investing $1 billion through 2012 on the continent, excluding Brazil, and sees particular promise in Colombia and Argentina, he said. GM is financing South American investment with cash as well as loans from Brazil's state development bank, known as BNDES, Ardila said.

“Cash flow generation in the region is strong,” he said. “We continue to use BNDES as a very strong partner.”

Fast-paced economies

Brazil, Russia, India and China, the so-called BRIC countries, represent the fastest growth prospect for GM and will make up about 25 percent of the company's auto sales this year, Ardila said. In China, the carmaker aims to increase sales to 2 million units this year from 1.83 million in 2009, putting the Asian nation close to the United States by that measure. First-half sales in China surpassed those in the United States for the first time.

“The fastest-growing markets for GM globally will continue to be Brazil and China over the next five years,” said Ardila. “We'll probably grow very fast in India as well because India is only starting to grow. We don't have in India the kind of presence we have in Brazil, so the potential there is huge.”

The automaker is preparing for an initial public offering as soon as the fourth quarter and may sell a 20 percent stake, two people familiar with the plan said last month. GM isn't considering a separate IPO in Brazil or the region, Ardila said.

“During the restructuring in 2008 and 2009, we had tremendous interest from a lot of parties into a potential IPO for South America,” he said. “But frankly for us, South America is too strategic an asset.”

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20100706/OEM/100709933/1261#ixzz0swNx7bWG

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