Tax incentives were very effective in 2012 and helped Brazil reach a new sales record of 3,573,076 light vehicles. With this success, Brazil remained the fourth largest automotive market in the world, just behind China, the United States and Japan. Polk's automotive forecast does include any changes in this ranking in 2013 when sales in Brazil are anticipated to reach 3.63 million light vehicles.
However, Brazil's importance declines when we analyze production numbers. Last year, production in Brazil was the seventh largest in the world – now behind China, the U.S., Japan, Germany, South Korea and India. Brazilian production totaled 3,138,470 light vehicles last year. While sales increased 2%, production was up 0.8% after dropping 8.5% in 2011. That year, imported vehicles represented 23.6% of total registrations. There is no need to do any consumer research: customers were shifting to imported vehicles because they offered more for the same value of one made locally.
Such share made the government increase the IPI (industrialized products tax) for imported vehicles by 30 percentage points, which was in effect in mid-December 2011. Early in 2012, quotas were set for Mexican vehicles – Brazil and Mexico have had a free trade agreement since 2002. Last year, sales of Chinese and Korean models aimed at more price sensitive customers were hurt, helping the share of imported vehicles fall to 20.9%. Customer loyalty does not walk hand-in-hand with price increases. On the other hand, Mexico was able to increase exports to Brazil by 30% compared to 2011.
The government also came up with several new rules to shape the automotive industry in Brazil. Called Inovar-Auto and in effect between 2013 and 2017, these policies are still being changed and need further clarification but are intended to force OEMs to increase production in Brazil to pay less in taxes.
What the government never mentioned is exports from Brazil. One may agree that it is easier to raise taxes than to create policies that will incentivize exports. And that has been a problem for the Brazilian automotive industry. In 2012, exports shrank 19.1% – after a 26.5% decline in the previous year. Exports are the main difference between Brazil and the countries that have a smaller market but build more vehicles – Germany, South Korea and India. Mexico has seen a production increase as it became an export hub.
Brazil has lost competitiveness to such a high degree that for example, Fiat imports the Bravo to Argentina from Italy and not from Brazil. In Chile, Nissan sells the Frontier made in Thailand and not in Brazil. There are no major exports from Brazil to the U.S. or to Europe – Volkswagen has exported the Golf and the Fox to those respective markets.
The new president of Anfavea, the OEM association, has announced the intention to export 1 million vehicles until 2017. A lot of uncertainty is swirling around as a new law for ports may affect the port of Santos, the main one for vehicle exports, already in May 2014. The government has not yet announced how – and if – it will help OEMs willing to increase exports from Brazil and with that, increase production.
Posted by Augusto Amorim, Lead Analyst – South America Forecasting, Polk (06.25.2013)