The Brazilian Automotive Industry in a Nutshell
The Automotive Industry in Brazil has boomed after ex-president Fernando Collor de Mello opened up the market in 1990, but high production costs, high taxes and technology deficit are barriers that Brazil is still struggling to defeat
Brazil’s automotive industry has been displaying an impressive growth of 2 digits over the last years, totaling revenues of over USD 100 billion by the end of 2010. These figures secured Brazil the fourth position amongst the largest car markets in the world (one position ahead of Germany), and generates 1.5 million jobs.
The perspective of a steady development of the industry is attracting billions in investments to the country. BMW announced in December 2011 plans to set up a plant in São Paulo, and by 2014 Chinese manufacturer JAC Motors will officially start the production in the assembly line that is being built in Bahia state.
Heavy government incentives and Protectionism
Representing 5.2% of the GDP, the car industry is fueled by heavy incentives announced by Plano Brasil Maior in addition to an increase protectionism in order to prevent an invasion of low cost Chinese brands. At least 65% of the car content should be local or originating from Mercosul to be considered locally produced. Otherwise it is taxable as an imported vehicle, adding another 30% on the top of the IPI rate.
Beginning from January 2013, a new set of measures announced by the government will try to leverage the production of parts and direct a portion of the revenues to R&D, which has been neglected throughout these years. Manufacturers will benefit with IPI reductions proportional to amount invested in parts and technology.
Getting tax benefits
Aiming to boost the R&D to stimulate the creation of new car models, the government expects a minimum investment of 0.15% of the gross revenue in 2013 in innovation, increasing to 0.5% until 2017. In engineering, the manufacturers will have to direct 0.5% of the gross revenue by 2013 and the double until 2013.
In terms of production it is expected that by 2017, 10 out of the 12 production steps must happen within the Brazilian territory. All cars produced in Brazil must also be certified by Inmetro by 2017, which will control the energy efficiency of the cars and limit the CO2 emissions.
Small and economic are the most popular
The best selling cars in Brazil are usually compact and even though the models are considered to be rather simple, the prices are very steep ranging from approximately BRL 20 000 to 50 000. The most popular cars usually have small engines like 1.0 or 1.4 and are of flexible fuel using ethanol and gasoline. The top 10 best-selling cars are:
- 1 - VW Gol
- 2 - Fiat Uno
- 3 - Fiat Palio
- 4 - VW Fox/CrossFox
- 5 - Chevrolet Celta
- 6 - Ford Fiesta Hatch
- 7 - Fiat Strada
- 8 - Chevrolet Corsa Sedan
- 9 - Renault Sandero
- 10 - VW Voyage
Safety items such as airbags are not prioritized by buyers that would rather prefer to have an air conditioning system or electric locking systems.
Manufacturers market share in Brazil
The 10 biggest cars manufacturers in Brazil and their respective market shares in 2011 are listed below. All manufacturers on the list have assembling facilities in Brazil:
- Fiat (22,56%)
- Volkswagen (22,13%)
- GM (19,97%)
- Ford (9,21%)
- Renault (6,7%)
- Honda (2,89%)
- Peugeot (2,75%)
- Citröen (2,67%)
- Hyundai (2,35%)
- Nissan (2,02%)
- Toyota (2,02%)
- Kia (1,8%)
But no big Brazilian manufacturers…
Opposite to all the other BRIC countries Brazil has failed to launch car brands, despite multiple attempts. Manufacturers such as Romi, Miura, Puma, Gurgel, and VEMAG (purchased by Volkswagen) tried to launch locally designed and produced cars since the 50’s without success.
Specialists claim that Brazilians are too used to international brands and a local manufacturer would have to have extremely strong financial muscles to build a brand that will meet the Brazilians’ expectations. All the previously mentioned brands had its flaws, being lack of capital, design or technology just to name a few.
In this tough market, the only manufacturers that managed to succeed are smaller and niche players, like TAC Motors, that produces 4WD in a very small scale and Troller, the off-road vehicle manufacturer bought by Ford in 2007.
Financing, cash, credit cards and other payment options
With the rise of the D class many Brazilian can finally afford to buy their first car, and most people have no options but getting loans, paying down in up to 60 monthly installments.
Brazilian tends to be creative to get ends to meet. Buyers that do not have cash available to make down-payments for cars end up using alternative sources of credit like one or multiple credit cards.
According to the Manufacturers Financial Companies Association, car payment options used in Brazil in 2011 were:
- 50% CDC financing
- 38% Cash
- 7% Consórcio
- 5% Leasing