US: Ford sees Brazil overcapacity pinching margins
Automotive production capacity in Brazil is expected to outpace demand until 2016, a trend that will pinch margins on small cars - the country's largest vehicle segment - a top Ford executive said.
"Excess capacity is going to put more pressure on pricing and margins, particularly in the B segment, or small car segment, which is the largest segment in Brazil," Mark Fields, Ford's head of the Americas, said during an investor conference, Reuters reported.
This year, Brazil's auto sales are expected to be around 3.8m cars. But capacity is more than 20% higher at 4.7m vehicles. The gap between demand and installed capacity is expected to grow every year until 2016.
Ford will boost production in the region to expand its vehicle offerings in Brazil but Fields said the increase would not be significant.
"We plan on accomplishing this within the same manufacturing footprint," he said. "We do expect to participate in the growth in the region, without adding significant capacity."
From 2008 to 2011, the top four automakers in Brazil, including Fiat and Ford, have lost market share despite a nearly 30% jump in sales. Meanwhile, companies like Renault and Hyundai Motor have gained.
Newer entrants have started building factories in Brazil in response to steep tax incentives and high penalties for imported vehicles. Last month, Kia, hurt by a tax hike on foreign-made cars of 30%, said it would study building a factory in Brazil.
Parent Hyundai has just opened one which operates in parallel with an independent importer's plant.
"While the industry volumes are growing in Brazil, which is fantastic, capacity is growing at a faster rate," Fields said.
Ford holds 9.5% market share in Brazil. It has four factories there, two assembly plants, an engine plant and a transmission plant.
Ford builds its Fiesta subcompact and EcoSport small crossover, two vehicles built on the automaker's global small car platform, at its Camacari Plant. The company also makes the Ka, Courier pickup truck and cargo trucks at its Sao Bernardo assembly plant.
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