Jackson Schneider, president of Brazilian automakers association Anfavea, in September finally released a study of the competitiveness of the Brazilian auto industry. Based on surveys and research by PricewaterhouseCoopers (PwC), the group has given the government suggestions for a course change in coming years.
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The study took so long to conclude that some premises on which it was based were rendered obsolete by the fast turnaround of the domestic market that amazed even the auto sector’s most optimistic analysts.
According to PwC, Brazil’s auto industry has recently been left behind in inward investments, which are instead being made in India, China, Russia and even Mexico, especially last year, according to disclosures from manufacturers and governments.
The report said that world production would grow by 12.6m units by 2012, while capacity is due to increase by 10.7m. The four leading countries attracting investment for increased capacity are expected to be India (2.7m units); China 2.4m); Russia (1.6m); and Mexico (1.4m).
Brazil, which received massive inward investment in the late 1990s – which was followed immediately by a prolonged slump in domestic sales leading to the automakers’ frantic efforts to secure export contracts to utilise all that spare new capacity – in contrast, stands to gain just a half million extra units, and will be left behind even by Slovakia, which is likely to gain 0.8m within five years.
Iran and Japan would also be ahead of Brazil, with both expected to boosting their assembly lines’ volume by 0.7m units.
The study did not forecast how much of this additional capacity would be effectively used or remain as excess.
But the reality might have changed dramatically, without the consulting company having the chance to reassess it. In Mexico, heavily dependent on the American market, time is passing and investments do not get past the planning stage – the weakness of Mexican domestic sales is no help at all.
Other analysts ponder about the real Indian potential. Russia, on the contrary, really seems to be the next ball in play, in spite of a troubled past.
It follows that this year alone the domestic, Brazilian market will grow 450,000 units, to 2.35m. Excess capacity will be around 15%. Therefore, by 2012, if Brazil does not add 2m to its present 3.5m capacity, it will only be able to meet demand with a hefty rise in imports, which seems quite unlikely due to current and past scenarios.
PwC highlighted the loss of competitiveness of Brazilian vehicle exports (it peaked at 35% of production two years ago; now it’s 27%), without emphasising the Brazilian currency valuation.
For Anfavea, the country’s lack of infrastructure and tax burden have been the main export inhibitors. Astute industry observers would also add the local market’s sudden overheating.
Undoubtedly, Brazilian competitiveness needs to keep improving. Yet PwC’s consultants seem not to have worked out that the picture has changed since their study and that advancement from here requires real investment.
Fernando Calmon
