Despite growth of 24% in the first five months of 2007, the Brazilian motor industry’s key players and observers are now wondering if the boom will last.
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Strong sales have, in fact, brought more doubts than certainties for automaker executives responsible for strategic decisions.
After all, there is some recent history: the recession a decade ago just after several global car makers had made huge investments in new plants or greatly expanded capacity.
On the other hand, there has been a big recovery over the last three years, culminating in today’s stunning numbers.
However, it should be noted that, in spite of the current sales surge, at similar rates to the emerging Chinese market in the last few years, predicted 2007 sales will only just surpass 1997’s record 1.943m units.
A cautionary note was dominant at the conferences held during the recent AutoData ‘2007 Revision of Perspectives’ seminar in São Paulo. Attendees included the CEOs of the country’s four largest automakers, together accounting for more than 80% of new vehicles sold in Brazil.
GM do Brasil head Ray Young called the market’s recent ups and downs “schizophrenic” while there was no real consensus on forecasts.
Fiat’s Cledorvino Belini and Volkswagen’s Thomas Schmall are both targeting growth of 20%. However, Ford’s Marcos Oliveira is sticking with manufacturers’ association Anfavea which estimates a boost of “only” 14% for this year.
That said, Brazilian buyers are currently waiting up to three months for delivery of high-demand models. This soaring domestic demand contrasts with reduced exports (due to the high value of the Brazilian real) but, usefully, output originally earmarked for export is being redirected to willing home market buyers.
Fully-assembled imports are expected to account for around 200,000 units this year – roughly 10% of total car and light commercial vehicle sales.
The high value of the real isn’t all bad: it gives those industry CEOs a certain degree of decision flexibility, not to mention improving balance sheets after being converting to US dollars.
GM alone expects a sizeable slump in export volume this year though, despite price hikes, export sales are seen at least remaining flat for the rest of 2007.
The weak dollar (vs the now high-value real) of course brings benefits in the form of cheaper imported parts for locally-produced vehicles, lower machine tool costs – even steel blanks are better priced now, as the local Fiat unit noted during the seminar.
Consultants Booz Allen Hamilton’s president Letícia Costa stressed the importance of establishing if the current strong market is due to fleet renewal movement or new consumers.
Some automakers believe that both currently are factors but add that the best way to positively influence new vehicle sales would be economic stability with inflation brought under control and tax cuts – this would boost consumers’ confidence and increase their buying power.
The most optimistic forecast is a 3m-unit market by 2010, medium/heavy commercials and buses included, compared with an expected 2.3m total this year.
Fernando Calmon
