There was once euphoria in the Brazilian automotive market. Following the 2008/2009 financial crisis, the Lehman Brothers bank bankruptcy and the chain reaction that spread worldwide, auto companies settled here coincidentally commenced to profit enormously. And the order of the day became rescuing indebted parent companies, especially General Motors (at the time in Chapter 11 proceedings), Ford and Fiat.
How times have changed. Registrations here slumped almost 50% in four years (2013 through 2016) and the scenario reversed. Just last year, the local industry was given US$6.5bn by parent companies to pump in cash, the highest amount of the kind since 2010, according to the Central Bank of Brazil, cited by the O Estado de S. Paulo newspaper.
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A further $5.3bn was transferred in the form of intercompany loans, to total about $12bn. For comparison, the US government injected $50bn to make ‘new GM’ feasible in 2009 and recovered some $14bn during the process of handing the automaker back to new stockholders in 2013. Taxpayers’ loss topped about $11bn.
Pricewaterhouse Brazil’s managing partner Marcelo Cioffi has said “the country continues to be an important market and automaker’s [parent] companies look forward for it. I do not believe in any relevant company giving up playing here in a near future, for investments in the recent years were quite heavy.” There would also be a severe loss for retirees on company pensions.
Yet Cioffi is unable to figure out how long world automakers will tolerate their Brazilian subsidiaries reporting in red ink [GM has endured a decade of losses at Opel, now possibly to be sold to PSA – ed].
Brazil was the world’s fourth largest market for light and heavy vehicles earlier in the decade yet dropped to ninth last year.
Subsidiaries’ top executives are desperately trying to minimise the problem because local investments are for the long term. Markets are known to have cyclical phases, but Brazil’s 200-to-1,000 vehicle-to-inhabitants ratio is still way lower than those of ‘mature economy’ countries which currently show only vegetative growth.
Automakers association Anfavea’s president Antônio Megale said “corporate [loans] must be [repaid] sometime but they were an alternative to local fund-raising. Money cost in Brazil is much higher, tax rates abroad are more civilised.”
Last month, domestic sales were at a level between cold and tepid and, this February, a month of sequenced holidays based around Mardi Gras, they are not rising compared to the same month in 2016.
Anfavea’s forecast is just 4% growth for full year 2017.
