During a truly dramatic 2020, Brazilian sales, production and exports plummeted strongly, yet not as drastically as initially forecast in the early days and months of the COVID-19 pandemic. Predictions suggested a drop of over 40% but that ended up at 26.2%.
Hefty government emergency help for the economy and Brazil’s mighty (and influential) agribusiness helped to offset losses.
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By GlobalDataDecember was 2020’s best month for both light and heavy vehicles sales: 243,967 units for a daily average of 11,600.
The full year tally was 2,058,437 vehicles (provisional data), marginally assuring Brazil of its ranking as the globe’s sixth biggest domestic market country ahead of France.
Domestic market activity was strong in the final quarter but the industry reduced direct and less lucrative sales (especially to car rental companies). As a result, by year’s end, total inventory at automakers and dealers combined shrunk from 35-40 days to 12 days, an all-time low.
Imported vehicles, mostly from Argentina, accounted for 10.3% of total sales.
Brazil’s output of 2,014,055 vehicles was 31.6% fewer than in 2019 with production hit severely, initially by a strict lockdown, lasting for more than one entire quarter, followed by plant workers social distancing which slowed the pace of production. Nonetheless, the country ranked ninth amongst global auto producers in 2020.
Exports dropped 24.3% year on year to 304,000 units.
Forecasts
For 2021, automakers association Anfavea has predicted a cautious 15% rise in sales, exports up 9% and a 25% recovery of production. At that pace, the pre-pandemic 2019 numbers would not again be matched until 2022 or 2023.
Conversely, despite some political difficulties, the Brazilian economy will grow this year, by at least 3.5% due to the unusually low 2020 comparative basis. Vaccination of part of population should help this positive rise. Spending which consumers would have made on leisure travel and other treats in 2020 is now more likely to be used for new cars this year.
If that indeed does occur, there is potential for a return to 2019 volume in 2021, a sales boost of about 35%.
GM South America CEO Carlos Zarlenga told the O Estado de S Paulo newspaper he expects a domestic market surge of 25%, or more, year on year.
He added investing in Brazil remains good business and announced the automaker’s unlocking of investment worth US$2bn (BRL10bn) by 2025.
However, with the Brazilian real now devalued by over 33%, it is possible the actual amount spent in US dollars ends up somewhat less which could have made the GM decision easier.
Its Chevrolet brand led the local market for the fifth consecutive year with 17.4% market share, followed by VW and Fiat.
Ford withdraws
The automaker’s decision to end vehicle manufacturing here has short term, negative implications but does not signal ‘automotive sector deindustrialisation’ by any means.
The EcoSport and Ka manufacturing plant in Camacçari, in the northeast state of Bahia, opened in 2001 and has a two-shift, 200,000 unit capacity. The powertrain plant in Taubate, Sao Paulo state, has capacity for 500,000 engines and 440,000 manual transaxles and was opened 53 years ago.
The minuscule, Ford-owned Troller company’s SUV plant (2,000 units a year) in Horizonte, in the also northeastern state of Ceara, is due to shut down for good in last quarter of 2021, the other two are being closed immediately.
In all, 5,000 direct jobs will be axed here in Brazil plus a smaller number in Argentina.
Ford set up in Brazil 102 years ago and will now become solely an importer from this year, starting with the Bronco (Escape, perhaps, will be imported too). Until now it has imported the US Mustang, Canadian Edge SUV and, most recently, the Chinese Territory SUV.
The Ranger mid-size pickup truck will continue to be imported from Argentina (free of import tax) and a new generation is planned for 2023.
Uruguay’s Nordex, in partnership with Ford, will assemble the Transit van from CKD kits and that model line is also Brazil-bound tax free.
Somewhat unnoticed, Ford has decided to keep its tech centre in Bahia and the Tatui proving ground in Sao Paulo state, 130km west of the city. It also will export services, thus some jobs will be kept.
But Ford will have to return government financial incentives and indemnify employees and dealers, apart from other exit expenditure. For this, it has allocated US$4.5bon (BRL24b).
The company will look for buyers for the Camacari and Taubate facilities. The Sao Bernardo do Campo plant in Greater Sao Paulo, where trucks and cars were produced, was sold last year after being shut down a year earlier. The facility and surrounding land will become a generic logistic centre.
Obviously, Ford’s market share will decrease sharply compared to the current year’s circa-7%. It is likely to level off at 2% (like the combined Peugeot and Citroen share.
The average price of the cars Ford will sell from now on will be quite a bit higher but the company is after enough profitability to survive in Brazil long term.
This country is subcompact land where hatchbacks and saloons account for 45% of sales. With the advance of new, still expensive technology, it becomes harder to amortise costs over smaller, low-profit models.
One solution would be to import more components and increase exports. To do this, Brazil should invest heavily in infrastructure, together with internal reforms that really improve economic efficiency and streamline the range of exported products, as other countries do.
For its land size and vehicle density per inhabitant, Brazil is poorer than Argentina and Mexico, for example, and has a long way to go. From 2010 to 2014 the country was ranked as the world’s fourth largest domestic market after China, the US and Japan.
However, India’s population of over 1bn is likely soon to boost its market ahead of Brazil with its 210m people. Even so, potentially ranking fifth in sales in the world would ensure Brazil remains attractive.
As an autos producer, the country was once as high as seventh (currently ninth) but potential exists for it to move up to sixth, or even fifth, if it does its homework.
