In 2006, when Brazil’s central bank (BCB) started issuing statistics on the profits remitted abroad categorised by the different sectors in which foreign companies operated, automakers and auto parts manufacturers were always highlighted.
That was because was at the time accounting for 5% of the country’s GDP and at a time of high profitability after the market more than doubled in a relatively short time and more competition entered the market only gradually.
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Automakers already well settled here enjoyed better results more quickly. And even helped prop up parent companies overseas, especially following the 2008/2009 financial crisis triggered by the Lehman Brothers bank collapse.
The over valued Brazilian currency (the real) at the time also helped because companies could buy more US dollars to ‘send home’.
The economic and auto industry scenario changed dramatically in 2014, however. The clearest sign of that was BCB noting in late March not a cent had been remitted by any automaker from Brazilian profits, the first time the bank had observed such a scenario.
According to consultants Roland Berger, Brazilian automakers collectively lost an estimated $US2bn in 2014.
This year the outlook is even more difficult. Production slowdowns, layoffs, enforced out of season collective vacations, daily or weekly work cuts, expensive staff buyouts – all will impact financial results in 2015. Severely.
Now, we are seeing a reverse capital flow. According to BCB, in the first quarter of this year alone the automotive sector has brought in $435m as direct foreign investment, according to the O Estado de S Paulo newspaper.
This is 60% more than in the same period in 2014. Last year’s inward flow was $2.9bn, itself up 61% over 2013’s $1.8bn.
Some of this was, obvioulsy, for spending on new plants and product development. Yet some might have been used already to keep bottom lines from turning from black to red.
The recent devaluation of the real versus the dollar, as compared to 2006, has also limited amounts available to remit overseas.
Another exchange rate efect is the price of cars in Brazil – converted to dollars – getting quite close to those in the US.
When the dollar reached BRL3.30 last mid-March (BRL3.11 today), a Chevrolet Cruze built in Brazil cost nearly as much as a US-made unit, similarly-equipped.
This was in spite of the notably tax burden: 8% in the US versus 50% on average in Brazil.
