Bad results for local sales, production and exports in the first half reflected Brazil’s weak economy, growing inflation and uncertainties about the future.
Comparing to first half 2013, the sales fell 7.6%, production 16.8% and exports 34.5%, respectively. The drops were far sharper than predicted by the end of last year when it was commonly held the Brazilian economy would grow a shade over 2013’s 2.5% in 2014. Today it’s seen as a 1% GDP rise.
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Manufacturers association Anfavea has itself reviewed its own, over optimistic forecasts from last December. Thanks to the partially reduced IPI excise tax now extended to year end, as announced on 1 July, the year’s final numbers are expectd to be slightly less negative at 5.4%, 10% and 29%, respectively. It means that growth on the second half (14.3%, 13.2% and 36.9%) would partially offset the slow start to the year.
Each percentage point of the IPI tax rate increase hits retail prices by 1.1%. Each 1% rise in this price causes sales to drop 1.6%. By multiplying the factors, 1% more tax means, in practical terms, 2.5% less sales. Rounding the numbers, a 4% rise in IPI (to the original 7% from the current 3%) passed on in prices would result in a 10% dip in sales.
This year production was hurt for two reasons: the slowing local market and the troubled economy in Argentina, which takes nearly 80% of all exports from Brazil. It has bee suggested here the World Soccer Cup holidays in Brazil hit sales but, if the market was boiling, buyers simply would have just postponed their rush to showrooms. Car supplies are not a problem for dealer plus industry inventories amount to 45 days (30% above normal) and the dealers are capable of registering more than 15,000 vehicles per working day. In the first half they sold just 11,500 on average.
The causes of the apathy are yet to be uncovered. The first probably is a levelling off after nine years of continuous, fast growth. It is also undeniable that people anticipated shopping and demand thus suffered. Yet the market continues to show great potential, for the inhabitants-to-vehicle ratio has barely reached five, somewhat below the world average but far less than Mexico and Argentina, for example.
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By GlobalDataFinancing accounts for two thirds of sales and has become more restrictive. Although default affects interest rates, the other problem is little considered. Artificial plans for interest rates reduction are effectiveness-limited. If rules were to change, making repossession easier, removing the current leniency for those who fail to make payments, certainly the credit offers would get a boost.
In other countries, even payers with poor credit ratings manage to get financing, since the vehicle can be repossessed in a short time. Conversely, the timely payer pays less interest and gets a longer repayment period. The end of paternalism would create a far greater and healthier credit market in Brazil.
Even so, this half’s sales have the potential to overcome the first’s because at least 14 new model launches are expected, it is motor show year, and the industry still has room for promotions.
