Respected analyst Leticia Costa, president of Booz & Co in Brazil, has conducted several studies and scenarios at the request of the union of auto parts manufacturers (Sindipeças) and advised caution but no turnaround in investments already planned for next year.

Costa believes that, by year end, the international financial system will better geared, despite the recent huge losses.

"Depending on the development of the external scenario, the Brazilian economy in 2009 may take different courses and affect the whole automotive sector as a consequence. This will demand caution in short and medium term planning", she said in her analysis.

However, she did not advise a reversal of investments already planned for 2009. The best thing was to have an alternate plan that could be quickly implemented, either to speed up or to slow down production.

"I envisage three possible scenarios. The worst points to a drop of 5% in domestic sales versus 2008, or 2.85m units (cars and light and heavy commercials). In an intermediate situation, a growth of up to 3% is possible. The optimistic result sees something around 5% to 10% [growth] over 2008, totalling up to 3.3m units sold, imports included."

Thanks to the exceptional results achieved in 2007 and 2008, automakers and their main suppliers are well capitalised and, in theory, could cope with a 2009 sales downturn of up to 10% without panic. Yet tier two and three suppliers would be more affected by a slump.

The dealer network may be severely hurt if such a slumps occurs, because a large slice of their profits comes from financing and insurance.

But this week the São Paulo state bank released some $2bn for the automakers' banks: the same amount announced by the federal government's Banco do Brasil.

Other analysts also maintain that, as long as the present crisis does not grow stronger than a 'braking to reset' effect, the automotive industry will emerge strengthened in this time of uncertainties and fears for the future.

The recent explosive growth - some sectors working on three shifts, seven day a week - was not sustainable and much less advisable.

A production slowdown would enable the industry to take a deep breath, eliminate bottlenecks and plan better for future expansion.

Costa said it was more difficult to make predictions for neighbouring Argentina. But she predicts a shrinking market in 2009.

This would affect Brazilian exports and, consequently, production levels here.

Fernando Calmon

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