Thomas White Global Investing
Brazil
Brazil Stamp
December 4, 2009
A Postcard from the Americas
Brazil: Driving Ahead Despite Recessionary Worries

Brazil auto sales

Automotive sales are expected to grow around 9% next year, according to Anfavea, Brazil’s National Association of Motor Vehicle Manufacturers.

How things can change! It was just earlier this year that Brazil was suffering from its own version of automotive blues. Carmakers were slashing production, and with that jobs. Demand was declining, as the full weight of the financial crisis hit the thriving automotive sector in Brazil. Yet now, barely 11 months later, Brazil’s automotive industry is once again revving up.

When Ford Motors announced that it would invest $2.3 billion as part of its expansion plans in Brazil, this only underscored the prevailing belief that the country was well on its way to economic superstardom despite the uncertainties of last year. And soon after, German manufacturer Volkswagen joined the Brazilian bandwagon as well, by announcing an investment of $3.5 billion. Tagging Brazil as one of its ‘most important growth markets worldwide,’ Volkswagen confirmed that it intends to produce as much as 800,000 vehicles this year.

Anfavea, Brazil’s National Association of Motor Vehicle Manufacturers estimates record sales for the automotive industry this year, with October production output soaring to the second highest level ever. With Rio de Janeiro also bagging the rights to host the 2016 Olympics, analysts expect momentum in Brazil to only rise. Currently, there is one car for every seven people and vehicle manufacturers are expecting this to increase to one in four over the next five years. Volkswagen is banking that overall vehicle sales in Brazil will touch four million units by that time, and hopes to snare around a million of the potential sales pie. Brazil is already Volkswagen’s third most important market after China and Germany, and this investment affirms the faith it has in the Brazilian consumer.

And what about Ford’s plans in Brazil? The U.S. auto giant said that it would funnel its investment towards boosting capacity at its Camacari plant as well as modernizing the Troller plant. The company has recorded consistent quarterly profits for the previous 23 quarters, and the Camacari plant is easily one of its most sophisticated worldwide.

It was earlier this year that the Brazilian government announced a slew of tax incentives that made cars less expensive, driving up demand despite the recessionary plague. Although those tax incentives are set to expire in December, the government has pledged to extend tax breaks for environmentally-friendly vehicles until the end of March 2010 for cars, and June 2010 for trucks.

Carmakers are also banking on a rejuvenated economy. Brazil’s economy is expected to just marginally skirt a recession by growing 0.2%, but is forecasted to rebound by as much as 5% next year, according to its central bank. The country’s own president, Lula da Silva, himself worked as a lathe operator in a vehicle manufacturing plant, and is interested in keeping the automotive industry thriving, especially considering that presidential elections are due next year. According to Reuters, Lula eloquently called this period a ‘magical moment in Brazil’s economic life.’ It appears Volkswagen and Ford could not agree more.

 

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