Abstract
The industrial tax break on the automobile industry in Brazil has paid off in
Q109. As BMI examines in
its Q309 Brazil Autos Report, March registrations
reached 280,356 units, an increase of 12.6% compared
with the period last
year, due to the anticipated withdrawal of the break from March 31.
The
surge took Q1 registrations to 677,741 units, only marginally down from
680,273 units registered in
Q108 despite a less impressive 9.8%
year-on-year (y-o-y) fall for 2M09. BMI believes that much of the
increase
in March came as consumers expected the aforementioned tax break to end. This
has now been
extended until June 30. The move is aimed at stimulating the
autos market in particular, which was
otherwise expected to register sales
dropping by nearly 30% in the quarter, according to Jackson
Schneider,
president of Brazil' s automakers association, Anfavea. BMI maintains its
forecast of a 4% y-oy
increase in vehicle sales in 2009, as we expect
robust demand in H109 to be followed by a lower
demand in H2.
Manufacturers are wary of slowing domestic demand and falling exports, leaving
them with little
incentive to increase production this year. Vehicle
exports in the country are estimated to have declined
by nearly 52% y-o-y
to 86,000 units in Q1, prompting carmakers to produce 16.5% fewer
vehicles;
661,490 units were manufactured in 3M09. In line with this, BMI
maintains its forecast of an 8% y-o-y
annual fall in autos production to
2.94mn units.
Nevertheless, Brazil, along with its high-growth potential
neighbours, such as Argentina and Mexico, will
continue to attract foreign
carmakers in the long term. The flood of investments from Chinese
carmakers
has been a testimony to this. In April, Chery Automobile
revealed plans to build a flex-fuel
manufacturing plant with an investment
of BRL1.53bn (close to US$700mn). Such investments will take
the country' s
production capacity to 3.89mn units by end-2013, having more than surpassed
the level of
3.22mn units produced in 2008.
The sheer size of the
market and its location, coupled with a huge potential for domestic demand,
makes
Brazil the largest autos market in Latin America. The country takes
first place in BMI' s Business
Environment Ratings for the autos industry
in the region. We expect it to maintain its position (once the
economy
recovers from the ongoing crisis in the next few years) on the back of its
strong growth
potential.
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