Brazil Autos Report Q1 2008

The pace of growth in Brazil's automotive industry has prompted BMI to raise its sales estimate for 2007 once again. As we reflect in the latest Brazil Automotives Report, all segments of the market registered levels of growth exceeding 25.0% in the first nine months of the year. For passenger car and heavy commercial vehicle sales the upturn was approaching 30.0%. New-vehicle sales have soared this year on the back of improved consumer confidence, tax cuts, better credit terms, falling inflation and economic stability. Strong sales growth has led certain observers to predict that Brazil may become the world's fifth or sixth biggest car market by as early as 2008.

According to data from the Brazilian vehicle manufacturers' association, Anfavea, during the period January-September 2007 total vehicle sales amounted to 1,783,270 units, a year-on-year (y-o-y) increase of 27.2%. Passenger car sales rose by 27.3% y-o-y to 1,433,001 units. After closely disputing the top spot for some time with Volkswagen (VW), Fiat took a definitive lead on the market, with sales of 383,788 units, up by 31.1% y-o-y. Second-ranked VW sold 349,427 units, an increase of 29.8% against the same period a year earlier. General Motors (GM) completed the top three, with total car sales climbing by 26.9% y-o-y to 337,496 units. Of the top 10 players, only Toyota reported a downturn in car sales, of 11.5% to 30,144 units. Nissan enjoyed the biggest gain of 204.4% y-o-y to 1,921 units. BMI's revised sales estimate for 2007 stands at 2.37mn units. Our outlook is positive for the remainder of the forecast period up to 2012 with car sales being buoyed by new product launches from industry majors such as Fiat and VW.

While vehicle output has also increased, particularly truck production, BMI has lowered its 2007 production estimate from an optimistic 3.075mn units to 2.74mn units, which is more in line with results for the year to September. In line with data from Anfavea, vehicle producers operating in Brazil turned out 2.049mn vehicles during the nine-month period. As mentioned above, truck production was particularly strong, rising by 25.9% y-o-y to 97,458 units. Volkswagen Caminhes e Onibus led the market with output for VW's commercial vehicle arm surging by 36.5% y-o-y to 27,435 units. Local manufacturer Agrale S.A. reported the biggest upturn in output for the period, of 87.5%.

Our industry development this quarter relates to the commercial vehicle segment. Ford's Brazilian subsidiary has unveiled investment of BRL300mn (US$171.5mn), which it will use to develop its commercial vehicle product range in the country. In line with its strategy to meet growing demand in the segment, Ford is expected to use the capital over a period of five years to update existing models as well as forge a place for itself in new niches. In BMI's view, Ford's plans reflect Brazil's positive business environment as well as quell any fears that carmakers are turning their attention away from the country to target growth in other emerging markets such as China.