Brazil Autos Report Q4 2009

Government intervention in Brazil has helped it stand as one of the strongest automotive markets in Latin American. In its Q409 Brazil Autos Report, BMI examines how individual country governments in the region have stepped in to support the industry and how the market has responded to the changes therein.

In Brazil, the industrial tax break on the auto industry has paid off with domestic demand rising 3% y-o-y, to 1.45mn units in H109, according to reports from just-auto. Although this rate of growth is typically not a characteristic of high-demand potential Brazilian market, it makes Brazil better positioned than the likes of Argentina and Mexico. The growth in sales has been mainly led by the anticipated discontinuation of the aforementioned tax break from July 30, prompting potential buyers to speed up purchases before the end date. With the view to maintain this consumer confidence and to continue the success of the scheme, the government has announced the extension of tax break until December this year. BMI, however, is cautious that the phenomenon may not be sustained for the rest of the year, especially if widespread redundancies begin to dig into consumer pockets. As such we maintain our forecast of a 4% y-o-y increase in sales, to 2.96mn units this year, still remaining pessimistic than National Association of Motor Vehicle Manufacturers (Anfavea)'s forecast of a 6.4% y-o-y growth this year.

While the decline in domestic has somehow been brought under control, Brazil's auto exports continued with their plunge. In light of the weak economic outlook for most of Brazil's export destinations, BMI has revised down Brazil's autos export forecast to a 37% y-o-y fall this year to be followed by a marginal 1% y-o-y recovery in 2010. As exports continue with the freefall, we expect carmakers to produce only 2.94mn vehicles this year, down from 3.22mn units produced last year. By 2013, however, Brazil will showcase its production potential with output rising to 3.89mn units, clearly having more than recovered from its pre-crisis levels.

The strength of its market, accentuated by favourable government policies, places Brazil in second position in BMI's Business Environment Rankings for the autos industry in Latin and North America.

Although this is a step down from its first position in our Q309 review, Brazil has increased its score from 63.9 points to 66 points; the latter being a result of improved operating environment and greater returns that investors can realise from their investments in the country.