Analysts Point to Boom in Brazilian Vehicle Production

Brazilian motor vehicle production is on a roll, with both output and export figures reportedly at all time highs in May 2006, according to the Brazilian Motor Vehicle Manufacturing Association, Antavea. The exact figures have not yet been published but they must be higher than April’s 182,481 passenger car registrations to break the record production figures. In 2005 the Brazilian vehicle manufacturing industry produced 2,009,494 cars, 365,648 light commercial vehicles 153,158 commercial trucks and buses.

Despite the expectation that the May auto figures from Antavea will show an exceptional start to the sales year, the association is not going to revise its forecast for 2006 of a 4.5 per cent rise in sales for the year. Domestic sales are forecast by Anfavea to surge 7.1 per cent while exports climb 2.7 per cent.

One Sao Paulo Consultant explained that the problem for Brazilian manufacturers has been the dwindling value of the US dollar against the real, resulting in higher costs for overseas-made parts and tighter margins. To date, Brazil had imported about 10 per cent of its auto parts requirements, primarily from Mercosur neighbours.

“Now the strategy is to find the best suppliers at the best prices, so General Motors Brazil has announced that it will buy auto parts and components from China, along with South Korea and Mexico, as well as centres in Eastern Europe where foundry traditions remain strong and pricing tight,” Sao Paulo based consultant Marina Barros told the Hong-Kong chamber of commerce
Sales of motorcycles have been on the rise with the number three ranked manufacturer, Brasil & Movimento, saying that its motorcycle sales were largely responsible for a 65 per cent upsurge in 2005 over 2004. The company, which makes the Sundown brand of motorcycles and bikes, is about to double production capacity to 60,000 units per year.

In April this year Brasil & Movimento launched the cheapest motorcycle on the Brazilian market, priced at US$1,300 with a 90 cc motor. The company’s overall output last year was 36,000 motorbikes, a 3.6 per cent increase over 2004.

Under achiever

Meanwhile KPMG analysts said the South American manufacturing market “finally seems set to emerge from a period of economic under-performance as manufacturing investment starts to flow back into some of the continent’s leading economies.” Brazil is highlighted as the most favourable investment location, while Argentina is described as “still risky” and Chile is said to be “stable but offering limited opportunities.”

The KPMG International report points out that Chile is easily the most attractive of the three locations purely in terms of infrastructure and regulation but is geographically isolated and lacks the sheer scale of Brazil as a domestic market. Argentina – while having made great strides in terms of offering a stable investment base – is still considered as a test case and seen with certain reservation as an investment destination.

Commenting on the report findings, John Guy, Head of Industrial & Automotive Products at KPMG in the UK, said: “The report suggests that the ABC (Argentina, Brazil and Chile) economies are becoming increasingly ‘normal’ investment destinations for international manufacturing operations. Conditions in these economies have changed in recent years and the reward has been a couple of years of increased Foreign Direct Investment.”

“President Lula’s business-friendly policy of reform and stabilization in Brazil has been a major factor in making his country an attractive business destination. However, there is also a feel from those interviewed that the continent as a whole has benefited from the difficulties which some companies have experienced in establishing themselves in the emerging Asian economies; something which has prompted them to look more favourably at South America.”

“In the immediate post-war period, the entire South American region was widely seen as a coming economic superpower, much as China is today. It may be that we are now returning to that earlier view of the world. South America is once again poised to become a source of growth and innovation in the world economy and to potentially become a destination of choice for the world’s cash-rich corporations to invest their capital.”