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Customer LoginsBrazilian light-vehicle sales decline 4% y/y in January, production and exports increase
Brazilian light-vehicle sales dropped only 4% year on year (y/y) in January, after a 19.8% decline in 2016. Exports continued to increase in January, rising 57.6% y/y, which helped drive an increase in production of 17.5% y/y. These results were largely expected, as there are indications that Brazil's light-vehicle sales will stabilise in 2017.
IHS Markit Perspective:
- Significance:Brazilian light-vehicle sales declined y/y in January, but the drop of 4% was much smaller than the nearly 20% decrease in 2016. Exports were up in January on increased efforts from the industry, assisting improvements in production during the first month of the year.
- Implications:While January 2017 saw a lesser y/y decline in sales than 2016's drop, it was also the 25th consecutive month of sales contraction in Brazil. The Brazilian market has continued its downward trend on the absence of economic momentum and consumer confidence, along with banks' caution towards lending. In January, Brazil's central bank's Selic interest rate dropped to 13.0%, the third drop since November 2016, so the reduced rates may be beginning to assist auto sales.
- Outlook:Brazil's automotive market continues to struggle in an economy affected by recession, lack of credit availability, and high unemployment. The IHS Automotive forecast sees Brazilian light-vehicle sales reaching 2.00 million units in 2017, which would be a refreshing 1.1% increase. Along with a need to fix the fiscal deficit and tackle inflation, the country is affected by corruption scandals and a lack of political co-operation, but we do believe the economy is beginning to stabilise. IHS Automotive expects the change of government in 2016 to slowly contribute to an improvement in consumer and business confidence, reflected in the projection of growth for 2017, to be followed by slow gains through 2019. The seasonally adjusted annual rate (SAAR) of sales dropped to 2 million units in the final quarter of 2016; IHS Automotive expects the SAAR to continue to deteriorate in the first half of 2017, but the silver lining is that the rate of contraction will decrease.
Light-vehicle (LV) sales slumped in the Brazilian market in 2016, dropping 19.8% and marking two full years of sales declines and posting the lowest sales pace since 2006, according to the National Association of Motor Vehicle Manufacturers (Associação Nacional dos Fabricantes de Veículos Automotores: Anfavea). In January 2017, light-vehicle sales dropped 4% year on year (y/y), so representing an improvement in the pace of contraction. January's sales were also down compared with December 2016's sales, which Anfavea indicated was expected on seasonality. However, increased light-vehicle exports in January helped with production improvements. Light-vehicle production started 2017 with an increase of 17.5% y/y, although it declined by 13.5% compared with December 2016.
Announcing January's results, Anfavea president Antonio Megale said, "The increase in production shows the companies [are] preparing for a better market in 2017," according to regional media reports. However, on the sales performance, Megale was less enthusiastic, stating frustration in the decline compared with January 2016. On exports, Megale said the January 2017 increase suggested that Brazil would see a good year, depending on what happens relative to a potential tax on vehicles exported to the United States from Mexico. If such a tax is introduced, Megale is concerned Mexico will look to other countries to export, including Brazil.
In January, Megale was quoted as saying, "Brazil has a lot of potential … but it is difficult to say when it will reach that potential." The country's economic improvement, according to Anfavea in January, will be slow and dependent on the ability of Brazil's government to push through economic measures during political turmoil. Although consumer confidence is down and difficult economic conditions include increasing unemployment and weak credit availability, there has been a break in interest rates, as the Selic rate was dropped to 13.0% in January. Last month, Megale reported Anfavea's projection for 2017 is that sales of cars, light trucks, trucks, and buses will improve 4% to 2.13 million units.
Anfavea has reported that January 2017's light commercial vehicle (LCV) sales grew 26.7% y/y to 23,504 units and passenger car sales declined by 8.4% y/y to 120,264 units. Fiat Chrysler Automobiles (FCA) lost its status as Brazil's top-selling automaker in January to General Motors (GM). GM sold 24,329 passenger cars (down 3.0% y/y) and 3,316 LCVs (up 63.7% y/y) in January, while FCA sold 17,949 passenger cars (down 24.4% y/y) and 8,340 LCVs (up 65.4% y/y). Volkswagen (VW) dropped to third place, with sales of 14,613 passenger cars (a 10.8% decline) and 3,522 LCVs (down 19.2%). In fourth place, Renault-Nissan sold 12,588 passenger cars and 1,858 LCVs in January, ahead of Ford, which sold 12,591 passenger cars and 1,136 LCVs. Hyundai's passenger car sales were down 11.0% to 11,190 units. Toyota, including Lexus, saw passenger car sales increase 1.2% to 9,260 units in the opening month of 2017.
Brazil's light-vehicle exports were somewhat volatile in 2016, although y/y growth was generally positive in the final months of 2016. January 2017 continued the positive note, with a 57.6% gain compared with January 2016. Brazil lacked a strong export base to accommodate excess capacity, causing automakers to cut back on shifts and slow down production in a weak domestic sales environment. However, efforts in 2016 helped address this within the South American region, with exports improving throughout 2016. In January 2017, light-vehicle production benefited from increased exports, with a 17.5% y/y overall gain. Passenger car production improved by 16.5% y/y and LCV production increased by 26.7% y/y last month.
Outlook and implications
Brazil's automotive market continues to struggle in an economy affected by recession, lack of credit availability, and high unemployment. The IHS Automotive forecast sees Brazilian light-vehicle sales reaching 2.00 million units in 2017, which would be a refreshing 1.1% increase, after a 19.9% decline in 2016. Along with a need to fix the fiscal deficit and tackle inflation, the country is affected by corruption scandals and a lack of political co-operation, but we do believe the economy is beginning to stabilise. IHS Automotive expects the change of government in 2016 will slowly contribute to an improvement in consumer and business confidence, reflected in a projection of growth for 2017, followed by slow gains through 2019. The seasonally adjusted annual rate (SAAR) of sales dropped to 2 million units in the final quarter of 2016; IHS Automotive expects the SAAR to continue to deteriorate in the first half of 2017, but the silver lining is that the rate of contraction is decreasing.
Factors pushing the near-term decline include an absence of economic momentum and consumer confidence, continued cautious bank lending, and the discontinuation of tax benefits. Government investment has also been frozen, as it works to bring a growing deficit in check and to cope with the repercussions of alleged corruption at the partly public owned petroleum company, Petrobras. Increasing vehicle prices (including a 15.8% rise on mandated safety equipment), high inflation, high interest rates (25% in August 2016, compared with 18.5% in the third quarter of 2014), and tight credit availability have been driving sales down since 2014 and these factors have grown more severe, although there may be some relief from the falling Selic rate. Media reports in February, citing the Brazilian Institute of Geographic Statistics, stated that inflation had decelerated in recent months and ended 2016 at 6.29%, compared with October's 8.48% and 10.36% in February 2016, below the central bank's target ceiling of 6.5%. MarketWatch reported in February 2017 that the figure could fall to 4.64% this year. Over the first half of 2015 and in reaction to persistent inflationary pressures, the Central Bank of Brazil raised the Selic rate several times, settling at a 14.25% rate imposed on 30 July 2015. In October 2016, however, the rate was cut to 14.0% in an effort to support the recovery signals, followed by a second cut in November to 13.75%. A third cut in January 2017 dropped the rate to 13.0%.
In 2015, the market continued a downward spiral on an absence of economic momentum and consumer confidence and difficult credit, and this spilled into 2016. IHS Automotive's forecast model indicated that 2016 vehicle sales should have been 2.3 million units, with a 3.6% GDP contraction, yet the year ended up with a decline to 1.9 million units. A short-term model has been developed looking at financing rates, salaries, car payments, and unemployment that indicates the market in 2017 will be between 1.95 million and 2.05 million units, assuming the unemployment rate does not jump to double digits.
Looking further ahead, sales are in for a long recovery. There will be no change in the economic situation so no drivers of increased light-vehicle sales in the next few years. As a result, through 2020, light-vehicle demand will not break 2.5 million units. After that, IHS Automotive expects a stronger recovery. The potential for Brazil is there, but achieving it will be a complicated process given the country's ongoing political uncertainty.
Brazilian market opportunities include a low motorisation rate (a little more than five people per car). The nominal USD10,000 GDP-per-capita milestone was broken in 2010 - this is the point at which a significant portion of the population may be in the right position to be new-car buyers. Brazil is now closer to a per-capita GDP of just USD8,000, however. Additionally, larger numbers of brands have brought a wide spectrum of products to the market, sparking excitement among consumers.
This combination of elements puts the sales forecast for the Brazilian market at close to 3 million units by the end of the forecast horizon. IHS Automotive's outlook puts Brazil's motorisation rate at roughly 4.0 people per car within five years and working towards 3.5 people per car in 10 years. This helps to explain why Brazil has become such a critical pillar of growth for original equipment manufacturers worldwide.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.