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Customer LoginsBrazilian light-vehicle sales remain under pressure in June with 19.2% y/y contraction, YTD volumes down 25.4%
Brazil's June production figures mirror sales as exports reverse their course and tumble 10.2% in June.
IHS Automotive Perspective
- Significance: Brazilian light-vehicle sales continue to decline, although June's 18.7% decline was less steep than the reduction in April and May. For the year to date, the market is down by 25.1%. Exports volumes, which were supporting production so far in the year, also tumbled 10.2% in June, causing a 3.2% reduction in light-vehicle output.
- Implications: The market is continuing its downward spiral for the third year in a row because of the absence of economic momentum and consumer confidence, along with the banks' caution toward lending. The Brazilian central bank Selic's interest rate has held at the 14.25% mark set in July 2015, and was not increased at the bank's most recent meeting in early June.
- Outlook: The auto market had a weak 2015, and 2016 has been worse than expected, even against low expectations. IHS forecasts a decline of 23.9% or 1.88 million units in 2016, staying below 2.5 million until 2022. Along with fixing the fiscal deficit and tackling inflation, the country is affected by corruption scandals and a lack of political co-operation. As the unemployment rate rose to 11.2% for the three months ending April 2016, 2016 could fall further.
Brazil's story has not changed dramatically in June, even as the political upheaval continues and the impeachment of the president lingers. In June 2016, Brazil's light-vehicle sales continued declines of 2015, falling 18.7% to 166,615 units according to the country's manufacturers' association Anfavea. The decline was led by passenger cars which registered a 20.9% reduction in June sales to 138,646 units while light commercial vehicle (LCV) sales fell 5.6% to 27,969 units. The decline in June, however, decelerated compared with the 20.9% drop in May, and a 27.7% decline in April. First-half sales in the country are still down 25.1%. June light-vehicle production fell 3.2%, substantially less than the decline rates in earlier months of the year. First-half output is, nevertheless, down 20.9% highlighting the challenges the market is faced with. Export volumes also reversed their upward trend observed so far in the year and declined 10.2% in June, although six-month volumes are up 15.4%.
Multiple challenges in the form of low consumer confidence, difficult economic conditions, increasing unemployment, weak credit availability and elevated interest rates have prompted Brazil's automakers association, Anfavea, to reduce its full-year forecast to reflect a 19% reduction in sales volumes and a 5.5% decline in output. The association forecasts that export volumes will grow 21.5% this year. All the three figures reflect light and heavy vehicles.
Established manufacturers Fiat Chrysler Automobiles (FCA) and Volkswagen (VW) are seeing larger y/y declines than those with smaller share, although General Motors (GM) bucked this trend in June. FCA held its status as Brazil's top seller in June with 19,001 passenger cars sold, down 35.4% year on year (y/y), and 10,695 LCVs (down 0.2% y/y). GM kept its lead over VW for the second place, with 24,937 passenger cars (up 7.7%) and 3,190 LCVs sold (a 26.2% drop). VW's June passenger car sales were at 16,796 units (down 29.5% y/y) and LCV sales of 4,148 units (down 34.1% y/y). Renault-Nissan sold 15,579 passenger cars and 2,263 LCVs, ahead of Ford, which sold 12,133 passenger cars and 1,889 LCVs.
Meanwhile, Brazil has been working to expand exports, and in June also announced a new four-year agreement with Argentina. There is some evidence it is helping, too, as several manufacturers temporarily called some workers back in late June.
Outlook and implications
The auto market had a weak 2015, and 2016 has been worse than expected, even against low expectations. IHS forecasts a decline of 23.9%, falling to 1.88 million units in 2016, staying below 2.5 million until 2022. Along with fixing the fiscal deficit and tackling inflation, the country is impacted by corruption scandals and a lack of political co-operation. As the unemployment rate rose to 11.2% for the three-month period ending April 2016, we could see 2016 fall further.
Factors pushing the 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 coping with intensifying repercussions of alleged corruption at Petrobras (which brought about the process of presidential impeachment). Increasing vehicle prices (with 15.8% on mandated safety equipment), high inflation, high interest rates (23% in January 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.
Brazil's inflation remains high, with slight easing reported in June. In the 12 months through mid-June, the rate fell to 8.98%, the first time below 9.0% in a year. This followed a reading just below 10.0% in March, compared with 10.36% in February 2016 and 9% in January. In the 12 months ending mid-May 2016, it came in at 9.6% - all of this is well above the Central Bank's ceiling of 6.5%. With inflationary pressures persisting, the Central Bank of Brazil has held the Selic rate at the 14.25% rate imposed on 30 July 2015. The most recent reports indicate that central bank chief Ilan Goldfajn has said it is too early to consider a rate cut, as inflation remains above target and the government has yet to implement budget cuts. The rate is expected to be maintained at the Bank's next meeting, on 20 July 2016. The Wall Street Journal quotes Golfajn as saying that he expects inflation to weaken relatively rapidly on stricter fiscal policies. He also suggested that the UK decision to leave the EU is unlikely to affect Brazil's prospects, although Brexit is expected to reduce global growth.
Looking further ahead, we are in for a long recovery. There will be no change in the status quo for the economy - no drivers for light-vehicle sales in the next few years; IHS economists forecast economic growth may not arrive before 2019. As a result, through 2022 light-vehicle demand will not break 2.5 million units. The potential for Brazil exists, but realising it will be a complicated process, more so with political uncertainty. In shorter term, there is more downside left in the market. IHS Automotive expects vehicle sales in the country to decline 3.4% in 2017 before returning to positive growth rates in subsequent years.
Brazilian 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, but Brazil is closer to a-per capita GDP of just USD7,000. Also, a larger number of brands have brought a wide spectrum of products, sparking excitement in consumers. This combination of elements puts the forecast for the Brazilian market above 3 million units again by 2024. Our outlook puts Brazil's motorisation rate at roughly 4.0 people per car within five years, and working toward 3.5 people per car in 10 years. This helps to explain why Brazil has become such a critical pillar of growth for OEMs 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.