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Customer LoginsSame-Day Analysis: Brazilian light-vehicle sales drop 38.7% in January, recovery not expected until 2017
Brazil's light-vehicle sales and production figures for January are not encouraging, being down 38.7% and 28.2% respectively, and 2016 is expected to be another difficult year.
IHS Automotive Perspective
- Significance: Brazil light-vehicle sales have started 2016 with a 38.7% year-on-year (y/y) decline in January, after a 25.6% decline in 2015. Exports, however, are up in the new year (up 42.7%). Even with increases in exports over the past several months, production declined by 28.2% in January.
- Implications: Credit remains tight, while consumer confidence low. The Brazilian central bank's Selic interest rate has been held at the 14.25% mark set in July, and was not increased at the bank's January meeting, while inflation has reached 10.67% in the 12 months through December, according to media reports.
- Outlook: The auto market saw a much weaker 2015 than initially expected, closing down 25.5%, according to Anfavea. The results in January 2016 do not bode well, even against low expectations. As conditions worsen, we have revised expectations for 2016 to a decline of 23.1%. IHS forecasts the market to drop to 1.9 million units in 2016, staying below 2.5 million units until 2021. Brazil's economy is forecasted to decline between 2.96% in 2016, after falling 3.65% in 2015. Because fixing the fiscal deficit and tackling inflation will take more time, a recovery is unlikely in the next four to six quarters.
Brazil's light-vehicle sales in January continued the dramatic declines of 2015, falling 38.7%, about the same pace of decline as in December 2015, according to the country's National Association of Motor Vehicle Manufacturers (Associação Nacional dos Fabricantes de Veículos Automotores: Anfavea). January's light-vehicle sales and production fell 38.7% and 28.2% respectively. Efforts to expand exports have resulted in that metric improving by 42.7% in January. With consumer confidence down, difficult economic conditions, weak credit availability and increasing interest rates, Anfavea forecasts sales will drop by 7.5% in 2016 and production will increase slightly, by 0.5% − both figures reflecting both light and heavy vehicle sales and production − and for exports to increase by 8.5% in 2016, reports local business newspaper Valor. In February, Anfavea reportedly held to those forecasts.
Anfavea's president Luiz Moan suggested when reporting December and full-year 2015 figures that the declines in the first quarter of 2016 will be sharper than the 7.5% decline projected for the full year; when announcing January 2016 results, he said the decline had been expected. However, inventory ballooned to 50 days' supply at the end of January, when Moan says the industry should be at about 30 days' supply, despite production falling to 2003 levels. Anfavea forecasts average daily sales of about 9,420 units during 2016 (including light- and medium-heavy commercial vehicle sales), similar to the fourth quarter of 2015, and holds to that projection even as January returned an average of 7,700 units on only 20 selling days.
Anfavea reported January light-vehicle sales declined to 149,833 units, passenger car sales fell 36.4% to 131,174 units, and light-commercial (LCV) sales fell 50.9% to 18,659 units.
Established manufacturers Fiat, GM and Volkswagen are seeing larger year-on-year (y/y) declines than those with smaller market share, share Toyota, Honda, and Hyundai. Fiat Chrysler Automobiles (FCA) held on to its status as Brazil's top-seller in December with 23,149 passenger cars sold, down 37.1% y/y, and 5,042 LCVs, down 62.7 % y/y. General Motors (GM) kept its lead over Volkswagen (VW) for second place, with 24,978 passenger cars sold, a 38.2% drop, but also outselling FCA in passenger cars, and 2,132 LCVs sold, a 67.1% drop. VW saw passenger car sales of 16,379, down 49.5% y/y, and sales of 4,358 LCVs, down 38.1% y/y. Renault-Nissan sold only 11,136 passenger cars and 1,770 LCVs, pulling ahead of Ford, which sold 10,769 passenger cars and 703 LCVs. Toyota's passenger car sales increased by 2.9% in January, however, to 9,150 units − the only company to report an increase. Hyundai's car sales dropped 3.7% y/y in January, to 12,575 units.
Brazil's vehicle exports have been growing in recent months, with January seeing a 42.7% gain. Overall, Brazil lacks a strong export base to accommodate excess capacity, causing automakers to cut back on shifts and slow down production in a slow domestic sales environment. Moan says that the country is using only 60% of its capacity, and automakers are being forced to make more cuts. Production fell by 38.7% in January. Passenger car production was down 36.4% y/y, while LCV production dropped by 50.9% y/y.
Outlook and implications
The auto market saw a much weaker 2015 than initially expected, closing down 25.5%, according to Anfavea. The results in January 2016 do not bode well, even against low expectations. As conditions worsen, we have revised expectations for 2016 to a decline of 23.1%. IHS forecasts the market to drop to 1.9 million units in 2016, staying below 2.5 million units until 2021. Brazil's economy is forecast to decline 2.96% in 2016, after falling 3.65% in 2015. Because fixing the fiscal deficit and tackling inflation will take more time, a recovery is unlikely in the next four to six quarters. If the unemployment rate goes above 10%, we could see 2016 fall to 1.8 million units. Our current forecast assumes a 9.6% unemployment rate.
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 cope with repercussions of alleged corruption at Petrobras and the potential for a recall vote against the current president. Increasing vehicle prices (up an average of 4% on mandated safety equipment), high inflation, high interest rates (21% in February 2015, compared with 18.5% in third-quarter 2014), and tight credit availability drove Brazilian sales down to 3.33 million units in 2014. These factors grew more severe in 2015.
Brazil's inflation continues to increase, reaching 10.67% for the year, increasing from 10.5% in November, 9.93% in October and 9.53% in August, well above the central bank's ceiling of 6.5%. With inflationary pressures persisting, the Central Bank of Brazil raised the Selic interest rate several times in the first half of 2015, though it has stayed at the 14.25% rate imposed on 30 July; in early 2016, the bank was expected to deliver another rate increase at a late-January meeting; however, it did not and it remains 14.25%.
The lack of sales momentum experienced in 2015 was not expected, as our model still tells us that vehicle sales should be at 2.78 million units with a 3.75% GDP contraction. The same model is telling us that even if the Brazilian economy continues shrinking by 2.5% in 2016, the market would contract to 2.4 million units. This is a reason for concern, as many OEMs believe volumes may stay flat in 2016, when the trajectory will clearly be downward. We have developed a short-term model looking at financing rates, salaries, car payments and unemployment, which indicates that the market should be 1.85−1.9 million units in 2016.
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. As a result, through 2020, demand will not break 2.5 million units; after that, we will start to see a recovery. Eventually, the potential for Brazil is there, but getting there will be a complicated process.
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. 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 at close to 3.2 million units by the end of the forecast horizon. Our 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 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.