Trade Resources Industry Views Brazil's Massive Auto Industry Is Facing an Uncertain Constellation of Factors

Brazil's Massive Auto Industry Is Facing an Uncertain Constellation of Factors

The largest car producer in Latin America, Brazil is a key market for auto OEM paint suppliers. Brazil’s massive auto industry is facing an uncertain constellation of factors that could spell out a slowdown for internationally dominated production and domestic sales. While the economy struggles with inflation and slower growth, recent government intervention measures have included a tightening of consumer credit through higher interest rates, and an ominous tax on imported vehicles not meeting local content requirements. Brazil is the largest auto manufacturer in Latin America, so the fate of the industry would directly impact international paint line suppliers. As it stands, Brazil’s automotive paint industry is predicted to grow by three percent this year and four percent next year, according to an August survey by Associacao Brasileira dos Fabricantes de Tintas (Abrafati), the national paint association. Of the various threats to the auto industry, the local content import tax—announced in September at 30 percent—may do more to curb new investments than to stifle original equipment manufacturers (OEM) already established in the country. A rumor subsequently circulated in Sao Paulo, the center of Brazil’s auto manufacturing industry, that Japanese representatives to the World Trade Organization would seek redress to the import tax there. The tax would be levied on vehicles not containing 65 percent of value produced in the Mercosul region, which formally includes Argentina, Uruguay, Paraguay and Brazil. Associate member countries include Bolivia, Chile, Colombia, Ecuador and Peru, and Venezuela has initialed but not completed a membership agreement. According to the Associacao Nacional dos Fabricantes de Veiculos Automotores (Anfavea), the national trade association, auto production during the first three quarters of this year was up 3.4 percent, while auto registrations were up 10.6 percent, with the latter fueled increasingly by imports. Anfavea predicts a five percent increase overall in sales this year. Exports, similarly, were up four percent to 386,000 units over the first three quarters this year, compared to 370,000 units in the prior-year period. Nissan has predicted that Brazil will become the world’s third-largest automaker by 2015, following the United States and China. Brazil’s domestic sales are approximately four times than those in Mexico, at nearly 2.7 million units over the first three quarters of this year. Among recent investment announcements, Renault indicated it would spend $856 million in Brazil over the 2010-2015 period, to increase production to 383 million units per year. Similarly, Chinese automaker Anhui Jianghuai Automobile (JAC) announced in early October that it would invest $500 million to build its first manufacturing plant in the country and its first outside China, at Camacari, in Bahia state, where Ford has a large operation. The factory, slated to open in 2014, will have the capacity to produce 100,000 units, JAC said in a statement. Consumer credit tightening also could dampen domestic sales, since about two-thirds of all sales are financed, one industry source suggests. High interest rates and limited competition among auto dealers result in markedly higher prices for Brazilian auto buyers than for buyers in neighboring countries. Similarly the devaluation of the national currency, the real, over the past several months, will also drive up imported car prices. Source: Coatingsworld

Source: http://www.coatingsworld.com/issues/2011-11/view_latin-america-reports/brazilian-autos-face-tax-credit-crunches/
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Brazilian Autos Face Tax, Credit Crunches
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