The strength of the Brazilian real is affecting the car industry in the country with a jump in imports against lower exports threatening to absorb demand for vehicles from local producers.
The appreciation of the real, which has risen by 40% against the US dollar since 2008, has contributed to a drop in exports from the country by nearly 30% so far this year, compared to a 35% jump in imports, including a 43% rise for passenger vehicles and a near 50% rise in the import of light and heavy commercial vehicles for the first eight months.
Figures from Sindipecas, Brazil’s association for automotive parts makers, show that exports from Brazilian parts makers were up 14% on the previous year but that imports have risen much faster, by 22% to July. As a result, the industry has accumulated a trade deficit of $2.7 billion in the first seven months of the year.
Automotive growth in the country surpassed Germany last year to make it the fourth largest sales market with nearly 3.5m vehicles sold. It ranks seventh in the world for vehicle production at 3.38m units and annual sales are predicted to reach 6m by 2020 according to Alexandre Bernardes, vice president of Anfavea, the national carmaker’s association in Brazil.
Speaking at last week’s Automotive Logistics Summit in São Paolo, Brazil, Bernardes told delegates: “Our sector is at risk if we don’t change our ways. The market has a lot to grow on its way to 6m units and we have to make sure that it is not absorbed by imported products.”
His points were reiterated by Renato Fonseca, president of the National Association of Autoparts Manufacturers (Anfape) who told the Financial Times last week that the Brazilian market was growing considerably but said it was now a question of whether Brazilian companies would benefit from the increase in the domestic market or whether big multinational groups would be the beneficiaries.
Credit restrictions in the first part of the year have moderated growth with sales up around 5% in the first eight months of 2011 compared with last year, but the government’s lowering of interest rates should lift sales in the last quarter of the year and into 2012.
As well as an increase in imports, this demand is luring new manufacturers to the Brazilian market, with the country second only to China in attracting foreign carmakers.
French carmaker Renault is planning to expand operations in the southern state of Parana while Germany’s Volkswagen is also said to me mulling expansion plans at its existing three plants or possibly building a fourth. The carmaker increased deliveries to South America by 11.4% to more than 538,100 in the first seven months of 2011. Fiat has already announced plans to build its second plant in Brazil in northeastern Pernambuco and will also expand activity in Betim.
Chinese carmakers including Chery, Jiefang and Great Wall have all announced plans to build factories in Brazil to serve the Latin American market.
According to the Mechanic, Electronic and Hi-Tech department of China’s Ministry of Commerce, finished vehicle sales in South America have now started in earnest and Brazil will be the China’s biggest market in 2011.