Global Insight Perspective | |
Significance | Elections in September did little to dampen the Brazilian vehicle market, which witnessed another double-digit percentage rise thanks to positive economic fundamentals. |
Implications | Inflationary pressures in the growing Brazilian economy now appear to be under control, but profitable production of cars remains under pressure from current exchange rates. |
Outlook | Brazil's economic recovery will ensure that the vehicle market finishes the year above 2.5 million units, but the outlook for production, while positive in 2006, remains under pressure for 2007 and going forward. |
Total Vehicle Sales Up 10.4% in September
Brazilian vehicle sales rose by 10.4% year-on-year (y/y) in September to 159,368 units, from 144,354 units, according to local industry association Anfavea. September's sales figure represented a month-on-month (m/m) fall of 10.7% from August's record high of 178,508 units, but it nevertheless marked a continuation of the recent overall positive trend; September was the fourth best-selling month in 2006 so far, underpinned by the continuing positive economic fundamentals and unaffected by the elections that took place during the month. The September figure leaves year-to-date (YTD) vehicle sales up 10.5% y/y at 1.364 million units at the close of the third quarter.
Light vehicle sales grew 10.5% y/y in September to 151,141 units, with passenger car sales rising 11.6% y/y, slightly ahead of the overall market again. This left YTD passenger car sales at the end of the third quarter up 11.4% at 1.097 million units. Sales of light commercial vehicles (LCVs) rose 5% y/y in September to 22,504 units, below the overall market growth and leaving LCV sales in the YTD up 8.2% at 197,361 units.
September Vehicle Sales | |||
Sept 2006 | Sept 2005 | % Change | |
Passenger Cars | 128,637 | 115,297 | 11.6 |
LCVs | 22,504 | 21,428 | 5.0 |
Total Light Vehicles | 151,141 | 136,726 | 10.5 |
HCVs (incl.buses) | 7,961 | 7,382 | 7.9 |
TotalVehicles | 146,532 | 136,588 | 7.3 |
Source: Anfavea | |||
Production and Exports Fall
Vehicle production in Brazil fell 5.6% to 203,043 units in September as the effects of numerous strikes and industrial action over the last few weeks made itself felt. Overall production for the YTD remained positive, but was up just 3.4% y/y to 1.969 million units from 1.905 million units in the same period of 2005.
Total exports also fell again in September, by 12.9% y/y to 70,881 units from 81,333 units, on the back of an overall decline in all types of truck, LCV and passenger car exports; exports fell 2.0% from August. Companies such as Volkswagen (VW) have been reducing exports from the country as the strength of the Brazilian real has made overseas sales unprofitable. For the YTD ending September, exports were down 5.7% y/y at 643,407 units, from 682,031 units.
Sales by Manufacturer
Fiat held on to top spot for the month and the YTD in September, with its rate of growth accelerating. Fiat sold 35,092 units in September, a 24.5% y/y rise, leaving sales for the YTD up an impressive 13.9% to 283,168 units. General Motors (GM) retained second place in September with 32,467 units, a 13.9% y/y rise, and overtook Volkswagen in the YTD with 264,572 units versus 262,313 units. VW in turn sold 27,776 units in September, a 1.8% y/y rise as strike action affected its performance in the country. VW sales were up 12.4% in the YTD.
Flex-fuel vehicles captured nearly 80% of the market in September, selling 120,298 units, as opposed to a 15.6% share (23,633 units) for gasoline (petrol)-run vehicles, with diesel (5%) making up the rest. Sales of flex-fuel vehicles peaked in September, but remained stable for the YTD at 76.8% of the market, following last year’s meteoric rise.
Outlook and Implications
Elections were held at the end of September, with President Luiz Inácio Lula da Silva's ruling party returned to power. The political activity did little to dampen the vehicle market, which continues to grow thanks to the positive fundamentals of falling interest rates and overall economic growth. This has been supported by the latest evidence that inflation is under control. September prices increased only 0.21%, compared to 0.35% in September 2005. While the increase in the consumer price index was higher than in August (up 0.05%), the y/y improvement reduced the annual (12-month) inflation rate to 3.70%, from 3.85% in August, and this compares favourably with the year-ago figure of 6.04%. A strong local currency has helped to reduce the pace of inflation as imported goods become cheaper, and it has also put pressure on domestically produced goods since some of them may be substituted for—now cheaper—foreign goods, underlined by the 65% increase in vehicle import sales, although the overall numbers remain small.
Production in the country remains under pressure, however, due to the pressure from the rising real, with exports and production both falling in September.
Global Insight forecasts both output and sales to finish 2006 positively, with full-year production predicted to rise by around 6.1% to 2.503 million units and sales to increase by around 8.3% to 1.847 million vehicles. Flex-fuel vehicles are expected to maintain their current market share in the short term and to stabilise at around 76% for the year.