BMW's chance to grow in Brazil

09 Oct 2012 IHS Markit Automotive Expert

I arrived in my hometown of Sao Paulo, Brazil yesterday and thought for sure that I would see a couple of Volkswagen Gols with their new facelift, which was announced in July. The Gol has been the best-selling vehicle in Brazil for 30 years and in the past, I have always seen a new generation or facelift on the streets as soon as they were announced. However, to my surprise, yesterday was different: I didn't see a new Gol.

At the airport parking lot, there were two EcoSports - the crossover Ford builds on the Fiesta platform, now in its second generation, that was launched very recently. There were countless Renault Dusters seen on the way to my parents' home. That really shows how the compact small crossover segment, which in Brazil started in 2003 with the EcoSport, is booming. New competitors are scheduled to enter the market in the next few years, both imports (the Chevrolet Trax from Mexico) and those locally produced (the Peugeot 2008, for example).

But what impressed me were the three BMW X1 vehicles that I saw during a six-mile route. Sao Paulo is one of the richest cities in Brazil and where all luxury brands have dealerships. Customers can buy Audi, BMW and Mercedes vehicles in several different cities, but only Sao Paulo has Aston Martin, Bentley, Ferrari and Lamborghini dealerships. (Brazil is still a country with high income inequality, so three X1 vehicles might not be seen in even a 1,000-mile route depending on the region.)

After selling 5,720 X1 vehicles in Brazil last year, BMW was ready to produce it alongside the 1-Series in Brazil. But in December, the Brazilian government announced higher taxes for imported vehicles and as a result, sales in 2012 were down 70% through August. BMW held negotiations with the federal government to keep its project alive and made public announcements that it would not come to Brazil to "lose money."

Last week, Brazil clarified the rules that will shape the automotive industry between 2013 and 2017. Among several other items and depending on OEMs meeting specific requirements, the government will allow companies to import up to 4,800 vehicles paying lower taxes and will reimburse some of the paid taxes to an OEM that builds a factory in Brazil.

As the Secretary of Development, Industry and Exterior Commerce announced the new rules, he said that BMW will have a plant in Brazil. The company says that a formal decision is yet to come, as it has been saying for a year. We expect BMW to start production in Brazil in 2015, when we forecast that X1 registrations will go back to their 2011 level.

X1 Registrations in Latin America

Producing the 1-Series and the X1 in Brazil will enable BMW to double its market share by 2020. Many may criticize that 0.75% of a market is a very low share. But ask Audi how it feels. It had 0.75% of the Brazilian market in 2002, when the A3 was locally produced and now the imported line up has resulted in the VW brand having a share of only 0.2%.

With all of this in mind, it is very likely that more than three X1 vehicles will be seen in a six-mile route in the near future and in more areas of the country.

Posted by Augusto Amorim, Lead Analyst - South America Forecasting, Polk (10.09.2012)


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