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Competition heating up as OEM production shifts in Brazil

21 October 2015 IHS Markit Automotive Expert

Several factors are at play in the region - ranging from tight credit, to high inflation, to record low consumer confidence - and have hurt new vehicle sales in Brazil, with direct impact in production. Around 80% of light vehicle production in Brazil is to meet local demand, with limited exports to Argentina, Mexico and other smaller Latin American countries.

Between January and September, light vehicle production in Brazil dipped 20%, but the more traditional OEMs have been fallen more than the industry. FCA, the country's largest producer, was down 32% - even as the Jeep Renegade has added 27,433 units to this year's equation.

Volkswagen, the second in the ranking, saw its total plunge 25%, while General Motors' output plummeted 36%. On the other hand, Toyota grew 9%, and Honda soared 21%. Clearly, the competition is heating up.

Why this difference? There is not just one explanation, but they include:

  1. Older products: The Fiat Palio was launched in 1996, the Volkswagen Fox was first introduced in 2003, and production of the Chevrolet Celta ended in April 2015 after 15 years in the market without a major change. Toyota's oldest product is the Etios, launched in 2012 and already scheduled to change next year. Among the top 10 best-selling nameplates in Brazil, six were launched after 2010 - seven considering that the Palio accounts for a model launched in 1996 and another one in 2011.
  2. Lack of SUVs: Even without in-depth consumer research, it is easy to realize that Brazilians want to drive SUVs and crossovers. While overall production of hatchbacks fell 22% and sedans were down 15% in the first three quarters of 2015 over 2014, SUV output increased 20%, thanks to the launch of the Honda HR-V, the Jeep Renegade and the Peugeot 2008. On the other hand, hatchbacks increased their share to 48% from 46% among Fiat-branded built vehicles, something also seen with Volkswagen (67% from 65%) and Chevrolet (43% from 40%). A Fiat B-CUV is scheduled for late 2017, while Volkswagen and Chevrolet will enter the race only later in the decade.
  3. Target: It is estimated that 75% of all loan applications for a car purchase are denied, affecting mostly the entry-level segment of the market. That has been exactly the target of Fiat, Volkswagen and Chevrolet. Fiat's website reminds visitors that the Palio is the most affordable vehicle made in Brazil. It starts at BRL27,990 (around USD7,200), and the Bravo is the most expensive passenger car that FCA builds in Brazil, at BRL81,420 (USD20,900). With a much more limited portfolio, Toyota prices vary between BRL40,890 (USD10,500) and BRL101,990 (USD26,200). More affluent consumers have not faced a credit crunch.

In the long term, IHS Automotive forecasts that production of the traditional OEMs will keep losing share to new comers, while the Japanese OEMs - not only Honda and Toyota, but Nissan as well - are the ones that will grow the most. Competition gets fiercer every year, and some companies are yet to realize that they need to update their products more often to remain competitive.

Augusto Amorim is senior analyst, South American light vehicle production forecast, IHS Automotive


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