Polk has just finished updating its light vehicle sales and production forecast, which is made four times a year. For the South American market, the numbers are not as positive as one would expect for emerging countries. We've reduced the sales forecast by 2% for 2012, 3% for next year and 5% for 2014. Regarding production, the forecast was reduced by 3.4%, 2.9% and 1.6% for those same years.
The main cause of these reductions is the Brazilian market, which represented 67.3% of the total South American auto sales last year. Registrations between January and May 2012 were down by 4.4% compared to the same period of last year. Wholesales (from OEMs to dealers) are down by 9.3% – a higher difference that is easily explained by new taxes over imported vehicles in effect since mid-December, which made inventories higher in 2011 in order to keep prices lower.
What happened is that the default on auto monthly payments is higher than ever and banks have restricted credit. Around 70% of sales are financed in Brazil, a percentage that illustrates how important it is to lend money to customers. Banks are also requiring a down payment, which did not happen when the market boomed in past years. This scenario makes it more difficult for the so-called new middle class to leave the dealer network with a shiny new vehicle. There is no need to do consumer research, just the math.
Lower sales impact production in a negative way because 75% of the Brazilian market is fueled by locally-made vehicles. It also impacts the production in Argentina because vehicles exported to Brazil represent more than 40% of what is made in Argentina. However, production will tend to increase until 2014 as Toyota, Hyundai, Suzuki, Chery, JAC, Nissan and Fiat open new factories in Brazil and other OEMs, like General Motors, Volkswagen and PSA Peugeot Citroën, expand the capacity of existing factories.
To put sales on the growth track again, the Brazilian government announced tax incentives in late May. One of them - the reduction of the tax over industrialized products - is in effect until August. If the government postpones its end to December, our light vehicle forecast for Brazil is 3.5 million units this year, but we estimate that 100,000 vehicles will not be sold in 2013 because of anticipated purchases. For Argentina, the forecast is 824,000 light vehicles, as the following table shows.
P.S. This is Polk's first post about the South American market. Let us know what you think and share your comments!
Posted by Augusto Amorim, Lead Analyst – South America Forecasting, Polk (06.25.2012)