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Automotive Blog

South America light vehicle forecast reduced




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)

About The Author

Augusto creates our South America light vehicle forecasts. With a background in journalism (he worked in the Brazilian press for 12 years) and a master's degree in consumer behavior, in addition to an MBA, Augusto is a great fit at IHS Automotive. Add to that his passion for cars and you have the perfect forecaster (not to mention blogger!) Augusto uses his eye for detail – double and triple checking his forecasted volumes and ensuring our data is the best available in order to help bring market success to our clients. He likes to get his work done on time and get it done right! As part of his forecasts, Augusto also writes reports about Brazil and tries to make the clients understand the reality down there. The government keeps changing the rules and that can be very complex for a foreigner.

Augusto first came to the United States in 2010 to work on his MBA in Boston. Augusto's family is located in Brazil but thanks to Skype, they remain in close touch. Although born and raised in Sao Paulo, Augusto is unusual because he doesn't care for soccer, doesn’t dance the samba and claims that the sun and his skin are not friends. When he's not working hard on his forecasts, Augusto loves to travel and is always amazed by how much he learns on his trips. So far, he has visited 27 different countries. A self-proclaimed "foodie," he also enjoys discovering new restaurants and coffee shops, where he regularly orders a cappuccino.


Comments

Name: Mark Revis
Time: Tuesday, June 26, 2012

During the May 22nd IHS Around the World: IHS Automotive Sales and Production Webcast - North America and Europe Session, Guido Vildozo mentioned that the IPI Index had been changed from the planned amount. Your report provided is the first independent source I have seen that validates what IHS stated. The comment in your report was located in last paragraph: “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.”

I would appreciate any more information you have that provides more detailed information about the tax incendtive - "reduction of the tax over industrialized products - is in effect until August."

Thank you


Name: Augusto Amorim
Time: Tuesday, June 26, 2012

Thank you for your comment.
On May 21, the government announced three major changes to boost light vehicle sales. The IPI would be reduced to zero in some cases until August 31; IOF (tax over financial operations) was reduced to 1.5% from 2.5% for unlimited period of time; and the compulsory deposit was reduced, so banks have more money to finance vehicles.
I encourage you to download our latest report about the Brazilian market, which has more details about the tax incentives. You can find it here: https://www.polk.com/knowledge/forecast/fc05aa.



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