What is next for the auto industry in Brazil and Argentina? Despite the current recession, the markets show signs of the potential for growth, although it will likely be at a slow pace.
Below is a high level summary of certain economic indicators, trends and other factors that influence the overall economic situation and the auto industry in the region.
In Brazil, the economy had the worst performance since 2008/2009 falling into a technical recession in the first half of 2014, contracting for two consecutive quarters. Although the economy has declined, economists expect that three percent (3%) growth will resume by 2017. Argentina’s economy is similarly not in a good place; it remains fragile with a contraction of .6%. In addition there is a substantial amount of uncertainty given the ongoing saga with holdout creditors and the government’s efforts to escape default.
Given the current unstable conditions that exist in the economies of both Brazil and Argentina, fears of inflation and growing household debt have become significant issues, and as a result this will likely lead to a decline in consumption in the short-term. However, there is a young and growing population in both countries and as income levels rise, the potential for growth of the respective economies (and the auto industry) rises as well.
In both Argentina and Brazil, there was a drop in the number of vehicles being exported from each of the respective countries. Given the economic conditions, consumers in both countries were much more cautious in making any purchases in 2014, including purchases of light vehicles. The decline in light vehicle sales can also be attributed to the tightening of credit availability, high inflation and high borrowing costs, a weak job market, and increasing household debt. Along with the decline in light vehicle sales there was also a decline in light vehicle production and increased inventory. In Brazil, the decline in production was further amplified by the FIFA World Cup games, during which there was an industry wide shut-down.
The overall market trend for vehicles in the South American Region (including Venezuela, Uruguay, Peru, Ecuador, Colombia, Chile, Brazil, and Argentina) shows a twelve percent (12%) decline from 2013 to 2014 (Brazil and Argentina specifically had a thirteen percent (13%) decline). Among the vehicles sold, we similarly saw declines in upper sub-compact conventional vehicles and midlevel sub-compact conventional vehicles which together make up thirty-two percent (32%) of the market share. Interestingly enough, even though the economy in both Argentina and Brazil saw declines, compact SUV (.5% rise); Sub-compact and full-size premium SUVs (8% rise); full-size pickups (133% rise); midsize conventional vehicles (8%); and compact premium conventional (1%) all saw rises in sales.
Although subcompact vehicles have continued to dominate the market, that will likely shift to SUVs dominating the market by 2018. Along these lines, consumers in Brazil are also shifting to SUV/CUV type models with 15 proposed new entries into the market expected by 2021.