Forecast on the Automotive Industry in Brazil and Argentina

26 January 2015 Dashboard Insights Blog

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.

Overall Economic Indicators

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.

The Auto Industry in the Region

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. 

Market, Sales, and Production Trends

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.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services