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It is very probable that two vital sectors of the global economy will go into history as maximum symbols of the last crisis and its affects. Banks were at the epicenter of the uproar. And the auto industry was its most destructive and, perhaps, most renewing face. The crisis did what many people thought impossible: it did away with the fantasy world created around two American symbols, Chrysler and GM. Today, both are trying to regain their footing after a painful Chapter 11 process from which GM emerged state-owned. Japan's Toyota, renowned for its efficiency and capacity to adjust to the market, was not untouched. With sales falling in its two main markets, the United States and Japan, the manufacturer finished 2008 with losses of 4.4 billion dollars, something that had not happened since the 1950s. With the world's main markets in a tailspin, it seemed to be just a matter of time before the turbulence sucked in the until then thriving Brazilian market, which had been growing at Asian rates since 2006. That's not what happened. Brazil was one of seven countries that were able to grow despite the crisis during the first semester of the year. Between January and June, 1.4 million vehicles were sold, an increase of 4.1% compared to the same period last year. It was enough for the country to leap from ninth to fifth in the ranking of largest world markets. It is estimated that by the end of the year a record breaking 2.7 million vehicles will be sold. "Brazil is one of the most important markets in the world," says Marcos Oliveira, president of Ford in Brazil. "This leap is proof of that."
It is true that this leap is partly due to a retraction in traditional markets like England, France and Italy, which occupied 5th, 6th and 7th places, respectively. After the crisis erupted in September of last year, auto sales in those countries fell more than 20% - and there is no indication they will recover so soon. Nevertheless, Brazil did its part. Getting rid of the IPI (tax on industrialized products) on vehicles the first months of the year lowered prices nearly 7% and produced the desired increase in sales. "There is strong repressed demand in Brazil," says Oliveira, of Ford. According to more conservative projections, which do not consider eventual increases in capacity, Brazil should jump from 2.7 million cars sold per year to nearly 4 million units by 2015. This difference, of more than 1 million cars, is equal to the market total for a country like Italy. And there is still much room to grow. Besides having one of the oldest fleets in the world, around 13 years old, Brazil has a low vehicle density: 1 car for every 6.4 inhabitants. In the United States, that proportion is 1 car for every 1.2 inhabitant. "There's a lot of fat to burn. In order to reach the same level as the American market, it will be necessary to sell more than 50 million cars," says Oliveira.
The apparently inexhaustible energy presented by the Brazilian market over recent years can be credited to two factors. The first is the price of the so-called popular car, which has become increasingly more affordable. A study conducted by EXAME over the past 40 years shows that today's most sold model in the country, the Gol, by Volkswagen, costs nearly 40% less than the champion at the end of the 1960s, the Beetle 1300 (see chart). At the same time, the credit offer for purchasing automobiles was practically untouched by the financial turbulence. According to the National Association of Automobile Manufacturer Finance Companies (Anef), the credit portfolio closed July with a balance of 149 billion reais - 12% more than the same period last year. Maximum loan terms have also increased: they went from 72 months last year to 80 months in 2009. It's no wonder that this modality is responsible for more than 50% of vehicle sales in the country today. "By 1996, there was practically no vehicle financing in Brazil," says Luiz Montenegro, president of Anef. "Terms did not exceed six months and it was prohibited to have leasing for individuals. Only now do consumers have broad access to credit."
More than just feed a hallucinating pace of business - in Brazil, one car is sold every 12 seconds - the abundance of credit has also changed the Brazilian purchasing profile. According to the National Federation of Automotive Vehicle Distribution (Fenabrave), entry level participation in the first semester of this year was only 38.6%, the lowest it has been in the past nine years. On the other hand, more sophisticated, sedan models increased from 1.2% in 2000 to 19% in 2009. "With more money available, the consumer can dream of better, more equipped cars," says Letícia Costa, vice-president of the consulting firm, Booz&Co., specialized in the automotive sector. The resounding sales success of the Mini Cooper provides an idea of this phenomenon. Despite its price (the little car is not sold for less than 90,000 reais in its most basic version), an average of 60 units per month are being in the country - twice the initially projected by BMW, manufacturer of the model. Almost half of these cars left the dealer with financing for two or three years.
The vigor presented by the Brazilian market has already influenced the power dynamics between local car manufacturer branches and their head offices. Relegated, up to now, to a secondary class compared to the American and Chinese markets, operations in Brazil have gained importance and an active voice and now dispute for investments with their peers around the world. The case involving the release of the Honda, mid-sized sedan, City, is a sign of this transformation. The car was to be introduced to the public at the end of this year, and the company's headquarters in Tokyo had already determined its production in Argentina. But, with the gradual heating up of the Brazilian market, Honda executives in the country were able to anticipate the release to July 2009 and to transfer production to the factory in Sumaré, in the state of Sao Paulo. "There was no time to lose," said Alberto Pescumo, commercial general manager for Honda in the country. "Brazil has become a key player in Honda's growth." Today, City is the best-selling car in its category even though it costs 20% more than its competitors. Likewise, Volks and BMW were able to shift their main releases from Europe to Brazil this year: the Amarok pick-up and X1 utilitarian, respectively.
The moment experienced by Brazil, which registered record sales while the world was still engulfed in uncertainty, reveals the degree of maturity the automobile sector has reached in the country. Contrary to what happened in previous years, when eventual hiccups caused mass layoffs and immediate suspension of all investments, this time car manufacturers decided to keep their schedule of release practically unchanged. According to data from the consulting firm, CSM Auto, 17 models were (or will be) launched, a record by manufacturers that for the first time in history will introduce more cars in Brazil than in the United States, the world's biggest market. "The automotive market is driven by novelties. Without new cars, there is no way to energize sales," says Marcelo Cioffi, specialist in the sector at the consulting firm PricewaterhouseCoopers. So much concern led Brazil to a paroxysm: today, there are 570 models available in the market, including national and imported; 20 years ago, this number didn't reach 150. "The learning experience over recent years has left a bitter taste with car manufacturers. It has become essential to win in the Brazilian market," says Cioffi.
Despite current euphoria on the part of car manufacturers, the country will encounter difficulties over coming years to move up in the ranking of largest markets in the world - or even to defend its current fifth place. According to estimates by PricewaterhouseCoopers, if current conditions remain equal, Brazil should be surpassed by India and South Korea by 2012 - and the perspective is for that situation to remain practically unaltered for the following three or four years. The heavy tax burden that falls on the sector is considered growth's greatest villain. It is estimated that 36% of the price for a new car in Brazil is taxes, by far the highest percentage in the world. In India, China and other emerging nations that rate is around 20%. In the United States, it is only 6%. There is growing concern among car manufacturer executives about the impact the end of the IPI reduction benefit, projected for the beginning of next year, will have on sales in the country. Deterioration of default rates on loans, which reached 5.3% in July, has forced banks to get tougher about granting credit, which could have a direct impact on sales over coming months. "More important than getting to fifth place is being able to stay there," says Thomas Schmall, president of Volkswagen in Brazil. "For such, the country must prove it can grow consistently."
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