By Paulo Winterstein
SAO PAULO--Yearly vehicle sales fell for the first time in a
decade even as output in Brazil's auto industry was temporarily
boosted by government incentives aimed at strengthening local
production and boosting exports.
This year could prove to be another difficult one for domestic
sales as taxes are set to rise on car purchases and the 2014
calendar is complicated by the World Cup in June and presidential
elections in October.
"Last year started off well but the second semester was very
different," said Rodrigo Baggi, an auto-industry analyst at
Tendencias consulting firm in Sao Paulo. "This year, companies will
have to focus more and more on the external market."
Brazil sales declined last year to 3.77 million vehicles from a
record of 3.8 million autos sold in 2012, auto maker association
Anfavea said Tuesday. Inflation's erosion of consumer spending
power, together with rising interest rates, a volatile currency and
disappointing economic growth crimped vehicle purchases in the
world's fourth-largest car market.
Brazil's economy has been growing at less than 3% a year since
2011, but persistent inflation has pressured the central bank to
raise interest rates six consecutive times since April.
Latin America's biggest economy should grow by 2.5% this year
and credit for auto loans about twice as fast, Anfavea President
Luiz Moan Yabiku Jr. told reporters. But the many special events
this year and fewer business days mean sales should only grow
1.1%.
"This year will be a transitional year," Mr. Yabiku said. "In
2015 we should see a jump in output and it should be a great year
for exports."
Vehicle output will likely grow 0.7% this year, but take off
again in 2015 as new factories start production in earnest, Mr.
Yabiku said.
Brazil boosted its tax on imported cars by 30 percentage points
as part of its plan to head off surging imports and to beef up its
local industry. In order to avoid the higher tax, car makers rushed
to build local factories in the country and have promised to invest
about 75 billion Brazilian reais ($32 billion) through 2017.
The need to replace imports with locally produced cars was the
main impetus behind a 10% jump in Brazil auto production last
year.
Asian car makers were some of the earliest to come to Brazil to
benefit from the tax breaks, and their new production has started
coming online. Even luxury car makers got in on the game, with
Jaguar Land Rover, BMW AG (BMW.XE), Volkswagen AG (VOW.XE) unit
Audi and Daimler AG's (DAI.XE) Mercedes-Benz all committing last
year to building Brazil plants.
No doubt, all the new capacity is squeezing profitability and
eroding some of the appeal of the Brazilian market for car makers.
Still, the potential market in Brazil is seen as attractive, in
part because it has plenty of room to grow. The country has far
fewer cars per people than developed markets such as the U.S., and
even has less vehicle density than developing markets like its
neighbor Argentina.
"This is a question of strategy," Mr. Baggi said. "They aren't
looking at the market in 2014 but further down the road as it's
very promising. You can't avoid including Brazil in your plan for
new factories."
Write to Paulo Winterstein at paulo.winterstein@wsj.com