BRAZIL’S CAR INDUSTRY: Booming
International vehicle manufacturers are almost falling over themselves to invest in Brazil. The latest executive to announce major projects was Carlos Ghosn, the president of Nissan-Renault. After meeting President Dilma Rousseff on 1 October, Ghnosn confirmed that Renault would expand its plant in Brazil while Nissan would build its first plant in the country.
Renault’s existing plant is at Curitiba, in the southern state of Paraná, while Nissan will build at Resende, in Rio de Janeiro. Ghosn hinted that both companies were interested in developing new technologies in Brazil. He specifically mentioned electric vehicles.
Aloizio Mercadante, the science and technology minister, who attended the meeting between Ghosn and Rousseff, said that the president had instructed him to produce a feasibility study for the introduction of electric vehicles in Brazil. Renault is one of the world leaders in electric vehicle technology.
Brazil is now the world’s fourth biggest national vehicle market, after the US, China and Japan. It is particularly attractive to international auto companies because a majority of the vehicles sold in Brazil use flex-fuel engines (first developed by Brazilian companies). Brazil remains a world leader in this technology which allows engines to run efficiently on a mix of ethanol and petrol or diesel.
Renault-Nissan believes that it has plenty of room for growth in Brazil since its market share is only 6.5% compared with its share of the global vehicle market of 10%. Ghosn, now a nationalised Frenchman but born in Brazil, set the group a target of doubling its current share of the Brazilian new vehicle market to 13% by 2016 when he expects that between 4.5m and 5m new vehicles will be sold in Brazil. He expects to achieve this target by driving Renault’s market share up from 5.5% to 8% and Nissan’s from 1% to 5%.
The expansion of the Renault plant will take production up from 220,000 year to 330,000 while the new Nissan plant should be able to produce 200,000 vehicles a year.
The investment by Nissan may have bleak implications for Mexico, which is currently the main source of Nissan vehicles sold in Brazil. Even though Mexico, like Argentina and Uruguay is specifically exempted from Rousseff government’s decision on 16 September to raise taxes (the IPI) on imported vehicles to 30%, it is likely to lose out. To avoid the new taxes (effectively an import tariff), vehicles have to have a 65% Brazilian, Mexican or Mercosur, component. What may happen is that Mexico’s Nissans will start importing parts from Brazil when Nissan starts up in Resende and sources its parts locally.
This IPI rule change has upset BMW, a German luxury vehicle manufacturer which has been considering build a plant in Brazil. In mid-October BMW was reported in the local press to be lobbying the trade and development minister, Fernando Pimentel to re-evaluate the IPI increase or else BMW would take its proposed investment to China, India or Russia. At the beginning of October, the German business daily newspaper, Handelsblatt, reported that BMW had already chosen São Paulo as the site for it first Latin American plant.
The government appeared to have been rescued by a decision by the supreme court on 20 October which postponed the implementation of the IP change until at least 15 December 2011. The supreme court’s decision is retroactive, but the government itself ruled that the IPI increase would only start to be levied, again retroactively, from 1 November
The supreme court decision is the result of legal challenges by car companies
On the other hand 15 car companies have registered for the new scheme and will have to prove that 65% of their vehicles are locally produced and that they invest at least 0.5% of their gross sales revenues in research and development in Brazil (or the Mercosur). The government also wants car companies to have met at least six of the 11 stages it had set to ensure that 80% of the value of a new vehicle is Brazilian (or Mercosur) sourced.
Companies which do not meet the new local-content rules face taxes of between 37% and 55% for cars; 30% for trucks and 34% for pick-ups. Currently the IPI on imported cars ranges between 7% and 25%, but trucks are exempt and pickups face a 4% IPI rate.
BMW sells only about 10,000 vehicles a year in Brazil. Globally it sells 1.6m vehicles a year.
Brazil says that its local component rules are much looser than either China or India where 90% of a new car sold has to be locally sourced.
Currently new vehicle sales in Brazil are likely to be about 3.6m in 2011. In 2010 3.51m new vehicles were sold of which 3.38 were built in Brazil.