Brazil & Southern Cone - October 2011 (ISSN 1741-4431)

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 to 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, which were 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 10% share of the global vehicle market. Ghosn, now a nationalised Frenchman but born in Brazil, said the group aimed to double its share of the Brazilian market to 13% by 2016, when he expects that between 4.5m and 5.0m new vehicles will be sold in Brazil. He hopes to reach this target by driving Renault’s market share up to 8%, from 5.5% currently, and Nissan’s to 5%, from the current 1%.

The expansion of the Renault plant will take production up from 220,000 units a year to 330,000/yr, while the new Nissan plant should be able to produce 200,000 vehicles a year.

This direct investment by Nissan has bleak implications for Mexico, which is currently the main source of Nissan vehicles sold in Brazil.

The Rousseff government’s decision to raise the tax on industrial product (IPI) on vehicles to 30% has caused controversy. To avoid the new taxes (which effectively act as an import tariff), vehicles have to have a 65% local, or Mercosur, component. Japan has suggested the measure is in contravention of World Trade Organisation rules.

The measure has also upset BMW, a German luxury vehicle manufacturer, which has been considering building a plant in Brazil. 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. In mid-October, however, the local press reported that BMW was lobbying the trade and development minister, Fernando Pimentel, to re-evaluate the IPI increase or else BMW would take its investment to China, India or Russia. BMW sells 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.

Total new vehicle sales in Brazil are likely to be about 3.6m in 2011, up from 3.51m in 2010.