Fiat And VW Duel With GM And Hyundai Threaten Their Dealing In Brazil
|   Friday, October 26, 2012
For some years now, auto sales in Brazil have been dominated by Fiat and Volkswagen. In fact they currently occupy the top two positions in sale figures. But right now, General Motors and some Asian manufacturers are gaining ground in the Brazilian market. This is made possible due to weak demand in their home countries.

Brazil's an attractive place for automakers; auto production will go up by 50 percent until 2014 even without Hyundai and other automakers and their plans to start other plants.


"We will have growing competition here in Brazil," said at the Sao Paulo Motor Show Christian Klingler, VW sales chief. Fiat is no longer the "benchmark in Brazil. We also have Kia and Hyundai expanding here. The best will prevail," he said.

Volkswagen and Fiat based their growth rates on Brazilian demand. For this end, they have continuously stimulated sales, achieving a growth of more than 25 percent since 2007. Even so, they have lost some ground: the two companies combined sell two of every 5 cars in the country; 5 years ago they sold half.

"Given the rising competition in the market and the pullback post-incentives, margins are likely to fall," said Kristina Church, an analyst at Barclays in London for Autonews. Fiat will most likely score a post operating profit of 8.7 percent of sales in Latin America this year, which is more than double the group's 4.2 percent margin, according to Barclays estimates.
At the Sao Paulo Motor Show held this week, the European automakers sought to counter the competition with new offerings. So, Volkswagen introduced a 2 door version of the best selling Gol subcompact.

"Brazil is a strategic growth market for the Volkswagen Group and is therefore a key factor" in helping VW become the world's largest automaker by 2018, said Klingler. Therefore, the German automaker plans to invest until 2016 some 3.4 billion euro (4.4 billion dollars) to upgrade themodel lineup as well as factories in the country.

The Italian automaker Fiat, the largest automaker in Brazil this year, has plans to invest as much as 2.3 billion euro to construct a second factory. This new plant will operate in the eastern state of Pernambuco, and will have a production capacity of 250,000 vehicles per year starting from 2014.
"The Brazilian car market will continue growing because the personal income is increasing," Cledorvino Belini stated Fiat's Latin America boss. "It all depends now on the credit offering to support sales."

China Chery Automobile will begin assembling cars in Brazil next year, 2013, at a factory that can build 170,000 vehicles a year. Another Chinese manufacturer, Anhui Jianghuai Automobile, has said it plans to build 100,000 cars annually at a new site in Brazil.

Despite the difficulties, Brazil still remains an attractive market due to growing income as well as a young population. IHS sees car sales in the country go up by 24 percent to 4.5 million vehicles over the next 5 years. Meanwhile, Europe will only recover 16 percent and stay below its 2007 peak.

"Almost 40 percent of Brazilians cannot afford a car yet," said Thomas Schmall, VW's Brazil boss. "Brazil is a very young country, making demand grow naturally."
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