Having firmly shrugged off the global economic slowdown, Brazil’s automotive market is looking forward to making a positive start in 2010. In 2009, the market received much required support from the industrial tax break on vehicles, which not only helped make Brazil one of the best performing markets in the region, but also restored consumer confidence.

However, the report points out that the impact of the tax break has been unbalanced for the autos industry as passenger car sales reached record monthly figures, while the commercial vehicle segment reported double-digit declines. Nevertheless, the market’s 8M09 cumulative sales reached 2.93mn units, up 2.73% y-o-y, according to estimates from the Federação Nacional da Distribuição de Veículos Automotores (Fenabrave).

Industry experts are speculating that the market could be bracing for record yearly sales by end-2009, while the Associação Nacional dos Fabricantes de Veículos Automotores (Anfavea) expects such a surge to take the market’s sales up 6.4% year-on-year (y-o-y).

BMI is less optimistic however. Despite taking account of the low base effect from 2008 and renewed market confidence, we restrict our sales growth forecast to be restricted at close to 3% y-o-y by end-2009, which should be followed by a more impressive 11% surge in 2010. Growth is likely to remain robust for the rest of the forecast period to 2014 when we expect the market to reach 4.56mn units.

Meanwhile, production is likely to stay in line with demand in the long term with total capacity expected to reach close to 4mn units by 2014. With nearly 2.94mn units expected to be produced by end-2009, down 8.5% y-o-y, the growth highlights the strong growth potential of Brazil’s autos industry.

The sheer size of the industry has helped position the country as a leader in the Business Environment Rankings for the autos industry in the Americas. Key factors contributing to this have been its improved operating environment and supportive government policies. However, a slew of labour issues have dented operations for the likes of General Motors Company (GM), Volkswagen (VW) and Renault, which if allowed to continue could pose a serious threat to the country’s ratings.

VW, Fiat and GM are the market leaders in Brazil’s passenger car segment, while Mercedes-Benz, Ford Motor and VW exercise greater control in the commercial vehicle segment.