By Rogerio Jelmayer And Jeffrey T. Lewis
SÃO PAULO--Brazil's auto market will likely remain weak next
year, as both consumers and the government try to control spending,
but it could start to recover in 2016, car makers at the São Paulo
car show said Tuesday.
Brazil's economy entered a recession in the first half of 2014,
damping consumer confidence, while the central bank has been
raising borrowing costs to try to slow inflation. That has made
consumers more averse to borrowing to buy new cars and contributed
to a decline in vehicle sales to 2.5 million units in the year
through September, from 2.8 million in the same period a year
earlier.
At the same time, Standard & Poor's recently cut Brazil's
debt rating and urged the recently re-elected government of
President Dilma Rousseff to improve the government's financial
situation.
"I expect next year to have stable sales; it will be a year of
economic adjustments and greater control of public spending," said
Jaime Ardila, president of General Motors for South America.
"That's why consumers will be reluctant" to buy new cars. GM's
Chevrolet is the third-biggest car seller in Brazil.
Korean car maker Hyundai holds a similar view on sales trends,
according to Antonio Maciel Neto, chief executive of Hyundai's
Brazilian importer, Caoa. Italy's Fiat expects sales will start to
pick up a bit sooner.
"I think this year vehicle sales will fall to something like 3.4
million units and then next year we expect a recovery to happen,
starting from the second half," said Cledorvino Belini, head of
Fiat's Latin America unit. Fiat, Volkswagen AG, GM and Ford Motor
Co. are the four top sellers in Brazil.
Ford's president for South America, Steven Armstrong, said he
also expects a flat year for sales, with "a weak performance in the
first half of the year and an improvement in the second half."
Volkswagen sees sales growth of 3% for Brazil's car industry
next year, at best, and flat in the worst case, said Thomas
Schmall, president of the German company's Brazilian unit.
Brazil's market is still very attractive for car makers, Mr.
Schmall said, because of the country's young population and growing
middle class.
The country's auto industry is a vital part of the economy,
representing about 5% of gross domestic product, according to the
Brazilian car makers' association, Anfavea.
Ms. Rousseff's government has taken several measures in the past
three years to boost car sales, including cutting the tax on
industrial goods to zero in 2012, then raising it to less than half
its 2011 level at the start of this year. The tax is scheduled to
rise again in 2015, but car makers are hoping the president can be
persuaded to extend the current break.
"In our view it's important to keep the IPI where it is," said
Mr. Ardila of GM, referring to the tax on industrial products.
"Brazilian consumers are now used to the IPI where it is. I imagine
the sector should ask for an extension" to the lower rate.
The tax break is one of the more effective ways to encourage car
buyers, but the government might not be able to afford it because
of its difficult budget situation, said Guido Vildozo, an auto
market analyst for industrial consultants IHS.
"The best tool they had to move the market forward was the IPI,
but the government probably can't free up that money anymore," he
said. "They're starting to run out of options on jump starting the
industry."
Brazilian governments have for years worked to expand the
country's auto industry. High taxes on imports discourage
Brazilians from buying imports and push car makers to set up
factories here.
Nissan inaugurated a 2.6 billion real ($1.1 billion) plant in
Resende in Rio de Janeiro state in April, and China's Chery plans
to start commercial production at its $530 million plant at the end
of this year. Jaguar Land Rover plans to open its own factory in
2016.
Brazil's market is still attractive, despite the current
economic situation, said GM President Dan Ammann. The company plans
to invest 6.5 billion reais in Brazil through 2018 to improve
efficiency, refresh the company's current range in Brazil and
design new models.
"We've obviously voted with our investment dollars," Mr. Amman
said after the opening of his company's stand at the auto show.
"Clearly it's a challenging environment right now and our primary
focus is on when the economy will improve and bring the car market
back with it."
Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com and
Jeffrey T. Lewis at jeffrey.lewis@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires