Brazil´s Automotive Sector Should Not Recover Best Moment Before 2030

RIO DE JANEIRO, BRAZIL – In April, vehicle production virtually stopped nationwide due to the high risk of infection among workers, and in the ensuing months the results were not sufficient to offset such losses. With a still uncertain macroeconomic scenario and the Brazilian real depreciated, prices climbed and buyers retreated.

Nevertheless, the year 2020 should close with approximately two million new vehicles sold. The figure represents a 30% drop compared to 2019 and far from the historical 2012 mark, when 3.8 million cars were sold – due to more competitive prices and government incentives, which reduced the IPI (Tax on Industrialized Products) at the time.

The resumption now occurs unit by unit and market analysts estimate that the sales volume will not return to its historic level before 2030.

The American currency’s spike is not the only factor behind the increase in the price of new cars. The regulations that began to demand the inclusion of front airbags and ABS brakes in all vehicles should also be considered in the equation, but it is a fact that these are basic items to ensure minimum safety to occupants and should have been factory fitted for some time.

Nowadays, the search is for increasingly technological cars connected to smartphones. The buyers’ profile has changed to high income, which in itself does not ensure the long-term sustainability of a massive chain. “Brazil needs an industry that sells four million cars a year, and this will not be the case before at least 2030,” says Paulo Cardamone, CEO of Bright Consulting.

Were the sudden drop in production of new vehicles not enough, the sector still fears that manufacturing plants will stop working for lack of supplies. Products such as steel, rubber, tires and plastic materials are short in the market and compromise the assemblers’ proper operation.

“The industry is trying to mitigate the risk of stoppage, but we don’t work miracles. If parts are lacking, the consequence will be hardship in vehicle sales. There is a big risk and it can happen in December”, alerted Luiz Carlos Moraes, president of the National Association of Automotive Vehicle Manufacturers (ANFAVEA).

If in November 2019 there was a stock of 330,000 vehicles in the chain, today there are fewer than 120,000, just enough to sustain 16 days of sales, and considered the lowest level since March 2004.

Under normal circumstances, the Brazilian automotive sector is able to sell at least twice the volume recorded so far in 2020, but it is still doubtful whether automakers will be able to withstand the coming years on their own. The fact is that the business environment in Brazil needs to be conducive to making the industry minimally competitive.

“We can’t forget that in early 2020 the expectation was high, of a rising market and that sold more in 2019 than in 2018. For 2021, our projection is for 2.4 million units sold, but surely the Brazilian market is prepared to produce and sell five million vehicles per year,” says Milad Kalume Neto, business development manager of Jato Dynamics automotive consulting company.

With difficulties in closing their accounts, automakers chose to dismiss or furlough many employees. Of the 126,400 workers who began 2020 employed, 5,600 were laid off due to the crisis, according to ANFAVEA. These jobs may no longer be recovered due to the intense automation process the sector has been implementing to reduce costs and increase productivity.

“We can’t be happy, but we had expected that the number of dismissals would be much higher. Although the industry is recovering, employment should stabilize or even drop, considering that companies will be much more automated because of the 4.0 industry”, projects Cardamone.

The positive surprise was the volume of 44,000 units exported last November, the best result since August 2018. The increase is explained by higher decreases in recent months, due to the stage of the pandemic in neighboring countries, particularly in Argentina.

Moreover, the growth is also owed to the anticipation of shipments for the end of the year. In any event, the total of 286,000 units exported is still 28.4% lower than in 2019, which had already been a year of sharp decline, according to ANFAVEA. “We will recover the 2019 level by the end of 2022. Although it is dependent on the economy, on the recovery of jobs and on the dollar, Brazil has the opportunity to take a quantum leap in the industry,” sees Bright Consulting’s CEO. It can be said that the sales digitalization process progressed considerably in 2020, due to the limitations imposed by the coronavirus.

Despite the setback that 2020 represented for the industry – which will take years to recover – the path to recovery involves the automation of the sector, various ways to attract customers and connectivity, with the production of vehicles that meet and fit not only the domestic but also the international markets.