By Laura Madden, Contributing Reporter
RIO DE JANEIRO, BRAZIL – After months of speculation, Jaguar Land Rover (JLR) CEO Ralph Speth in January confirmed plans to build a factory in Brazil. This, just after the sixth largest economy in the world announced that its automotive industry beat its own sales record for the fifth year running.
“Brazil and the rest of South America is a very interesting market. It is also an emerging market, growing very aggressively,” Mr. Speth told Dow Jones. “We are thinking of a kind of a copy-paste facility of the Indian [plant] in Brazil.”
Speth did not, however, specify the location of the factory, saying simply that it would likely be in one of Brazil’s three auto-manufacturing hubs.
Further contributing to the decision is Brazil’s recently-imposed Industrialized Products Tax (IPI). In order to avoid the thirty percent tax hike, manufacturers have to assemble the majority of any car within Brazil, providing local jobs and services.
Citing Brazil’s portfolio as the second-largest producer of biofuels, fifty percent of global beef exports and its rise on the world stage due to the 2014 World Cup and 2016 Olympic Games, Munich-based Roland Berger Strategy Consultants predicts Brazil could become the world’s third largest car market after China and the U.S.
In Natal, the capital city of the northeastern state of Rio Grande do Norte, the majority of Jaguar Land Rover’s clientele are local business owners and professionals like doctors and lawyers. “With this avalanche of foreigners who have come here, it’s had a trickle-down effect,” says Divaldo Santiago, general manager at PG Prime Automóveis, a Jaguar Land Rover dealership in Natal.
“I think this has also happened in larger markets like Rio and São Paulo, but those markets are much, much bigger,” explains Santiago. “In those cities, the market grew because, independent of the real estate boom, there already was a good business market in those places, with multinationals and other well-known companies already there.”
Indian car manufacturer Tata Motors took JLR off Ford’s hands for US$2.3 billion in June of 2008. At the time many scoffed, thinking it was a mismatch. The Indian auto manufacturer was until then only known for making commercial vehicles, mostly for goods transport, and the ultra-cheap two-seater Nano.
Tata had also taken a US$3 billion loan to finance the purchase. Months later, the financial crisis hit, and JLR sales tanked and in 2009, Tata Motors posted a US$520 million loss for the year.
Now reports indicate global sales of Jaguar Land Rover vehicles grew nineteen percent during April-November 2011 to 185,431 autos. Umesh Karne at Mumbai-based investment firm BRICS Securities expects JLR to make a net profit of around US$1.5 million in March, with sales up fourteen percent, and a further rise of eight percent the following year.
Lately, global car makers have shifted focus to emerging markets like China, India, Brazil and Russia. This effort has in part been to offset falling demand in normally stronger markets in the U.S. and Europe. Speth also said the company is scouting for a joint-venture partner in China to build a US$158 million assembly plant there.
In October 2011 French-Japanese car manufacturing company Renault-Nissan also announced that it will be opening a second manufacturing plant in Rio de Janeiro state and expanding production at its current plant in Paraná.