Brazil, the New Germany?

by on

We hear a lot about how China has become the largest car producer in the world, we hear some cheering good news about the strength of Ford’s comeback and of how GM is back in profit (having left most of their debt and other obligations behind it must be said), we even hear some slightly better news about Europe’s struggling car industry helped by stimulus measures but now not looking quite so rosy as they come to an end. What we have not heard so much about is Brazil, soon to be the forth largest car and light vehicle market in the world after China, the US and Japan, by overtaking Germany. As with China and the US, domestic growth is phenomenal but the re-ordering of rankings has as much to do with contraction in the mature market as it does growth in the emerging market.

According to this article in the FT, PwC expects Germany’s light vehicle market to decline by about 20% this year to 3.18m from just under 4m last year, and Brazil’s to grow by about 8% to 3.3m. Growth figures going forward vary between 5 and 8% but most expect growth to continue for the next five years at least fueled by the resource rich countries rising middle class. Absolute numbers are only part of the story though. Brazil’s car market is dominated by global players, Fiat, VW, GM and Ford in that order produce 80% of the cars produced and sold in Brazil. Protected by a whopping 35% import duty they make fat profits. Reflecting on the Brazilian unit’s copious earnings at a presentation in Turin last month, Sergio Marchionne, Fiat’s chief executive, joked that “it makes you wonder what we’re doing in Europe. Indeed it does, Fiat losses money on its core car-making business in Europe but made $863m last year in Brazil. GM doesn’t report separate figures but says it is “printing money in Brazil according to this FT article. Even Ford, the smallest of the big four made $765m last year in South America, the bulk of it in Brazil.

Top position though goes to Fiat. They have been in the market for 35 years. They benefit from slightly lower wage costs because their plant is situated at Betim in Minas Gerais further north than the others around Sao Paulo but most of all Fiat excels at making small cars which is what Brazil has been all about. Fiat’s car plant is not just the Italian car-maker’s largest but one of the busiest in the world today. The facility consumes 750 tons of steel daily, works around the clock on three shifts, and produces a car every 20 seconds, or more than 3,000 a day.

Fiat recently opened an eighth factory gate at the plant to ease the flow of supplies for the 12 models it makes there, which includes the Uno and Punto small cars and the Strada, a small pick-up truck developed in Brazil. The plant produced 722,400 cars last year, second only to Volkswagen’s huge factory in its hometown of Wolfsburg, Germany, which made 740,000 vehicles in 2009.

Increasingly Ford, GM and a clutch of European majors are making more money and importantly investing more money in emerging markets than they are at home. They must all wonder, like Sergio Marchionne, what is the point of manufacturing at home?

–Stuart Burns

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.