FCA Latin America COO Stefan Ketter says the automaker plans to renew its full line of products in three years in Brazil. Meanwhile, General Motors president Dan Ammann says the company may pull back on investment in Brazil if conditions do not improve.
IHS Automotive Perspective
Significance
Executives at Brazil's number one and number three auto companies, Fiat Chrysler Automobiles (FCA) and General Motors (GM) respectively, have suggested the two companies may take somewhat different approaches in the face of the country's recession, particularly in the short term.
Implications
The Brazilian market is forecasted to continue to decline in 2016, with both FCA and GM being impacted by losing market share due to newer market participants increasing consumer choice and taking market share from more established companies.
Outlook
Because of the currently weak economy, IHS Automotive currently forecasts Brazilian light-vehicle sales will decline by 23% in 2016, followed by a gain of 2.2% in 2017. IHS also forecasts that it will take until 2020 before the market regains 2015's level of light-vehicle sales of 2.48 million units, and then it will grow to 3.18 million units by 2023. Among the longer-term drivers of growth is an increased motorisation rate to nearly 4.0 people per car in five years and 3.5 people per car in 10 years. With a bleak outlook in the near term, some manufacturers may change their near-term strategies.
Fiat Chrysler Automobiles' (FCA) chief operating officer (COO) for Latin America and chief manufacturing officer globally, Stefan Ketter, has said the automaker is committed to continued investment in Brazil, speaking to regional media at events surrounding the market launch of the all-new Fiat Toro pick-up. Following FCA's investment in the new plant in Pernambuco, Brazil, which builds the Jeep Renegade and Toro, and is scheduled to add another Jeep product and a compact Fiat, Ketter said that the company would not stop investing, to prepare for when the local market improves again. However, according to news source Motorpress Carro, he did not speculate on when that might happen. Motorpress notes that Fiat is looking to sell about 50,000 units per annum (upa) of the Toro, with about 65% of buyers opting for a 170-hp, 2.0-litre diesel-equipped model. The Toro is also offered with a 1.8-litre flexible-fuel engine, mated to a 6-speed automatic transmission, while the diesel is mated to a 9-speed transmission. Pricing of the Fiat Toro ranges from BRL76,500 (USD19,000) to BRL116,500.
In terms of the future of FCA in Brazil, Automotive Business reports that Ketter says the company will continue to invest heavily in its Brazilian operations, and is nearing the end of a BRL15-billion round of investment in 2011−16. Ketter also indicated that FCA plans to completely renovate the company's Brazilian product portfolio over the next three years. Ketter also said that the automaker's Brazilian production has to be to the standard of international products to support exports, but also in response to changing consumer expectations, the report states. Automotive Business notes that the Pernambuco plant has the capacity to build 250,000 upa of four different models and to produce two more during a period of transition from one generation of vehicle to another, reducing risk of lost capacity. Ketter reportedly said that investment in FCA's Betim plant is next, though he declined to explain what products would be coming next for the facility. Ketter also said that while FCA's Brazilian sales started off worse than expected in 2016, the second half of the year should be better. FCA is also scheduled to launch a new compact car, code named X1H, according to media reports, with production to take place at the Betim plant. Motorpress Carro reports that FCA has registered the name Mobi, and suggests the company will use that name for the new car, which will fill space left by the defunct Mille. The Mobi is reported to be arriving in the first half of 2016, with a 1.0-litre 4-cylinder flex-fuel engine.
Separately, General Motors (GM) president Dan Ammann was quoted by Reuters as saying that if the Brazilian market does not improve in a year, GM may re-evaluate plans for investment of BRL6.5 billion through 2019. He said, "I hope to see political and economic advances in the next six to 12 months, which would allow us to stick to our investment plan." Otherwise, GM would "re-evaluate", the executive said. Ammann also said it is too early to know if the company would take the option of closing one of its plants in the country. GM continues to see Brazil as a market with great potential in the long term, but Ammann says that "a big change" is needed to reach that potential. "The important question is to know when we will see the stability that allows us to continue invest. We are worried because the environment is unstable and the outlook is uncertain for the next few years." Reuters also reports that Ammann suggested that a shift to business-friendly policies could help restore investor confidence, similar to Argentina's recent change, saying, "Argentina showed how the situation can quickly change with the right leadership of the economy."
Outlook and implications
Because of the currently weak economy, IHS Automotive forecasts Brazilian light-vehicle sales will decline by 23% in 2016, followed by a gain of 2.2% in 2017. IHS also forecasts that it will take until 2020 before the market regains 2015's level of light-vehicle sales of 2.48 million units, and then it will grow to 3.18 million units by 2023. Among the longer-term growth drivers is an increased motorisation rate to nearly 4.0 people per car in five years and 3.5 people per car in 10 years. With a bleak outlook in the near term, some manufacturers may change their near-term strategies.
Brazilian auto sales have been in decline since 2014, after peaking in 2012; sales in 2015 fell by 26% and January 2016 sales dropped 38.7% year on year. Along with pricing, credit availability and low consumer confidence impacting new-vehicle sales, political and economic uncertainty is exacerbated by corruption scandals and calls for President Dilma Rousseff to be impeached. February's auto sales are also expected to be impacted by the Carnival holiday, as most economic activity stops or slows during the week-long celebration.
Regardless of the market recovery, IHS Automotive also forecasts FCA and GM will continue to see their market shares decline, under pressure from newer market players such as Hyundai, Toyota, and Honda. IHS forecasts that, by 2020, FCA's market share will have slipped from 23.2% in 2012, Brazil's record year, to 19.6%, though the company will continue to be the country's largest automaker. GM, which is Brazil's third-largest automaker behind Volkswagen (VW), is forecasted to see its market share fall from 17.7% in 2012 to 12.8% in 2020. VW is facing a similar situation and is forecasted to see its share fall from 21.3% in 2012 to 13.6% in 2020. Over that same period, Hyundai's share is forecasted to increase from 4.1% to 9.4%, Toyota's from 3.1% to 8.5%, and Honda's from 3.7% to 5.7%. Ford is also forecasted to achieve a share gain, though a more modest increase from 8.9% to 9.3%.
Relative to FCA's product plans, the latest IHS Automotive production forecast sees the Betim plant receiving the new XH1 compact in the first months of 2016, followed by a new Palio and B-segment crossover utility vehicle (CUV) in 2017, as well as Uno and Doblo replacements in 2018; however, the Siena and Strada will not receive new-generation models until 2019. The Pernambuco plant (also known as the Recife plant) is forecasted to receive Jeep's upcoming C-segment CUV (Project 551) in mid-2017, with sales due to begin in about October 2017; however, there are also reports suggesting FCA is looking to bring that product forward and start production sooner. With these changes, production at the Betim plant will reach 411,000 units in 2019, though the plant is forecasted to see a decline in production in 2016. The Recife (Pernambuco) plant is forecasted to see production reach 118,000 units in 2018, though there will be temporary contraction in 2019. FCA's overall production in the country is forecasted to increase from an estimated 449,000 units in 2015 to 543,000 units in 2021. While the medium-term picture is positive for FCA's output, total production in 2016 is forecasted to fall to 394,000 units before growing again in 2017. However, according to an FCA spokesperson, the Betim plant has installed capacity of 800,000 units and Pernambuco of 250,000 units. At least through 2022, IHS does not forecast these plants reaching full capacity.
The current IHS forecast shows GM's three Brazilian vehicle plants seeing production declines between 2015 and 2020, however. In 2015, IHS estimates GM's production in Brazil reached about 312,400 units, and we forecast the automaker's output in the country will continue to slip for a few years. However, GM is also forecasted to begin building a new-generation Onix at Sao Caetano do Sul in mid-2016. Other new products forecasted at the plant are a B-segment sport utility vehicle (SUV) and a new Montana in 2019 and a new Cobalt in 2020. At its Gravatai plant, GM is forecasted to add production of the Onix and introduce a new Prisma in 2019.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.