Brazilian Light-Vehicle Sales Increase 10.5% Y/Y in February, Production and Exports Also Rise

Brazilian light-vehicle sales at the wholesale level leapt 10.5% year-on-year (y/y) in February to 211,348 units, boosted by a normal base of comparison and tax incentives. According to data released by industry association Anfavea, sales improved not only y/y but also month-on-month (m/m): sales were up 4.8% from an already record figure in January 2010. For the year to date (YTD), sales of light vehicles in Brazil are up 8.4% y/y at 413,049 units, compared with 381,047 units. Anfavea president Jackson Schneider cited the ongoing phasing out of the IPI tax reduction as a motivating factor for sales in February, although he also pointed out that the increasing availability of consumer credit and rising incomes were big drivers of the improvement.

Production rose dramatically during the month as automakers rushed to respond to returning demand. Light-vehicle production soared 21.7% y/y to 236,516 in February, representing an improvement even from January's healthy figure, up 2.3% m/m. Production has enjoyed a strong start to the year, up 26.8% y/y in the YTD to 467,803 units. Exports, a mainstay of the economy, also recorded some spectacular growth in February, but this is compared against February 2009, which was a terrible month for exports as the rest of the Americas slipped into recession. Light-vehicle exports were up 91.8% y/y in February at 55,119 units, up significantly from January's 46,608 units. Maintaining this return to growing exports is the biggest challenge facing the Brazilian market, according to Anfavea president Jackson Schneider, especially in the face of a 34% appreciation in the value of the Brazilian real against the U.S. dollar. This is also likely to make imported vehicles more of a threat to locally made items.

In December, Schneider stated that Anfavea was expecting sales of 3.4 million vehicles in Brazil this year, and production of 3.39 million units. The return to growing sales is thanks largely to a return of consumer confidence, the continued expansion of credit, and the ongoing decline in retail interest rates, according to Schneider. The official feels that this will be an ongoing trend as the economy continues to recover from the global recession, according to Dow Jones Newswires. Italian automaker Fiat was the market leader in February, selling 39,314 vehicles, up 6.3% from the prior month. Second place went to Volkswagen, which posted a monthly sales gain of 11.7% y/y to 37,890 units, according to Anfvea. General Motors (GM) did not do as well, its sales falling 4.0% from the prior month to 35,058 units, while Ford saw its sales jump 6.2% m/m to 18,670 units. As for March, Schneider feels that the elimination of the IPI tax reduction at the end of that month is likely to boost sales of vehicles, with a commensurate dip in April and May as sales are pulled forward as consumers look to avoid the return of the 7% surcharge.

Outlook and Implications

February's numbers look very strong, especially considering that by February 2009 the government's plan to implement a temporary IPI tax suspension was well under way and already showing benefits in the market. In January, there was no real huge gain over the prior-year period, but that was not the case for February, pointing to other factors at work in the market that are boosting sales to record levels. Despite the gradual phasing out of the tax incentives, the car market continued to witness very respectable demand last month. The tax incentive provided by the government for new car purchases had resulted in a roughly 7% discount for new vehicles at its height, but this discount is gradually being phased out and will disappear entirely at the end of March. This strategy has resulted in Brazil weathering the worst of the downturn quite well, and it even reported a third record year of growth in 2009. IHS Global Insight no longer predicts a decline in Brazilian new vehicle sales during 2010, thanks to the government's astute strategy in combating the recession. The overall Brazilian economy is looking significantly stronger than many of its counterparts, although the government must remain cautious with regards to the extension of its anti-crisis measures. However, it is indicating that it will continue doing whatever it can to protect vulnerable sectors and stimulate faster economic growth, as demonstrated by the decision to maintain some incentives in the car market (see Brazil: 30 June 2009: Brazilian Government Extends IPI Tax Relief on Cars).