Roland Berger study on the Brazilian automotive market: Vehicle production could rise from 3.2 million units in 2009 to 5.2 million in 2016

• Yearly production in Brazil could grow from 3.2 million units in 2009 to more than 5 million units by 2016 – vehicle sales may rise from 3.1 million units in 2010 to 4.8 million in 2016
• With a clear export strategy, Brazil could nearly double its exports in the next few years – imports are expected to grow at least 40% by 2016
• Joint government-industry agenda necessary to ensure production growth and cost competitiveness

The Brazilian automotive industry is at a crossroads. If the industry and the government take the right steps, there are great prospects on the domestic market and increasing export opportunities. That is the conclusion of a study conducted by Roland Berger Strategy Consultants entitled "The Brazilian automotive industry at crossroads".

"Brazil is an up-and-coming market with great potential – also for the automotive industry," says Stephan Keese, Principal in the Automotive Competence Center at Roland Berger Strategy Consultants. But with increasing global competition, Brazil needs to define a clear agenda to ensure future production growth. This plan should include encouraging domestic sales to ensure enough satisfactory growth for all market participants. It is also important to increase exports to compete on a global level. In addition, it is necessary to improve domestic competitiveness to translate sales growth into production growth for established players.

Joint industry-government action recommended

If the necessary steps are taken, Brazilian automotive sales have tremendous potential to grow in the future, fueled by the positive development of the economy. Analysis shows that sales of 6 million vehicles by 2020 are likely. But this sales forecast may require additional efforts and action by the industry and the Brazilian government. For example, joint industry-government action could be undertaken to drive domestic sales growth in Brazil, such as reducing the cost of ownership to enhance individual mobility and create incentives to buy new cars. With these actions, the Brazilian automotive market could be boosted to global levels and vehicle sales could rise from 3.1 million units in 2010 to 4.8 million in 2016.

Brazil could double its exports

With a clear export strategy, Brazil should also be able to nearly double its exports in the next few years. While 475,000 vehicles were exported in 2009, that number could reach 980,000 in 2016. Based on the exchange rate and domestic sales forecasts, vehicle imports are expected to grow at least 40% by 2016. By implementing actions to increase domestic sales and with a focused export strategy, yearly production could grow from 3.2 million units in 2009 up to more than 5 million units by 2016.

Strengthening cost competitiveness

"All these advantages should not lead to the impression that the market conditions are perfect," says Keese. "In many important aspects of the automotive value chain, Brazil is not yet competitive on a global scale." The production costs of a vehicle in Brazil are at least equal to those in Europe, but raw materials such as steel are significantly more expensive. Distribution costs are higher due to poor road infrastructure and inefficient ports. Other problems include bureaucracy, taxes and duties and suboptimal labor efficiency. Despite these disadvantages, companies can produce in Brazil very profitably. "The current rate of growth notwithstanding, companies need to review and optimize their cost position in Brazil as well as their footprint in the Americas," says Keese.

"On a national level, government and industry need to join forces to significantly improve the long-term national cost competitiveness," stresses Keese. "We recommend four actions to strengthen the competitiveness of the Brazilian automotive industry: Define an automotive agenda, improve cost structures on a holistic level, develop a future energy and powertrain mix in Brazil and ensure the future competitiveness of Brazilian products. Brazilian products and sales services need to be optimally aligned with current and future customer expectations in terms of design, functionality, quality and affordability."