automotive market perspectives brazil 2014-2018 - … · current market challenges and counter...
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Current market challenges and counter strategies - Executive Summary -
São Paulo, October 2014
Automotive market perspectives Brazil 2014-2018
2 SAO-0180-900031-32-76_3_short.pptx
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
3.0
3.5
2.3
3.0
3.5
2.3
2.3
3.0
2.0
1.0
1.5
0.2
0.5
0.1
2.5 2.5
0.9
2.7
7.6
-0.3
5.1
6.1
3.9
3.1
Itaú
Bradesco
Central Bank
Brazilian growth phase
Lower growth
Increased uncertainty
Slowdown of growth
Comments
Over the next years, GDP growth in Brazil is unlikely to surpass 3-3.5% p.a. – Slower growth pace challenges market players
Source: Banco Central do Brasil (10.2014); Itaú BBA (9.2014); Bradesco (09.2014)
GDP growth Brazil [% p.a.]
> Brazil's growth was driven
mainly by international primary
commodity prices and strong
local consumption
> Since 2012, significant slow
down of GDP growth:
– Worldwide economic
slow down
– End of the commodity
super-cycle
– Lower growth of local
consumption
> Low consumer confidence and
unsecure economic
perspectives
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Based on economic and political scenario, Brazil shows a stable outlook but for the foreseeable future only a limited growth potential
Source: Roland Berger Strategy Consultants
Summary – Strengths and weaknesses of Brazil
Strengths
> Huge domestic market potential with 200 m Brazilians and an increasing middle class
> Government with high interest in Automotive industry - Further protection of the industry very likely
> Overall macroeconomic indicators are stable – Sustained crisis not likely
Weaknesses
> Slow-down of economic growth in the next years due to high dependence on consumption
> Limited competitiveness impacting export capability and raising domestic car prices
> "Custo Brasil" impacting competitiveness and company margins
Implications for the automotive industry
Sustained market protection from the government,
Intact long term growth perspective
Limited growth potential,
2-3 years volume adjustment
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For passenger vehicles, the slow-down is driven by the unfavorable economic development, ineffective incentives and one-time effects
Main reasons for the market development in 2014
Challenging economic scenario 1
Deteriorating exports to Argentina 4
Ineffective government incentives 2
Reduced demand during "special events" 3
Source: Roland Berger Strategy Consultants
> High inflation, high interest rates and uncertain development of employment situation reduced consumer confidence to historic low
> Difficult access to financing
> Government market interventions (eg, IPI reduction or reduction of compulsory bank deposits) have limited impact on passenger car sales
> Special events caused additional public holidays and resulted in negative impact on sales of cars and LCV (FIFA World Cup, late Carnival)
> Impact of October elections not yet clear
> Economic downturn in Argentina reduced exports from Brazil to Argentina
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-19% ~ -15%
2018e
3,6
3,9
2017e
3,4
2014e
2,8
3,1
2013
3,5
2012
3,2
2011
3,1
3,0
2015e
3,5
3,2
2016e
3,7
3,3
Overall, after a highly difficult year, we predict a moderate development in the Brazilian passenger car industry until 2018
Passengers and LCVs outlook Brazil, 2011-2018e [m units]
CAGR 2013-18
3.0%
1.5%
Conservative Scenario
Optimistic Scenario
Sales Production
Source: ANFAVEA; IHS; Roland Berger Strategy Consultants
2.1%
0.5%
CAGR 2013-18
3,5
3,7
2015e
3,3
3,5
2014e
3,2
3,3
2013
3,6
2012
3,6
2011
3,4
-11% ~ -7%
2018e
3,9
4,2
2017e
3,7
4,0
2016e
Long-term drivers:
˃ Return to moderate GDP growth after 2015
˃ Rising consumers confidence
˃ Increased access to financing
Long-term drivers:
˃ Inovar Auto / new plant investments
˃ Exchange rate development
˃ Recovery of Argentina
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The current challenging situation of commercial vehicles market was caused by set of factors – Long term recovery still expected
Reasons for 2014 development of commercial vehicles market
Consumption &
retail slowdown FINAME Exports "Special
events" Potential Upsides
> Slowdown in Brazilian consumer goods market
> Main drivers: overall economic slowdown and decrease of purchasing power
> Corresponding reduced need for transportation and slower growth of logistics sector
> Delayed definition of new FINAME/ PSI terms affected sales in the first months of the year
> Increase in bureaucracy on credit concession with negative impact
> Reduced credit lines (by 25%)
> Strong economic downturn in Argentina reduced Brazilian exports of commercial vehicles
> Other Latin American countries also with reduced sales after several strong years
> Special events increased public holidays in Brazil and negatively impacted sales (FIFA World Cup, Carnival)
> Fleet renewal programs and incentives
> Brazilian agriculture has been constantly achieving record harvests
> Public transportation improvements through BRT investments (for buses)
1 2 3 4
Source: Roland Berger Strategy Consultants
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-22 ~ -17%
2018e
215
241
2017e
210
233
2016e
196
215
2015e
186
201
2014e
177
188
2013 2012
170
2011
273
227
A significant drop is expected for the CV market in 2014 – Mid-to-long terms outlook expected not to surpass 2011 record sales
Commercial vehicles (trucks plus busses) outlook Brazil, 2011-2018e ['000 units]
CAGR 2013-18
1.0%
-1.6%
Conservative Scenario
Optimistic Scenario
Sales Production
Source: ANFAVEA; IHS; Roland Berger Strategy Consultants
1.2%
-1.1%
CAGR 2013-18
2018e
-17% ~ -12%
173
197
2017e
174
193
2016e
170
183
2015e
166
177
2014e
156
166
2013 2012
168
2011
208
187
Long-term drivers1):
˃ Return to moderate GDP growth after 2015
˃ Increasing consumption and transportation needs
˃ Continued FINAME financing support
Long-term drivers:
˃ Inovar Auto / new plant investments
˃ Exchange rate development
˃ Recovery of Argentina
1) Fleet renewal program expected to initiate pre-buy but no additional demand
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05
6.1
6.3
04
6.1
7.6
03
5.0
3.1
<0.0%
~2.0-4.0%
13
6.0
~1.0-2.0
6.0
12
6.5
~2.5-3.0
11
6.6
3.5
10
~6.0-6.5%
2014e
6.1 6.9
6.5
09
2.3
4.7
08
1.8
8.7
07
6.6
8.7
06
5.8
Supplier profitability has been declining continuously over the last few years – Restructuring shows first results for some companies
Source: SINDIPEÇAS; global Roland Berger automotive supplier study
EBIT margin development of suppliers in Brazil compared to world average [%]
World for restructured companies
and/or player with
standalone positioning
for companies that are
not yet fully restructured
and/or underinvested
Brazil
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> Market decline impacting supplier profitability
significantly
> Price pressure will increase in all segments of
the value chain
> High labor cost increases in the last few years
> Increasing material costs, on top of already high
Brazilian costs
> Current exchange rates present an additional
cost burden on all imported parts
> Logistics costs in Brazil are among the highest
in the world and about to increase further
Continued cost increases and lack of competitiveness in the Brazilian industry will keep up the pressure on supplier profitability
Key factors influencing supplier profitability
Selected cost drivers
Price pressure 2
Exchange rate 5
Labor costs 3
Material costs 4
Logistics costs 6
Source: Roland Berger Strategy Consultants
Market volume drop 1
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As a consequence of the present market environment, OEMs and suppliers need to redefine their business models
Phase
Status
Redefinition of business model
3 Lowering break-even point
2 Short-term cost reduction
Market environment
> Slow volume recovery > But: more structural changes
than ever to be mastered
> Continued low volumes > Dramatic volume drop (~ 20%)
1
Time-frame Mid 2015 - 2016 Mid 2014 – Mid 2015 Should be completed
Manage-ment priorities
> Modify product portfolio > Modify regional/customer
portfolio > Allocate R&D resources and
CAPEX strategically
> Reduce overhead burden > Reduce R&D cost > Reduce plant level fixed cost > Ensure refinancing
> Reduce personnel cost short-term (short-term work, reduction of temps, …)
> Renegotiate purchasing and client contracts
> Secure cash availability
Top priority for 2015 and 2016
Ongoing Completed
Source: Roland Berger
Industry priorities
Summary
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Please contact us for further information
Source: Roland Berger Strategy Consultants
Authors of this study
Stephan Keese
Phone: +55 11 3046 7111
Fax: +55 11 3046 7222
E-mail: stephan.keese@rolandberger.com
Partner São Paulo, Brazil Head of the Automotive Competence Center in South America
Phone: +55 11 3046 7111
Fax: +55 11 3046 7222
E-mail: martin.bodewig@rolandberger.com
Martin Bodewig
Principal São Paulo, Brazil Responsible for the Automotive Supplier Cluster in South America
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