south america: a region of opportunity for chinese oems? · south america: a region of opportunity...

South America: A Region of Opportunityfor Chinese OEMs?

Guido VildozoSenior Market Analyst,

South America

Copyright © 2008 Global Insight, Inc. GLOBAL AUTOMOTIVE CONFERENCE 2

• Regional Overview

• Sub-region/Country Overview

– MERCOSUR

– Brazil

– Argentina

– Andean Community

• Conclusion

Presentation Outline


• Consecutive all-time highs for vehicle demand for almost every single country in the region

– Positive economic development, primarily driven by commodity super boom in exports (oil, agricultural, mining)

– Extended and easy access to credit tagged along with lower interest rates

– Positive consumer confidence

• Unprecedented production of vehicles

– Strong domestic demand

– Exports

South America Automotive Sector


Regional Light Vehicle Sales by Country

0.0

1.0

2.0

3.0

4.0

5.0

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Mill

ions PER

BOLVENECUCOLURYPAYCHLBRAARG

850K added in 2007! Additional 500K in 2008Growth tapers after that

850K added in 2007! Additional 500K in 2008Growth tapers after that

0%

20%

40%

60%

80%

100%

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

PERBOLVENECUCOLURYPAYCHLBRAARG

Andean community has made strong gains in last three years

Andean community has made strong gains in last three years


MERCOSUR — Market Composition

• A self-sufficient market, less than 20% of volume is sourced from outside MERCOSUR

• Brazil is the golden child by far, Argentina should be considered its natural extension

• Brazil discourages imports with high tariffs (35%) and taxes (27–36%)

• Mexico can export cars duty free to Brazil and Argentina

• Chile and Uruguay only feature assembly lines

• Honda and Toyota have demonstrated that growth is possible in adverse market conditions

0.00

1.00

2.00

3.00

4.00

5.00

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

ARG BRA CHL PAY URY

0.00

1.00

2.00

3.00

4.00

5.00

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

Sourced from MERCOSUR IMPORTS


MERCOSUR — Car Segments

• A-segment has made significant gains as new models added

• B-segment contains all the volume, local assembly and flex-fuel engines are must-haves

• As credit and income has improved, C1 and C2 segments are showing promising outlooks

• Given average size of household (close to five people) and only one bread-winner, MPVs have been welcome for size and functionality (pricing is keen, can’t be much higher than comparable B or C segment hatchback)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

A B C1 C2 D1 D2 E1 E2 MPV-B MPV-C N/K

2.931.6MPV-C

4.677.3MPV-B

1.2-4.8E2

1.1-10.2E1

2.3-7.9D2

1.4-17.1D1

2.83.1C2

2.51.5C1

4.61.2B

3.118.9A

CAGR 07-15 (%)

CAGR 97-07 (%)


MERCOSUR — LCV Segments

• PUP-B offers solid growth prospects, but make for a difficult business case as the segment does not have demand outside MERCOSUR

• PUP-C, compact body on frame pickups such as Ford Ranger, is growing thanks to agricultural sector and higher disposable income with drivers holding well

• The Ecosport has shown the potential of the SUV-B segment and has yet to be replicated with success

• Buyers moving upstream have veered away from the D-Segment to SUV-C, here imports such as Tucson are posting impressive numbers

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

CDV MIC MPV-D MPV-E MVAN HVAN N/KPUP-B PUP-C PUP-D SUV-B SUV-C SUV-D SUV-E

-1.21.8SUV-E

4.34.1SUV-D

4.113.2SUV-C

6.237.4SUV-B

0.8-12.8PUP-D

6.02.0PUP-C

3.25.5PUP-B

2.6-2.2HVAN

-3.6-4.8MVAN

-3.13.4CDV

CAGR 07-15 (%)CAGR 97-07 (%)


MERCOSUR — Players

• The market is made up of three major groups

• “Old players”: Fiat, VW, GM and Ford (account for 75% of the market)

• “Old players” lost 10 points of market share in the last decade, trend will continue

• “Newcomers”: PSA, Renault, Toyota, Honda and Mitsubishi

• Others: remaining brands that are mostly imports, Hyundai alone was almost 50% of last year’s volume

• “Newcomers” have grown most after opening plants in Brazil and diversified lineups

0.00

1.00

2.00

3.00

4.00

5.00

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

OLD PLAYERS "NEWCOMERS" OTHERS

1.9-1.7OTHERS

4.011.7NEWCOMERS

1.31.0OLD PLAYERS

CAGR 08-15 (%)CAGR 97-07 (%)


MERCOSUR — Taking a Page From “Newcomers” History

• Maximum sales volume without local production is 50,000 units

• Honda and Toyota started small with assembly lines of 20K in 1998

• Mitsubishi limited by BOF L200, Pajero TR4 and Pajero Sport

• PSA and Renault open 130K+ plants in Brazil in 2001

• Hyundai acts as importer, has done particularly well with CUVs(Sportage, Tucson, Santa Fe and recently Veracruz)

• None of these players compete head to head with Fiat, VW or GM in the entry B-segment

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

PSA RENAULT TOYOTA HONDA HYUNDAI MITSUBISHI

• Hyundai has announced a 200K plant in 2011 with investment of US$ 1.0 billion

• Rumor of Tata Nano assembly beginning sometime after 2011, aiming for “motorcycle” buyer


To Enter Brazil You Must Have “Flex-fuel”

• Flex-fuel engines continue to expand, currently accounting for 86% of Brazilian market

• Brazil is Euro III, delayed implementation

• GM first to offer a “flex-fuel” engine with rear-wheel drive body on frame platforms

• Japanese OEMs have also moved in this direction

82.0

%79

.9%

69.8

%66

.6%

67.3

%

64.6

%

57.9

%

39.3

%

27.9

%

21.9

%17

.9%

18.1

%

15.6

%14

.1%

13.1

%

13.8

%12

.4%

11.8

%

20.3

%

24.4

%

24.2

%

27.5

%28

.5%

41.2

%

57.4

%

67.7

%

76.6

%76

.8%

76.6

%

79.9

%82

.2%

83.5

%82

.1%

83.8

%

4.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-

04M

ar-0

4M

ay-0

4Ju

l-04

Sep-

04N

ov-0

4Ja

n-05

Mar

-05

May

-05

Jul-0

5Se

p-05

Nov

-05

Jan-

06M

ar-0

6M

ay-0

6Ju

l-06

Sep-

06N

ov-0

6Ja

n-07

Mar

-07

May

-07

Gasoline

Flex-fuel

Diesel

Alcohol


The Need for “Flex-fuel” Engines Is Due to Brazilian Taxes

18%20%20%20%>2.0L Flex

13%15%15%15%1.0L – 2.0L Gasoline18%20%20%20%>2.0L Alcohol

7%9%9%9%1.0L Gasoline11%13%13%13%1.0L – 2.0L Alcohol11%13%13%13%1.0L – 2.0L Flex

25%25%25%25%>2.0L Gasoline

7%9%9%9%1.0L Flex7%9%9%9%1.0L Alcohol2005200420032002

• Before 2002, the Brazilian Industrialized Products Tax (IPI) rate on gasoline vehicles under 1000cc was 10%, over 1000cc was 25%, alcohol was 20%


Real average earnings of occupied peopleReias at October 2007 Prices

800

1000

1200

1400

1600

1800

2000

2200

2400

Oct-01 Oct-02 Oct-03 Oct-04 Oct-05 Oct-06 Oct-07

Private Sector Public Sector

12% Growth

2% Growth

Public sector mostlyPublic sector mostly

Brazil — Vehicle Demand Driver’s Snapshot

Total Credit to the Private SectorIn Reais of November 2007

0

100

200

300

400

500

600

700

800

900

1000

Jul-94 Jul-95 Jul-96 Jul-97 Aug-98 Aug-99 Aug-00 Sep-01 Sep-02 Sep-03 Oct-04 Oct-05 Oct-06 Nov-07

Total Credit to the Private Sector Credit to Individulals

0.0

5.0

10.0

15.0

20.0

25.0

Jan-01 May-02 Oct-03 Feb-05 Jul-06 Dec-07

Core Index IPCA Supervised

Inflation(Percent change from a year earlier)

1.70

2.00

2.30

2.60

2.90

Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07

Brazilian Reai per U.S. Dollar Brazilian Reai per Euro

Exchange Rate

Extreme explosion in credit, riskyExtreme explosion in credit, risky

Agricultural goods, consumer creditAgricultural goods, consumer credit

Good for imports onlyGood for imports only

*Please refer to section A-1, 2, 3, 4 in Appendix


0.00

1.00

2.00

3.00

4.00

5.00

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

LIGHT VEHICLE -L OPTIMISTIC

Assuming a fair trickle down effect of economic growth, population growth and a status quo of the current economic momentum, market potential is big

Assuming a fair trickle down effect of economic growth, population growth and a status quo of the current economic momentum, market potential is big

However, it is unrealistic, because the wealth stays at the top, global economic woes and regional inflation will burden vehicle demand

However, it is unrealistic, because the wealth stays at the top, global economic woes and regional inflation will burden vehicle demand

Brazil — Light Vehicle Demand Growth Scenarios*Please refer to section A-1, 2, 5 in Appendix


2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

10%

15%

20%

25%

30%

35%

HHOLDS 20K> HHOLD 20K> % of total HHOLD -ROWNERSHIP RATIO 20K> as % of Total - R

Mexico’s experience, showed financing creates a strong initial spike in sales; followed by a vacuum effect

Mexico’s experience, showed financing creates a strong initial spike in sales; followed by a vacuum effect

2.0 Mil h’holds added over last 10 years (making over US $20K), expectation of 3.0 Mil more by 2015

2.0 Mil h’holds added over last 10 years (making over US $20K), expectation of 3.0 Mil more by 2015

Demographics — Limits Market Potential


Strong Population Gains, but Disposable Income Limits Market Expansion...A US$5–8,000 Car Could Change That

0

40

80

120

160

200

2004 2005 2006 2007 2008 2009 2010

Mill

ions

Urban Population Rural Population

2010 Population 198.5 million



2004-2007 CAGR: 1.3% 2007-2010 CAGR: 1.2%

Source: Global Insight-Global Consumer Markets

Overall population growth will decelerate only slightly 2007-2010; +7.2MM from today.

Most of HH growth will be to the US $10-20K bracket — +1.8MM HHs, new car buyer is US $ 20K and above.

Market potential is very limited right now because of high car prices. “Low Cost” cars could potentially extend car buying population significantly.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2005 2006 2007 2008 2009 2010

$0-10K $10-20K $20-30K $30-50K $50-70K $70K and above

*In terms of real 2000 US$

LOW COST CAR


0

1

2

3

4

5

6

7

$- $50,000 $100,000 $150,000 $200,000 $250,000VW FIAT GM FORD

ESTATE

PICKUP

CDV/MPV

SUV

HATCH

SEDAN

Brazil — Market Analysis by Price/Bodystyle

Market is concentrated in the R$ 20–70K range (US $12–40,000)

BMW et allToyota and Honda

VW and GM


0

1

2

3

4

5

6

7

$20,000 $30,000 $40,000 $50,000 $60,000 $70,000VW FIAT GM FORD

ESTATE

PICKUP

CDV/MPV

SUV

HATCH

SEDAN

Brazil — Market Analysis by Price/Bodystyle Under R$ 70KRoom For Growth

BRAND IMAGE

Avoid entering market in mainstream segments (B Hatchback and Sedan)

Aim for growing, but less congested segments (SUV-B, SUV-C, C1/C2, MPV-B and PUP-C)

LOW

CO

ST V

EHIC

LES


Brazil — Product Positioning and Platform Sharing Is KeyExample — GM Lineup

$70,000$65,000$60,000$55,000$50,000$45,000$40,000$35,000$30,000$25,000$20,000

HBA

SDN

EST

MPV

SUV

PUP

2000

2003

2003

2002

1995

1995

2001

2005N/K

19992002

1994 2006


• “Low Cost” car craze began with Logan, albeit unsuccessful

• Existing OEMs have their own approach– Fiat will use 2003 Palio as Uno replacement (p code 327) and also feature

2003 Siena as Uno Sedan (Classic competitor)– VW will run existing Gol as entry model and looks at adding Audi 80 based

sedan to replace Santana (Logan competitor)– GM enhances S4200 with VIVA, similar to Celta, new fascia given to Classic

with hatchback spinoff– Ford falls behind with Ka (B402) with no sedan offering (5dr hatchback

delayed)

• Premium players– PSA runs 206 replacement at lower price under p code T3 (hatchback,

sedan, estate and PUP)– Clio replacement (X35 and L35) on existing platform in Argentina– Honda Fit (11/2008) Sedan to be built in Campana, Argentina– Toyota EFC (new low cost car) 150K (2010)

Current “Low Cost” Car Programs for Brazil


-15

-10

-5

0

5

10

15

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

GDP Growth (%)

Argentina — The Country of Boom-Bust Cycles


0

5

10

15

20

Dec-03 Dec-04 Dec-05 Dec-06 Dec-07Consumer Price Index Wholesale Price Index

Inflation(Percent change from a year earlier)

60

80

100

120

140

Nov-01 Oct-02 Sep-03 Aug-04 Jul-05 Jun-06 May-07Formal Private Sector Informal Private SectorPublic Sector

Real average earnings of occupied people(Index 2001Q4=100)

6.7% CAGR

Growth in private sectorGrowth in private sector

Argentina — Vehicle Demand Driver’s Snapshot

0

10

20

30

40

50

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Private Credit as Percentage of GDP Interest RatesAnnual Percentage Rate (APR)

-30.00

-15.00

-

15.00

30.00

45.00

60.00

Jan-02

Jun-02

Nov-02

Apr-03

Sep-03

Feb-04

Jul-04

Dec-04

May-05

Oct-05

M ar-06

Aug-06

Jan-07

Jun-07

Nov-07

Mo rtgages Colateral ized Pe rson al L oans Credit Cards

Economic stability allows for higher riskEconomic stability allows for higher risk Auto financing similar

to personal loansAuto financing similar to personal loans

Official CPI is “manipulated”Official CPI is “manipulated”

*Please refer to section A-6, 7 in Appendix


0

100

200

300

400

500

600

700

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Thou

sand

s

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

LIGHT VEHICLE -L % Change

Drivers are diverse: recovering economy (exports), employment, financing, vehicle prices being kept below inflation

Drivers are diverse: recovering economy (exports), employment, financing, vehicle prices being kept below inflation

Best indicators of market contraction will be slow-down in exports, higher interest rates or inflation, riskiest market in the region

Best indicators of market contraction will be slow-down in exports, higher interest rates or inflation, riskiest market in the region

The Tango Isn’t Quite Over Yet…

Market potential is somewhat limited, too dependent on politics and no sound macroeconomics

Market potential is somewhat limited, too dependent on politics and no sound macroeconomics

*Please refer to section A-8 in Appendix





2004-2007 CAGR: 1.0% 2007-2010 CAGR: 1.0%

Source: Global Insight-Global Consumer Markets

2004 Urban: 34.7 million 2010 Urban: 38.4 million

32.0

33.0

34.0

35.0

36.0

37.0

38.0

39.0

2004 2005 2006 2007 2008 2009 2010

Mill

ions

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Millions

Urban population, left Rural population, right

2004 Rural: 3.7 million 2010 Rural: 2.4 million

Population gains are not remotely close to those of Brazil

All gains will be urban: +1.8MM; rural areas lose 500K people

31.0

32.0

33.0

34.0

35.0

36.0

37.0

38.0

39.0

40.0

41.0

42.0

2004 2005 2006 2007 2008 2009 2010

Mill

ions

Urban population Rural population

Argentina — MERCOSUR Population Grows at Different Rates Among Member Nations


Andean Community — Market Composition

• Politics play a BIG role in market momentum, making it very volatile

• Not as sophisticated as MERCOSUR• Does not feature full production

lines, only assembly lines• Discouraged imports in the past, it

has become more open • Venezuela is not part of

MERCOSUR for the automotive sector, Andean Community Automotive Pact is set through the end of 2009

• Excellent testing ground to enter Latin America given roads, volatility and geography!

• However, it might be best to wait and see how countries fare given socialist governments

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

COL ECU VEN BOL PER

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

ANDEAN IMPORTS


0

50

100

150

200

250

300

350

400

450

500

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Thou

sand

s

-60%

-10%

40%

90%

140%

LIGHT VEHICLE -L % Change

New CNG requirements and import quota have doomed the market

New CNG requirements and import quota have doomed the market

Strong growth in recent years due to government expendituresStrong growth in recent years due to government expenditures

Venezuela Is a Good Example of the High Volatility and Uncertainty in the Andean Community

*Please refer to section A-9 in Appendix


Andean Community — Car Segments

• Poor road conditions and geography make car to LCV ratio 3 to 1, MERCOSUR is 4 to 1

• All segments posted very robust growth in last ten years

• Scenario will be different as we anticipate politics and inflation will weigh in

• Market was mostly composed of B and C1 segments, but GM has fueled growth of the A segment in recent years relying on GMDAT

• Makes for easy access with assembly lines for segments A, B and C

0.00

0.10

0.20

0.30

0.40

0.50

0.60

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

A B C1 C2 D1 D2 E1 E2 MPV-B MPV-C N/K

-6.7122.2MPV-B

-2.010.1E2

0.188.7E1

-0.59.6D2

-0.96.5D1

2.6-3.4C2

0.74.2C1

-1.012.6B

0.328.8A

CAGR 07-15 (%)

CAGR 97-07 (%)


Andean Community — LCV Segments

• Despite Camion Popular in Venezuela, PUP-C and PUP-D sales haven’t grown like other segments

• Here, the SUV-B phenomenon repeats itself with the Daihatsu Terios

• No major highlights moving into the future

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

CDV MIC MPV-D MPV-E MVAN HVAN N/KPUP-B PUP-C PUP-D SUV-B SUV-C SUV-D SUV-E

0.18.3SUV-E

-5.33.7SUV-D

0.722.3SUV-C

-1. 228.7SUV-B

-2.74.8PUP-D

0.611.2PUP-C

-0.417.1PUP-B

1.019.8HVAN

-0.515.1MVAN

-1. 323.2MPV-D

3.610.1MIC

0.516.7CDV

CAGR 07-15 (%)CAGR 97-07 (%)


Andean Community — Players

• First markets in South America to feature Chinese vehicles

• Only “big” player is GM with almost 40% of the market

• GM has a long history in the region — 70 plus years

• Unlike MERCOSUR where GM uses European platforms, Andean Community features GMDAT platforms

• No real new entrants to the market that have made a splash

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Mill

ions

GM OTHERS

-1.65.3MAZDA

-2.814.3RENAULT

-4.16.2FORD

-0.513.3HYUNDAI

-0.56.9TOYOTA

1. 211.2GM

CAGR 07-15 (%)CAGR 97-07 (%)


• Venezuela Movil set up as a program to boost sales of domestic cars at an affordable price, initially called “Vehiculo Familiar”– Unlike the Brazilian program, engine size (1.4L

max) was less of a determinant (price was more important)

– Each vehicle represents an agreement between the OEM (price) and the government (tax exemption of 16% VAT), and the banks (lower financing rate —13%)

• The Venezuela Movil was complemented by Camion Popular to expand “benefits”to commercial applications, however the latter was not as successful– Venezuela Familiar was launched in 2001 – “VeneMovil” currently accounts for 20% of sales

“VENEMOVIL” Program — A Government Approach to the “Low Cost” Car


• Last few years have been very promising, but do not assume the status quo will hold and growth will continue at this pace

• Clear understanding of “sub-regions” is necessary to enter region successfully

• Steer away from competing head-on with well-established players

• Enter when quality can be offered to the consumer, Hyundai took ten years to recover from poor quality image

• MERCOSUR entry strategy demands “flex-fuel” engines and on-site production

• Great potential for tapping a whole new demographic with a “Low Cost”car

• Within MERCOSUR, explore growing segments with “lighter”competition (SUV-B, MPV-B, PUP-C, C1 and C2 segments)

• Andean Community is ideal as “testing-ground” to enter the region, but exposure to political volatility is eminent — best to wait for now

Conclusion — Entry to Region Requires Cautioned Timing and Clearly Defined Strategy

Thank You!

Guido VildozoSenior Market Analyst,

South America

[email protected]


Appendix

Appendix


50

100

150

200

250

Jan-

00M

ay-0

0Se

p-00

Jan-

01M

ay-0

1Se

p-01

Jan-

02M

ay-0

2Se

p-02

Jan-

03M

ay-0

3Se

p-03

Jan-

04M

ay-0

4Se

p-04

Jan-

05M

ay-0

5Se

p-05

Jan-

06M

ay-0

6Se

p-06

Jan-

07M

ay-0

7Se

p-07

Jan-

08

Thou

sand

s

60

70

80

90

100

110

Monthly Sales Employment Index

Job growth has been a positive driver for light vehicle demand, will remain strong through end of 2009 thanks to government’s growth programme, PAC

Job growth has been a positive driver for light vehicle demand, will remain strong through end of 2009 thanks to government’s growth programme, PAC

A-1 Brazil: Monthly Sales — Moving Average vs Formal Employment Index


50

100

150

200

250

Jan-

00M

ay-0

0Se

p-00

Jan-

01M

ay-0

1Se

p-01

Jan-

02M

ay-0

2Se

p-02

Jan-

03M

ay-0

3Se

p-03

Jan-

04M

ay-0

4Se

p-04

Jan-

05M

ay-0

5Se

p-05

Jan-

06M

ay-0

6Se

p-06

Jan-

07M

ay-0

7Se

p-07

Jan-

08

Thou

sand

s 20

25

30

35

40

45

50

55

60

Monthly Sales APR Financing

Interest rates are starting to pull back up due to IOFInterest rates are starting to pull back up due to IOF

Pent-up demand is attributed to dramatically lower interest rates, with OEM rates 10 pts lower

Pent-up demand is attributed to dramatically lower interest rates, with OEM rates 10 pts lower

Longer maturities (72/84 months) have opened up the door for new demographics –attracting riskier consumers (max is now 60 mo.)

Longer maturities (72/84 months) have opened up the door for new demographics –attracting riskier consumers (max is now 60 mo.)

A-2 Brazil Monthly Sales — Moving Average vsFinancing


• Auto credit has grown at torrid pace (will grow an additional 15% this year)

• Expected to grow at slower pace in coming years

• No track of new car buyer, fleet or replacement vehicle

• Average loan length is still 20 months

• An entry vehicle (R$ 25,000) financed under a 20 month plan at current rates represents a R$ 1,468.14 payment

• Consumers are paying their cars two, three and up to four times around

Source: ANEF

Source: ANEF

A-3 Brazil: Financing — Funds Available and Financing Plans


• SELIC was raised in mid April, which will in due course translate to vehicle financing

• OEMs finance at a dramatic lower rate, but target AAA consumers

• Leasing is making significant inroads, because no financing interest rates are paid

• Cash purchases are still the second preferred means of payment (basic replacement)

Source: ANEF

A-4 Brazil: Financing — Payment Plans, Type of Sale

Source: ANEF


• Market is being driven by financing, thus making it a risky and uncertain proposal as we move into 84 month financing (attracting consumers not familiar with expenditures of a new car and/or moving sales forward)

• Automotive demand in the short to medium term will continue to grow as interest rates drop a few more points allowing for competitive financing to continue

• However, growth rate will slow down (in terms of volume) as there are no additional drivers that allow for further growth

• There is uncertainty on slow down of exports given U.S. recession and slow down in China growth, thus impacting the economy

• Demographics with access to new car purchase still very small — only one-fifth of the population makes more than $20k a year

• Among the risks: high default on automotive credit lines, increase in vehicle prices due to higher commodity prices, credit hysteria is redirected to housing market, Reai depreciation impacting imports

• Possible additional drivers: further economic growth with PAC, lower taxes on new vehicles

A-5 Brazil — Summary


0

15

30

45

60

Jan-

00M

ay-0

0Se

p-00

Jan-

01M

ay-0

1Se

p-01

Jan-

02M

ay-0

2Se

p-02

Jan-

03M

ay-0

3Se

p-03

Jan-

04M

ay-0

4Se

p-04

Jan-

05M

ay-0

5Se

p-05

Jan-

06M

ay-0

6Se

p-06

Jan-

07M

ay-0

7Se

p-07

Jan-

08

Thou

sand

s

0

2

4

6

8

Sales MMA Exports

Exports have allowed for a trickle down effect, particularly commodities

Exports have allowed for a trickle down effect, particularly commodities

A-6 Argentina: Monthly Sales — Moving Average vs Exports


0

15

30

45

60

Jan-

00M

ay-0

0Se

p-00

Jan-

01M

ay-0

1Se

p-01

Jan-

02M

ay-0

2Se

p-02

Jan-

03M

ay-0

3Se

p-03

Jan-

04M

ay-0

4Se

p-04

Jan-

05M

ay-0

5Se

p-05

Jan-

06M

ay-0

6Se

p-06

Jan-

07M

ay-0

7Se

p-07

Jan-

08

Thou

sand

s 0

20

40

60

80

Sales MMA Short term Interest

Whilst consumer interest run a little different than short term interest rates, trend is upwards for both

Whilst consumer interest run a little different than short term interest rates, trend is upwards for both

A-7 Argentina: Monthly Sales — Moving Average vs Financing


• Political factor is still very significant, making it the most uncertain market

• Vehicle demand drivers are not sustainable– Significant government spending fueled by exports– Ease in financing + lower interest rates– Significant growth in disposable income– Contained inflation due to price fixing

• Output– Not as dependent on domestic market– US $3.4 Billion in investment to add capacity to bring output to

800K over next 3 years– Fiat resumed production in January 2008 (Siena, PUP and SUV)– Honda starts Fit sedan production in 2009– VW, GM, Renault, PSA, Ford all investing in their infrastructure

A-8 Argentina — Summary


• Heavy government expenditures are feeding the market, allowing it to grow at very quick pace, but it is vulnerable to oil prices

• Second on Global Insight list of risk after Argentina• Imports have increased substantially — representing 2/3 of

total market• Production will remain practically flat for the rest of the

forecast horizon given the uncertainty in the current political-economic structure of the country, making investments in capacity additions/expansions non-viable

A-9 Venezuela — Summary

south america: a region of opportunity for chinese oems? · south america: a region of opportunity...

Documents