Brazil auto sales: August 2012 better and worse than Dec 2010

by SR on September 5, 2012

Brazil light vehicle sales by year and month (thousand units)

Look beyond the headline sales figure

The Brazil auto dealers’ association Fenabrave has released sales data for August 2012 for this major market. Conclusion: this is one of the few regions of strength for Brazil market leader Fiat, so expect a mighty headache there when Brazilian auto sales collapse at some point over the next 6 months. The other major players are Volkswagen and GM.

In brief, August saw record high sales of 405,518 light vehicles (+31.7% year-on-year and +15.4% month-on-month), surpassing the previous record set in December 2010 of 361,197 units. That strength was caused by government-led incentives related to reduced sales taxes and is almost certainly unsustainable unless the Brazilian economy shows a vigorous recovery. (We discuss the distorting effect of subsidies and incentives on Brazil’s auto market in this post.) As the chart at the top of the page shows, 2012 sales (the red line) have just gone ballistic.

Moreover, if you look at total vehicle sales – that is, sales including heavy commercial vehicles such as trucks and buses and motorcycles – then the total for August 2012 of 580,843 falls some way short of the 593,185 units posted in December 2010. This isn’t just nitpicking. Trucks sales arguably give a better view into the state of corporate spending than car sales, while motorcycle sales are highly dependent on loans and so are a barometer of credit conditions. In December 2010 a total of 20,314 trucks and buses were sold compared to just 14,583 in August 2012. Even allowing for seasonal factors, a decline of 28.2% is pretty substantial (and indeed, heavy commercial sales in August 2012 were down 25.5% YoY). Motorcycle sales in December 2010 came to 197,345 units, compared to 140,641 units in August 2012 (which was itself down 22.4% YoY).

Brazil light vehicle sales, cumulative to August 2012 (thousand units)

The key problem is that if the underlying economy is faltering, short-term stimuli like those being applied by the Brazilian authorities are doomed to failure. What the auto market needs is a buoyant economic recovery. Without that, incentives will simply “borrow” sales from future months and cause a pronounced dip after stimuli end (this post gives a visual history of recent subsidies and incentives that demonstrates the case).

Note that Japanese auto OEMs such as Toyota, Honda and Nissan are bit players in the Brazil market and thus they do not benefit significantly from the subsidies, and neither will they be significantly hurt by the coming slump when subsidies end.

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