Brazil’s Automotive Sector Continues to Grow

Macro Watch: Brazil’s automotive sector showed strength as it displayed record high numbers for automobile assembly in August 2011 in spite of an adverse economic outlook. Brazil saw 325,326 units assembled during August 2011, the highest automobile assembly since 2005. August production figures represented a 5.9% month-on-month or a 5.5% year-on-year increase in automobile assembly during the period. This was supported by robust automobile sales, displaying a total of 2.37 million newly registered automobiles from January to August 2011. Automobile registrations in August continued to display an upward trend, culminating in annual record high registrations since the first quarter of 2011.

Automobile: Production and Registration

Chart provided by: CEIC Data

Meanwhile, the Brazilian government is planning to reduce taxes on industrialized products. Although this proposal is similar to the tax reduction in 2008, the present move differs in objectives. Although taxes were reduced previously to stimulate consumption and to help the automotive sector weather the financial crisis, the present proposal aims to enhance competitiveness in Brazil’s industries and to encourage increasing local contributions to domestically produced automobiles. Initial discussions between the sector and government point to 60% use of domestically manufactured vehicles parts and components as a minimum threshold to qualify for the benefit. These additional incentives are expected to further bolster Brazil’s automotive sector as they struggle to compete in light of the crisis and the appreciating Brazilian real.
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By Bruno Vasconcelos in Brazil – CEIC Analyst