Brazil expected to fall even deeper in 2015 image

The Brazilian auto market, the largest in South America, has gone in reverse recently and the situation is expected to last, according to the country’s industry trade group, Anfavea.

Many global automakers have now come to depend on the market’s rise for revenue, but the strong headwinds encountered recently are blowing even faster. That’s because the Brazilian auto market is facing incoming tax hikes that would make automakers also lift prices by around 5% – while companies operating on the market also need to take into consideration the country’s growing 6.5% inflation. According to Anfavea, Brazil’s auto market tallied 3.5 million cars and trucks in 2014 – 3.07 million were passenger vehicles and the rest busses and cargo trucks. Although lower than anticipated, the overall sales figure keeps Brazil in fourth place in the global race. That was also a little more than what Germany totaled, even though Brazil had seen a 7.1% loss in sales last year, keeping the first in fifth place overall.

In Brazil, the first and second automakers are Fiat and General Motors, but since it has representatives from all major global automakers, the burden of the industrial production (IPI) tax hike of 4% (it was 3% for a limited period) will be transferred to consumers. And Brazilian car companies are already battling an overstock problem, making matters worse when they will seek to transfer the higher tax to customers. According to industry executives, the higher tax is “a necessary evil” because Brazil currently has a revenue shortfall.

Via Forbes