Brazil faces overcapacity problems image

While many major automakers rushed to join the emerging market Brazilian euphoria, adding facilities in the country, the local auto industry is now actually close to a growth stop.

Brazil is currently the world’s fourth biggest auto market, but profitability is on the verge of slipping away, as local sales are going down and exports have taken a hit, while new factories already being built will soon add another million vehicles to the annual capacity.

“Everyone jumped on the bandwagon,” said IHS Automotive analyst Guido Vildozo. “It’s going to be a painful process, especially negotiating with the unions, but we’re not expecting anyone to close shop.”

“The overcapacity was foreseeable because it was not supported by the market. It was largely about government intervention,” also said Stephan Keese of auto consultancy Roland Berger in Brazil.

Fiat, VW, GM and Ford all saw their profits drop in the country, although sales and production capacity since 2005 almost doubled to 3.8 million units last year – but exports went down in a steep dive, by 40 % and while by 2017 production capacity in the country will be of 6 million vehicles, sales could struggle to pass 4 million units a year.

Via Reuters