Auto parts market in Brazil
Due to its diversity and multiplicity of inputs and products, the Auto Parts industry is characterized by turning and adding values to the inputs used in the production chain. The main raw-materials used by the auto part industry come from the steel, metallurgical petrochemical, glass, rubber, wood and electronic sectors, and are purchased both on the domestic and foreign markets. Brazil depends on the imports of these inputs. Invariably, each item produced is intended for a specific application and its manufacturing depends on a scale of production that makes it possible to have a return on the required investments.
The 1990`s marked a milestone for the national auto industry. Brazil opened up its automotive market to imported cars and this has deeply restructured the sector, demanding higher quality, staff training and production planning. Some family have directed their efforts for management professionalization or joint ventures with international partners, but in many cases the shareholding control was sold to foreign groups.
The Brazilian auto parts industry comprises more than 550 companies, including small, medium and large companies, and one of its biggest challenges is to keep up with technological development and growth in vehicle production.
The performance of the auto parts industry is quite influenced by the performance of the automobile industry, which increasingly seeks to develop in the country by setting up local plants. On the other hand, the automotive industry also sells its products to the Aftermarket segment, which offers greater resilience in times of crises, as in the last crises.
After all, the acquisition of brand-new vehicles weighs on budget and makes fleet renewal superfluous. As a result, vehicles remain longer on the streets, which generate a greater need for spare parts, caused by recurrent services. This may be unfavorable for automakers, but it is highly favorable for the auto parts industry, for example, in 2022, there was an increase of 0.6%, with 46.9 million of units circulating throughout the country. Increased fleets mean more users in need of spare parts. For more information, access the Company’s Reference Form, here.
Automative market in Brazil
One of the industries that most generates income, jobs and investments in the domestic economy is the automotive industry. Of the utmost strategic importance, the automotive industry directly influences on jobs and levels of investments, whether direct or indirect. The production of machinery, equipment, parts and inputs, and the areas of technology, logistics, retail and services in general are directly impacted by the auto industry, as it is a very comprehensive sector.
The auto industry also has some level of outsourcing part of its production to suppliers, so that auto makers may concentrate on more strategic activities (design, assembly, brand promotion), delegating to suppliers as many operations as possible. Therefore, manufacturers of auto parts have become responsible for a larger share of the parts used in automobiles, and for pre-assembly operations.
More than 30 automakers are present in Brazil. The automotive industry and the auto parts sector were the first ones to begin the process of production globalization, that is, of international standardization of the models and distribution of manufacturing operations across various countries, minimizing costs and standardizing quality.
Until the early 1990s, the national automotive industry was dominated by the automakers VW, GM, Ford and Fiat, which were the only companies with plants in Brazil, with a market of about 800,000 units/ year.
In the early 1990s (1990-1994), the then President Fernando Collor reduced import tariffs and encouraged the local industry to invest in new technologies and products. The subsequent President Itamar Franco, along with Associations (Anfavea and Fenabrave), implemented actions to encourage the sale of vehicles and reduced the tax burden over the production of cars equipped with engines of up to 1,000 cc. The market reached 1.4 million units in 1994, breaking, for the first time, the barrier of 1.0 million units sold.
In the period following the Real plan (1994-1997), economy picked up significantly as a result of inflation control. The automakers already set up in Brazil made high investments in the increase of their production capacity and several foreign automakers made plans to establish a foothold in Brazil by setting up plants here. Sales of cars and light commercial vehicles in the domestic market remained strong, reaching 1.9 million units in 1997.
The period of the international crisis (1998-2000) strongly affected the demand for durable goods and, as a result, sales of cars and light commercial vehicles in Brazil were also impacted. Consumers lost confidence at the time due to the high interest rates, a strong reflection of the instability. Sales of cars and light commercial vehicles receded to 1.2 million units in 1999.
In the early 2000s (2001-2003), the market picked up a little despite its strong volatility (exchange rate, interest and inflation), generated by elections in 2002. The automotive market was affected by uncertainty in the Brazilian macroeconomic scenario, maintaining a behavior of stability 1.4 million units.
In the 2004-2007 period, as a result of the economic policy and the stability of the foreign markets, exchange rates remained stable and inflation was controlled, allowing for a gradual fall of interest rates. The local economy reacted during 14 consecutive quarters of a high GDP, generating gradual increase of the index of consumer confidence. As a result of this scenario, demand for automobiles and light commercial vehicles improved a lot. Financial institutions, encouraged by the fall in interest rates, helped to increase sales, at longer financing terms, resulting in a strong expansion of credit. The automobile and light commercial vehicle market recovered the sales levels of 1997.
To hold back the effects of the international financial crisis on the post-2008 economy, the Brazilian Government authorities took various measures to stimulate demand, especially through consumption, using fiscal instruments such as reduction or exemption of IPI (tax on industrialized products) for the automotive industry. Although the effort was not enough, the Government sought to focus on key sectors of the economy that offered higher capacity of multiplying results. It was the case of the auto industry, recognized for its ability to generate income, create direct and indirect jobs, and promote various other industries using its inputs.
2009 and 2010 were very good years for the auto industry in Brazil, period during which sales records were reached. According to ANFAVEA, in 2010, 2,850,000 vehicles were sold (an increase of 7.6%). In 2010, the auto industry and the Brazilian automotive market were among the largest in the world and Brazil became the 4th largest market and the 6th largest producer in the world. The good result was due to the increased credit offer, amounting to R$ 50.2 billion for the acquisition of vehicles (69% higher than that in 2009). The appreciation of the Real against the dollar (R$ 1.66 each dollar) boosted imports of vehicles into the country, resulting in more than 660,000 imported vehicles. Despite the four largest automakers in Brazil (VW, GM, FIAT and FORD) accounting for 50% of this amount, the Korean Hyundai and KIA, altogether, imported about 23.0% of this total, i.e. 146,000 units.
Vehicle sales in Brazil in 2011 totaled 3,630,000 units (including domestic and imported vehicles), an increase of 3.4% when compared to 2010. Imported vehicles accounted for 23.6% of total sales. At that time, imported vehicles became a negative factor for the domestic industry, which, stimulated by exchange rates, gained a significant market share.
2012 was a very good year for the Brazilian auto industry, benefited by relevant facts during the period, such as: Government incentives; Investments announced by major automakers (Fiat, Hyundai, Toyota, Nissan, Renault, Chery and JAC, among others); and considerable increase in the import rates of automobiles. In this period, 23 new brands were launched and 57 models underwent improvements.
However, this good scenario of the last years began to change as of 2013 with a drop in the domestic demand and a collapse in the exports for important markets such as Argentina. Between 2008 and 2012, companies invested R$ 45 billion in new plants and in the expansion of existing units, hired 26,4 thousand workers and raised the industry’s installed capacity by 16% (for 4.5 million vehicles/year). But the scenario changed and became unfavorable in late 2013, with high inventories and layoffs.
The situation became even worse in 2014 with the restriction to credit and Brazilians buying less, reaching alarming levels of fall in industry activity. With thousands of employees laid off and stocks of approximately 45 days (a number considered high for the automobile industry), the crisis settled in the domestic economy, being in fact the most affected sector. Therefore, Brazil went down in world rankings, going from the 6th position worldwide in total production volume to the 8th position in 2014, being surpassed by India and by Mexico.
In 2015, the national production of vehicles shrank 22.8% when compared to the previous year, according to figures released by the Association of Manufacturers (Anfavea) (2,429,463 units against 3,146,386 in 2014). The pace of assembly lines and vehicles licensing went down (a drop of 26.5% in 2015), being the third consecutive year of bad results and the worst result of sales since 2006.
The 2015 crisis was the deepest one and political issues ended up strongly contaminating the economy, deeply affecting the crisis of confidence of consumers and entrepreneurs. Manufacturers took some actions to lessen the impact of the crisis and stop the layoffs, such as: general vacations, agreements to reduce working days, Employment Protection Plan proposed by the Federal Government, or temporary suspension of employment contracts – the so-called layoff.
Throughout 2016, the auto industry continued to suffer with the crisis and vehicle production shrank again, (only 2,160,000 vehicles left plants in 2016). In 2017, after 4 years of decline, the automobile industry picks up again. One of the main factors responsible for this growth was the expansion and renewal of trade agreements with neighboring countries, such as Argentina, Colombia and Chile still in 2016, which resulted in a growth rate of more than 46% in exports in 2017. As a result, the number of employees in the auto industry, who had been laid-off or were in unemployment insurance, reduced from 38,8 thousand in 2016 to 1,9 thousand in 2017.
Growth continued in 2018 and 2019. In 2020 the good time was undermined by Covid-19 from March, causing the year to end backwards and with no prospect of a full recovery in the short term. Domestic sales closed 2020 with 2.06 million units, down 26.2% which made Brazil lose the sixth position in the global ranking to France. Production of 2.01 million automobiles shrank by 31.6%, leaving the automobile industry with a technical idleness of approximately 3 million units. In the global ranking, we were overtaken by Spain, falling to ninth place. Exports of 324.3 thousand units were the worst since 2002, a setback of nearly two decades. In value, our industry’s revenue of $7.4 billion was less than half of the $15.9 billion exported in 2017. The truck segment, driven by agribusiness and the growth of e-commerce, was the one that obtained the lowest losses among autovehicles. The numbers are undoubtedly worrying, and would be even worse if it were not for the strength of agribusiness and the large injection of emergency resources into the economy made by the government.
The continuation of the pandemic in 2021 coupled with the global semiconductor crisis caused several plant shutdowns throughout the year, causing more than 300,000 vehicles to cease to be produced. In any case, the logistical effort of the companies meant that most of the demand was met. Production of 2.25 million units was 11.6% higher than in 2020, the year in which the pandemic most negatively impacted our industry. The domestic market absorbed just over 2.1 million units, just 3% higher than the previous year. Exports of 376,400 units were 16% more than 2020, with a greater participation of countries such as Chile, Peru, Colombia and Uruguay, but with a reduction in the Argentine market. In all these indicators, there was a better performance of cargo vehicles, such as trucks and pickup trucks, while passenger vehicles, such as cars, vans and buses, followed the consequences of the pandemic more, with the exception of SUVs, which followed the growth.
In 2022, a production resumption process began and Brazil sold more than 2.1 million new vehicles, representing the sixth largest vehicle sales market in the world, behind China, the United States, India, Japan and Germany and the first place in South and Central America.