MercoPress. South Atlantic News Agency

Brazil forecasted to become world’s third largest automobile manufacturer

GM South America CEO Jaimes Ardila, let’s see if Asian manufacturers are as competitive producing in Brazil

Brazil’s car production capacity is expected to jump from the current 3.6 million units per year to 6.2 million by 2025 supported by massive investments from the industry estimated in 19 billion dollars by 2017, according to estimated from the Vanzolini Foundation in Sao Paulo.

If this is confirmed the South American trade block Mercosur with Brazil would become the third-largest manufacturer of the world behind China and the United States, and ahead of Japan.

New manufacturers, mainly from South Korea and China, will play key roles in this development. Only in new factories, investments will amount to 5.22 billion dollars, according to Brazilian magazine Istoé . The remainder, about 14 billion dollars will be mainly spent in the expansion of existing plants of Volkswagen, Ford, General Motors and Fiat.

The latest to join the rush is China’s JAC Motors which together with Brazilian importer of JAC vehicles SHC, plan to invest 600 million dollars to build a factory in Brazil, SHC President Sergio Habib said on Monday.

The factory, with an annual capacity of 100,000 cars, will begin operations by 2014, Habib said. SHC will account for more than half of the investment, Habib told reporters in Sao Paulo.

China's Chery Automobile last month laid the cornerstone for its first manufacturing plant outside of its Asian home country, and South Korea's Hyundai Motor Co. began construction of its 600 million dollars assembly plant in February. Japan's Nissan Motor Co. and Honda Motor Co. also have announced new investments in Brazil, currently the world's fourth-biggest market by sales last year.

However the executives of German and US automakers, established decades ago in the country view the newcomers with suspicion.

The president of General Motors of South America, Jaimes Ardila, stated: “Let’s see if they will be competitive with the cost of producing in Brazil”. Undoubtedly, the cost to produce in Brazil is higher if compared to China. However, companies avoid 35% taxes on imports and logistics expenses with local production.

According to Luis Curi, CEO of Chery Brazil, “It takes about four months between the order and final placing of the vehicle in Brazil”.

Because of multilateral agreements, cars produced in Brazil can be exported without taxes to Argentina, Colombia, Chile, Venezuela, Paraguay and Uruguay, all members or associates of Mercosur.

Brazil also has an agreement with Mexico, signed in 2002, that waives import taxes on vehicles. In relation to other Latin American nations, Brazil’s main competitive advantage is, unquestionably, its huge domestic market, comprising 150 million consumers.

Answering skeptical people who may affirm the Brazilian market will be saturated with such an expansion in such a short time, Cledorvino Belini, Fiat’s president in Brazil was defiant and confident.

“In Brazil there is one car for every seven people, while in the U.S. this ratio is one to two.” Nobody imagines that Brazil will match this US proportion in the near future but it does illustrate Brazil’s prospects for the medium and long-term.