Brazil setting the world’s stage for auto industry, says PricewaterhouseCoopers

20 NOV 2009--After spending more than a decade adjusting to ambitious automotive capacity investments and working to stabilise national economic fundamentals, Brazil may be preparing to embrace its long-awaited moment in the global spotlight. Recently selected to host the globe’s largest sporting events – the 2014 World Cup and 2016 Olympics – international focus is settling squarely on Brazil. Complementing this epic opportunity is Petrobras’ announcement of the world’s largest capital expenditure project – a 5-year, $174b pre-salt oil reserve exploration – a likely spark plug for years of unprecedented investment.

The Brazilian automotive industry has been compared with Russia, India, and China in terms of its vast emerging market potential, but several important structural, social, and economic conditions that previously impeded Brazil’s highly anticipated growth trajectory may be on the verge of momentous change.

Steve D’Arcy, global auto leader, PricewaterhouseCoopers LLP said:

“While automotive growth traditionally follows the arrival of rising incomes, and incomes are rising, prospects for exponential growth are still inhibited by questions around currency volatility, interest rates, vehicle taxation, as well as remaining systemic barriers.

“Currently, Brazil invests less than 0.1% of GDP on transport improvements, evidenced by the fact that only 12% of Brazilian roads are paved – significantly outpaced by China (82%), Russia (81%), and India (47%). Extraordinary investment in a navigable, car-friendly road network will be required if widespread growth is to be achieved, but large-scale capital spending alone will not catalyse advancement across the Brazilian auto landscape.”

The absence of a true “domestic” automaker that services entry-level demand has left North American and European car manufacturers with the difficult task of profitably producing small vehicles for Brazil.  While previous generation offerings have proved suitable in many South American markets, rising consumer expectations of vehicle quality and performance will likely render many current products obsolete and pressure automakers to reassess outdated portfolios.

Steve D’Arcy, global auto leader, PricewaterhouseCoopers LLP said:

“Brazil’s ability to utilise impending investments to overcome traditional market impediments will likely signal the course of future auto industry growth.  An aggregate of public sources estimate investment in Brazil over the next six years to be in excess of $100 billion.”

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