At Brazil auto show, industry wonders if it can get any worse
By Brad Haynes and Alberto Alerigi
SAO PAULO (Reuters) - Automakers in Brazil are facing the sharpest slowdown since 1999 and it could be a year or more before things turn the corner.
It is tough to find a sunny 2015 forecast at the Sao Paulo Auto Show this week, where companies accustomed to a market growing by double digits are now considering three straight years of declining sales.
"It looks like the market is in for a difficult time until 2016," said Koji Kondo, Toyota Motor Corp's (7203.T: Quote) chief executive in Brazil, citing labor costs, rising taxes and infrastructure bottlenecks as a persistent problem. "It's hard for Brazil's economic conditions to recover in the short term."
Sales of cars and light trucks have fallen 9 percent so far this year compared to the first nine months of 2013, as demand dries up due to tighter credit and shaky consumer confidence. Local units of global carmakers have gone from cash cows to serious headaches, with new factories creating a glut of inventory.
Brazil's slump combined with an erratic Argentine economy could leave as much as 50 percent of the industry's capacity in South America unused next year, said Rogelio Goldfarb, Ford Motor Co's (F.N: Quote) head of corporate affairs in the region.
The auto industry, which contributes a quarter of Brazil's industrial production, has become emblematic of the troubles facing re-elected President Dilma Rousseff in her new term.
The country's car market was still booming when Rousseff took office in 2011, doubling in a decade to become the world's fourth largest. But soaring costs and more competitive imports meant trouble for local auto factories and other manufacturers.
Rousseff's reaction was a series of targeted tax breaks, import barriers and credit subsidies for carmakers and other favored industries. The measures boosted sales temporarily but did little for Brazil's competitiveness. Now it is proving tough to wean companies off what were meant as emergency measures. Continued...