Brazil gives growth hopes to carmakers
By Jonathan Wheatley
Published: January 20 2010 17:59
At Ford’s assembly plant at Camaçari in north-eastern Brazil, instrument panels made by Visteon in one part of the factory are carried on overhead conveyors to be lowered neatly into car bodies passing by underneath.
The plant makes three models – Ford’s Fiesta hatchback, Fiesta saloon and EcoSport sport utility vehicle – each to various specifications, all passing together along the same assembly line, all receiving components from Ford itself and 13 suppliers inside the final assembly building and a further 11 suppliers in other parts of the 4.7m square metre site.
There are minimal stocks in the factory – in many cases enough for as little as two hours’ production – but it turns out 166 vehicles per hour, 24 hours a day, six days a week. Each day, staff from Ford and its suppliers – you can tell them apart only by the logos on their blue short-sleeved shirts – meet to plan the day’s output. In a highly complex operation, each individual component will make its way to its destination: a certain vehicle, made to a certain specification.
“This is more than just-in-time,” says Cícero Melo, plant manager. “It’s sequential delivery. Each component is made for a specific car on the line. By making several different models simultaneously we can maximise efficiency and supply the mix of products the market demands.”
Even in the wake of the global financial crisis, Ford is manufacturing at full speed, consistently surpassing its target of 150 vehicles an hour. According to Anfavea, the industry association, Ford sold 304,000 cars, light commercial vehicles and heavy trucks in 2009 made at its four plants in Brazil.
Fiat, the market leader, sold 736,969, followed by Volkswagen with 686,408 and General Motors with 595,491. Those four manufacturers have been in Brazil for decades.
Add the plethora of other makers, many installed since the 1990s – Agrale, Honda, Hyundai, Iveco, Mercedes-Benz, MAN, Mitsubishi, Nissan, Peugeot Citroën, Renault, Scania, Toyota and Volvo – plus imported vehicles (about 15 per cent of the total) and sales of cars, lorries and buses in 2009 reached 3.14m units, an increase of more than 11 per cent over 2008 and an all-time record.
While many manufacturers are losing money in developed markets, Brazil, along with China, is one of the few places they have been able to stay in the black. Ford was profitable in Brazil for 23 quarters to the third quarter of 2009 – it has yet to release fourth quarter results.
“Brazil is the third biggest market for Ford in volume terms after the US and the UK,” says Marcos de Oliveira, ForMercosuld’s president for Brazil and .
“The big difference is the stability Brazil has achieved over the past 10 years,” he says, “with inflation under control, with the availability of credit growing continuously, where interest rates may be still high but have fallen a lot.”
The sales in developing markets such as Brazil and China do not necessarily translate into the kinds of profits manufacturers might earn in mature markets, because the cars are cheaper. One million of the 1.8m vehicles sold by GM in China in 2009 were micro-van and micro-truck products for use by farmers, with an average sticker price of $5,000 (€3,490, £3,050). In India, one of the best-sellers is the Suzuki Maruti, which also retails for $5,000. But the markets all offer what the west does not – the promise of substantial growth.
Another cause for optimism is the relatively low level of vehicle ownership in Brazil, a country of almost 200m people. There are six or seven inhabitants per vehicle, compared to 1.2 in the US, Mr de Oliveira says. “That shows there’s a long way to go, a lot of vehicles to be sold, before we close the gap.”
To meet demand, Ford plans to invest R$4bn ($2.3bn, €1.6bn, £1.4bn) in Brazil between 2011 and 2015 on new capacity and product development.
It is not alone. Volkswagen recently announced a R$6.2bn investment programme to 2014 on production and product development. Fiat will spend R$1.8bn this year in Brazil and Argentina, and Peugeot Citroën, R$900m. Renault has promised R$1bn between 2010 and 2012.
Newcomers are expected to join in. Chery of China, which has a factory in Uruguay – as well as Russia, Ukraine, Iran, Egypt, Indonesia and Malaysia, outside China – plans to spend $500m-$700m on a Brazil plant.
This is not the first time carmakers have poured money into Brazil and the surrounding region. In the late 1990s, after Brazil’s inflation-busting Real Plan of 1994, many believed stability and steady growth were assured and rushed to grab a share of the market.
But Brazil was knocked off path by adverse global conditions, especially the Asian and Russian crises of the late 1990s and its own forced devaluation of 1999. Car sales were flat for seven years until consumer confidence returned in the middle of the decade.
Global conditions, at least for Brazil, have become more benign since the late 90s, even during the global crisis, and Brazil’s economic fundamentals are much stronger. Years of trade surpluses have allowed it to accumulate enough foreign reserves to guarantee debt payments and the currency’s stability, while the domestic market has expanded steadily.
Fernando Trujillo, analyst at CSM Worldwide, car industry consultants, expects sales and production in Brazil to rise from 3m vehicles in 2009 to 4.5m by 2016.
“I don’t know if this is enough to save automakers [going through difficulties in developed markets],” he said. “What is certain is they are suffering overseas and they won’t suffer here.”
Jackson Schneider, president of Anfavea, the industry association, said Brazil, already the fifth biggest global market for carmakers, will climb further up the league table while others fall. “No vehicle assembler who wants to remain a big global player can afford not to include Brazil in terms of market strategy and product,” he says.
Brazil’s potential is already enough for carmakers to dedicate significant resources to cars designed specifically for the country and others like it. “Flex fuel” engines, which can run on gasoline or ethanol or any mixture of the two, account for nearly 90 per cent of all new light vehicles sold – Brazil is one of the world’s biggest producers of fuel ethanol, and easily its most efficient.
At Camaçari, Ford has built a product development unit that is one of its three biggest worldwide. Hau Thai-Tang, head of product development for South America, points out that the Fiesta, Ka and EcoSport models were all designed, developed and launched at the plant.
He is particularly proud of the EcoSport, a compact SUV that has been a big hit in Brazil, where driving on city streets is often akin to an off-road experience. “Ford invented the SUV,” he says. “We tapped into that heritage and adapted it for Brazil as a fun-loving, go where you want car. We’ve created an aspirational compact car that people will pay a premium for.”
Published: January 20 2010 17:59
At Ford’s assembly plant at Camaçari in north-eastern Brazil, instrument panels made by Visteon in one part of the factory are carried on overhead conveyors to be lowered neatly into car bodies passing by underneath.
The plant makes three models – Ford’s Fiesta hatchback, Fiesta saloon and EcoSport sport utility vehicle – each to various specifications, all passing together along the same assembly line, all receiving components from Ford itself and 13 suppliers inside the final assembly building and a further 11 suppliers in other parts of the 4.7m square metre site.
There are minimal stocks in the factory – in many cases enough for as little as two hours’ production – but it turns out 166 vehicles per hour, 24 hours a day, six days a week. Each day, staff from Ford and its suppliers – you can tell them apart only by the logos on their blue short-sleeved shirts – meet to plan the day’s output. In a highly complex operation, each individual component will make its way to its destination: a certain vehicle, made to a certain specification.
“This is more than just-in-time,” says Cícero Melo, plant manager. “It’s sequential delivery. Each component is made for a specific car on the line. By making several different models simultaneously we can maximise efficiency and supply the mix of products the market demands.”
Even in the wake of the global financial crisis, Ford is manufacturing at full speed, consistently surpassing its target of 150 vehicles an hour. According to Anfavea, the industry association, Ford sold 304,000 cars, light commercial vehicles and heavy trucks in 2009 made at its four plants in Brazil.
Fiat, the market leader, sold 736,969, followed by Volkswagen with 686,408 and General Motors with 595,491. Those four manufacturers have been in Brazil for decades.
Add the plethora of other makers, many installed since the 1990s – Agrale, Honda, Hyundai, Iveco, Mercedes-Benz, MAN, Mitsubishi, Nissan, Peugeot Citroën, Renault, Scania, Toyota and Volvo – plus imported vehicles (about 15 per cent of the total) and sales of cars, lorries and buses in 2009 reached 3.14m units, an increase of more than 11 per cent over 2008 and an all-time record.
While many manufacturers are losing money in developed markets, Brazil, along with China, is one of the few places they have been able to stay in the black. Ford was profitable in Brazil for 23 quarters to the third quarter of 2009 – it has yet to release fourth quarter results.
“Brazil is the third biggest market for Ford in volume terms after the US and the UK,” says Marcos de Oliveira, ForMercosuld’s president for Brazil and .
“The big difference is the stability Brazil has achieved over the past 10 years,” he says, “with inflation under control, with the availability of credit growing continuously, where interest rates may be still high but have fallen a lot.”
The sales in developing markets such as Brazil and China do not necessarily translate into the kinds of profits manufacturers might earn in mature markets, because the cars are cheaper. One million of the 1.8m vehicles sold by GM in China in 2009 were micro-van and micro-truck products for use by farmers, with an average sticker price of $5,000 (€3,490, £3,050). In India, one of the best-sellers is the Suzuki Maruti, which also retails for $5,000. But the markets all offer what the west does not – the promise of substantial growth.
Another cause for optimism is the relatively low level of vehicle ownership in Brazil, a country of almost 200m people. There are six or seven inhabitants per vehicle, compared to 1.2 in the US, Mr de Oliveira says. “That shows there’s a long way to go, a lot of vehicles to be sold, before we close the gap.”
To meet demand, Ford plans to invest R$4bn ($2.3bn, €1.6bn, £1.4bn) in Brazil between 2011 and 2015 on new capacity and product development.
It is not alone. Volkswagen recently announced a R$6.2bn investment programme to 2014 on production and product development. Fiat will spend R$1.8bn this year in Brazil and Argentina, and Peugeot Citroën, R$900m. Renault has promised R$1bn between 2010 and 2012.
Newcomers are expected to join in. Chery of China, which has a factory in Uruguay – as well as Russia, Ukraine, Iran, Egypt, Indonesia and Malaysia, outside China – plans to spend $500m-$700m on a Brazil plant.
This is not the first time carmakers have poured money into Brazil and the surrounding region. In the late 1990s, after Brazil’s inflation-busting Real Plan of 1994, many believed stability and steady growth were assured and rushed to grab a share of the market.
But Brazil was knocked off path by adverse global conditions, especially the Asian and Russian crises of the late 1990s and its own forced devaluation of 1999. Car sales were flat for seven years until consumer confidence returned in the middle of the decade.
Global conditions, at least for Brazil, have become more benign since the late 90s, even during the global crisis, and Brazil’s economic fundamentals are much stronger. Years of trade surpluses have allowed it to accumulate enough foreign reserves to guarantee debt payments and the currency’s stability, while the domestic market has expanded steadily.
Fernando Trujillo, analyst at CSM Worldwide, car industry consultants, expects sales and production in Brazil to rise from 3m vehicles in 2009 to 4.5m by 2016.
“I don’t know if this is enough to save automakers [going through difficulties in developed markets],” he said. “What is certain is they are suffering overseas and they won’t suffer here.”
Jackson Schneider, president of Anfavea, the industry association, said Brazil, already the fifth biggest global market for carmakers, will climb further up the league table while others fall. “No vehicle assembler who wants to remain a big global player can afford not to include Brazil in terms of market strategy and product,” he says.
Brazil’s potential is already enough for carmakers to dedicate significant resources to cars designed specifically for the country and others like it. “Flex fuel” engines, which can run on gasoline or ethanol or any mixture of the two, account for nearly 90 per cent of all new light vehicles sold – Brazil is one of the world’s biggest producers of fuel ethanol, and easily its most efficient.
At Camaçari, Ford has built a product development unit that is one of its three biggest worldwide. Hau Thai-Tang, head of product development for South America, points out that the Fiesta, Ka and EcoSport models were all designed, developed and launched at the plant.
He is particularly proud of the EcoSport, a compact SUV that has been a big hit in Brazil, where driving on city streets is often akin to an off-road experience. “Ford invented the SUV,” he says. “We tapped into that heritage and adapted it for Brazil as a fun-loving, go where you want car. We’ve created an aspirational compact car that people will pay a premium for.”
Copyright The Financial Times Limited 2010.
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