In 2012, with annual light vehicle sales approaching 3.65 million units, the Brazilian government announced its complex INOVAR‐Auto tax‐credit scheme. This was designed to improve national motor industry competitiveness by encouraging automakers to produce more efficient, safer, and more technological vehicles through major investment in Brazil’s national automotive industry. By the end of 2014, industry analysts PwC estimated that INOVAR‐auto had prompted around 30 car companies to announce 50 major improvement projects, including 13 new local assembly plants.

Since its introduction, INOVAR‐auto has become just one part of a fast‐changing motor industry picture. PwC Automotive Partner Phil Harrold identifies a range of problems, emerging from an economic downturn, which also began in 2012: “Its impacted business and consumer confidence,” he says. “There’s high inflation, high interest rates, and the currency has fallen against the dollar. With auto purchases, most people buy when they feel confident… but the government has recently introduced austerity measures. Coupled with this, manufacturers and suppliers are working with steep taxation, presenting a challenge: how to avoid passing on rising costs to the consumer.”

The downturn led to falling car sales in 2013 after ten years of continuous growth – and the scale of the fall has brought much comment: Frost and Sullivan’s programme manager for Latin American Research, Automotive & Transportation, Yeswant Abhimanyu, says: “What started as a 1 to 2% sales decline deepened in 2014 to almost 7%.

This phase, expected to last up to a year and a half, is now continuing well beyond expectations into a third straight year of decline, which we estimate at over 15%.” According to industry association Associação Nacional dos Fabricantes de Veículos Automotores, (ANFAVEA) registrations fell around 200,000 units last year: this year a similar fall has taken just six months – to a total already 19% lower than 2014.

Economic factors – including price increases estimated by some at over 7% in just 12 months – are certainly affecting demand, but other considerations are also now influencing purchasing patterns. New anti‐pollution laws and changing customer attitudes to factors such as product quality and desirability, fuel consumption, reliability and even vehicle style are beginning to re‐shape Brazil’s long‐stable market.

The slump is having most effect in key high volume small to medium size classes, and impacting hardest on manufacturers most active in these sectors – Fiat, Volkswagen and General Motors. Each has lost over 50,000 sales and 2% market share in a year according to FENABRAVE, Brazil’s dealer association. Fiat Group has better news elsewhere: its locally built Jeep Renegade sold almost 3,000 units in June, taking Jeep to number 11 in Brazil’s list of top selling marques – its highest ever position. Meanwhile JATO Dynamics figures show that during 2014 Fiat’s Palio model ended the VW Gol’s 19 year reign as Brazil’s best selling car – its figures charting the Gol’s remarkable fall during the downturn from 255,000 units in 2013, to under 45,000 so far in 2015. The Palio continues its strong performance in 2015, and other notable successes include the Hyundai HB20 and Ford’s latest Ka, together with the new, locally built Honda HR‐V, which has helped the company improve year‐on‐year sales against the market trend.

Big change is also underway in sectors popular with company fleet and contract purchasers. The Fiat Strada – a stylish pickup truck – was Brazil’s overall best seller in March 2014, and reportedly ended the year as the top selling fleet vehicle. Amongst less price‐sensitive premium models, Audi sales rose 85% to a record 12,486 units last year, with Mercedes‐Benz and BMW recording useful gains – but by March 2015 Mercedes‐Benz sales were up 10%, enough to overtake BMW and become Brazil’s top luxury brand.

Unidas operates one of the largest fleets of outsourced cars in the country, and almost 20,000 daily rental cars.

Despite the current downturn, the company expects future business growth, particularly in long term corporate fleet contracts, an area with relatively low take‐up, which it sees as ready for development. The company believes a return to more predictable economic conditions will bring growth through improved confidence amongst businesses making forward plans for future vehicle needs. The company reports the industry growing annually by almost 13% since 2010 – accounting for over 12% of national car production last year. Unidas believes the car rental business will continue expanding, though its operations are currently fragmented, with over 5,600 companies operating around 7,300 rental desks nationally.

Future developments…

Opinions over future developments vary widely. INOVAR Auto is seen by some key industry figures as a bonus in difficult times by driving technical innovation forward to bring benefits as the economic situation improves. But as the market slows and enters a period of change, and big name vehicle manufacturers look to cut capacity, smaller makers of entry‐level cars are being cautious. Several recently arrived Chinese brands have begun operations in Brazil – but plans to open new plants are mostly on hold, and FENABRAVE, Brazil’s dealer association, has figures suggesting why.

The most prominent marques are Chery, JAC and Lifan cars – but their combined June sales totalled under 1,200 units. Frost and Sullivan’s Yeswant Abhimanyu believes this will eventually change: “Strong competition from established names in entry‐level vehicle segments is a factor,” he says. “But with local manufacture, more vehicle choice and tailor‐made technologies for Brazil, Chinese brands are building a strong position for future market growth.”

Meanwhile ANFAVEA has lowered its 2015 sales forecasts, exports have been hit hard by Argentinian problems, and showrooms are closing. But Yeswant Abhimanyu sees a brighter longterm future for Brazilian vehicle buyers: “We expect the market to stabilise by the end of 2016, and resume growth thereafter.”