The Brazilian automotive industry at crossroads The ... - Roland Berger

The Brazilian automotive industry at crossroads
Summary of findings
São Paulo, March 2010
Roland_Berger_Brazilian_automotive_industry_20100415.pptx

This study was developed to facilitate the development of a joint
industry-governmental agenda for the Brazilian automotive industry
Background and aim of this study
> This study was developed from November 2009 until March 2010 by Roland Berger Strategy Consultants
with the aim to analyze the future potential and challenges of the Brazilian automotive industry and
facilitate the discussion how to develop a joint industry-governmental agenda to support future industrial
growth
> This agenda should include clear actions how to foster the competitiveness of the Brazilian automotive
industry both domestically and in a global context; the agenda could include
– A program to foster national vehicle sales growth (e.g., by reducing total cost of ownership and a
national fleet renewal program)
– Measures to improve the national cost competitiveness in a global environment to maximize national
automotive production
– A roadmap for Brazil's position towards major global l automotive ti megatrends (e.g., future powertrain
and energy mix)
> The conclusions and findings of the study are based on market knowledge of Roland Berger Strategy
Consultants or drawn from information and data gathered through desk research and interviews – >20
interviews and discussions were conducted during the study development, including leading carmakers
and suppliers in Brazil and the industry's major associations
Source: Roland Berger Strategy Consultants
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Brazil at crossroads – With increasing global competition, Brazil
needs to define a clear agenda to ensure future production growth
The Brazilian automotive industry at cross roads
PHASE 1:
PHASE 2:
PHASE 3:
POSSIBLE WAYS
Emergence of Brazil Uncertainty and Macroeconomic stability
FORWARD
restructuring
Brazilian vehicle production
Which way forward
> Fostering of domestic
[m vehicles]
sales to ensure sufficient
for Brazil?
3.5
and satisfying growth for
all market participants
3.0
> Increasing exports to
2.5
build scale and compete
on global level
2.0
> Improvement of
1.5
GLOBALIZATION
O
domestic competitiveness
to translate sales
1.0
> New players …
ESTABLISHED OEMs
growth into production
0.5
> New products …
> New rules …
growth for established
00 0.0 player
1988 1992 1996 2000 2004 2008 2012 2016 2020
Source: JD Power; ANFEVEA; Roland Berger
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Brazilian automotive sales have a tremendous potential to grow in
the future based on the positive development of the economy
Validation of JD Power forecast
FORECAST ANALYSIS BASED ON DIFFERENT INDICATORS [m units]
FINDINGS
8.0
7.0
60 6.0
5.0
4.0
3.0
0.0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Disposable
income(R 2 = 85.7%)
Automotive
spending
power (R 2 = 95.6%)
Nominal
GDP (R 2 = 91.8%)
JD Power
(extrapolation)
> Based on regression analysis
using automotive household
spending power, disposable
income and nominal GDP, the
JD Power forecasts appear in
line in the short to mid term
but too conservative in the
long term
> A sales forecast of significantly
more than 5 m vehicles
by 2020 seems likely
> This sales forecast may
require additional efforts and
measures by the industry as
well as the Brazilian
government
Source: EIU; clippings; Roland Berger
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Joint industry-governmental actions could be undertaken to drive
domestic sales growth in Brazil
Measure to drive automotive sales in Brazil
A
Reduced d cost of ownership to foster individual id mobility
Brazil has one of the highest total cost of ownership values in the
world – tax burden, high financing cost and higher production
cost in international comparison are the main reasons
B
C
Incentives to renew vehicle fleet
Fleet renewal programs have been utilized by governments
around the world to stimulate local sales and production and
enhance the fleet's technology
Improved infrastructure to accommodate growth
Brazilian transportation infrastructure is one of the worst in
the world, showing high improvement potential – significant
investments are still complemented
CONTINUED DOMESTIC
AUTOMOTIVE
SALES GROWTH
Source: Roland Berger
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With these measures, the Brazilian automotive market could be
boosted to globally comparable levels
Measures to stimulate sales in Brazil
Expected domestic sales growth [m units]
Measures to boost domestic sales growth
3.1
Fleet renewal program
0.5 4.8
> Program could leverage Brazilian domestic market by 230,000
0.2
10 1.0 41 4.1
units p.a. and improve national fleet's emission and safety
standards
> Continuous implementation of the initiative (e.g. every 2 or 3
years) with raising benefits/penalties could also amplify effect
and reduce government's investment
TCO reduction
> A reduction of TCO by 10% would allow nearly 8 m households
to have access to the automotive market – annual sales growth
by 488,000 per year until 2016
2010
Growth
2010-20162016
2016
Fleet
renewal
program
TCO Potential
reduction vehicle
sales 2016
> A TCO reduction of 10% could be achieved both directly by
reducing both tax burdens and indirectly by improving other
cost drivers for the industry (e.g. bureaucracy), thus reducing
the immediate investment volume required
Source: ANFAVEA; Sindipeças; "Estudo da frota circulante brasileira"; national associations; clippings; Roland Berger
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With a clear export strategy, Brazil should also be able to nearly
double exports in the next years
Brazilian export potential ['000 vehicles]
Brazilian export development by target countries
Export forecast
2009 2016
11% p.a.
Market
BRA
Market
Market
BRA
Market
size export share [%] size export share [%]
volume
volume
Argentina 471 283 60% 739 443 60%
Mexico
Other South
American
countries
756
628
76
37
10%
6%
1,372
1,056
274
158
20%
15%
475
560
650
750
840
920
960
980
Other
countries
–
79
–
–
109
–
TOTAL
–
475
–
–
980
–
2009 2010 2011 2012 2013 2014 2015 2016
Source: Anfavea; JD Power; Roland Berger
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Based on exchange rate and domestic sales forecasts, imports are
expected to continuously increase over the next years
Brazilian vehicle import volumes
CORRELATION O OF VEHICLE IMPORT AND BRL
COMMENTS
Vehicle
import
['000 vehicles]
USD : BRL
exchange rate
4,500
4.5
4,000
4.0
3,500
3.5
3,000
3.0
2,500
2.5
2,000
2.0
1,500
15 1.5
1,000
1.0
500
0.5
R 2 = 92%
0
0.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Domestic sales
USD Exchange rate
Imports (low case)
Imports (high case)
> Based on a correlation with the
exchange rate and domestic
vehicle sales, imports into
Brazil need to be expected to
grow by at least 40% until 2016
> In addition, Brazil needs to fend
of imports from emerging Asian
OEMs that are highly
competitive based on
– Suitable products
– Low production cost base
– Governmental support
> Brazil should expect long-term
imports of up to 1 m vehicles
p.a.
Source: EIU; JD Power; ANFAVEA; Roland Berger analysis
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By implementing measures to increase domestic sales and a focused
export strategy, yearly production could reach >5 m by 2016
Forecast for national production – RB analysis [m units]
0.5 0.3 5.1
3.2
1.0
4.1
0.7
+6.8% p.a.
2009 production 2010-2016 2016 forecasted
1 2 3
2016 potential
volume
organic growth production volume Upside sales Increase in Development production volume
potential export volumes of imports
Source: EIU; JD Power; ANFAVEA; Roland Berger analysis
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Four actions are recommended to strengthen the competitiveness of
the Brazilian automotive industry
Final recommendations
1 Define future automotive agenda
> A national automotive agenda needs to be developed
jointly between the government and the industry with a
clear vision and strategy of the Brazilian's automotive
future
> Without this agenda, the Brazilian automotive industry may
lose importance in mid-term or at least not maximize its
potential
2 Improve cost structure on a holistic level
> While many cost drivers are cross-industry and need to be
addressed on a macroeconomic level, the automotive
industry in Brazil remains with a large cost improvement
potential
> An improvement effort throughout the supply chain can help
to improve overall competitiveness
> New models and better cost structure helps to boost exports
> The Brazilian government and industry should jointly define a
future target energy mix (fossil fuels, ethanol, biodiesel,
electrical vehicles, hydrogen) as well as clear measures on
how to achieve these targetst
> With the proximity to Silicium reserves in the Andes and high
national competences, Brazil could play a global role in
developing and producing electrical vehicles and components
3 Develop future energy and powertrain mix in
Brazil
> New imports from established global OEMs are well
designed, equipped and aggressively priced; emerging
OEMs are learning fast and starting to offer highly
attractive ti products
> Brazilian products and sales services need to be optimally
aligned with current and future customer expectations in
terms of design, functionality, quality and affordability
4 Ensure future competitiveness of
Brazilian products
Source: Roland Berger Strategy Consultants
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For further details of the study or to receive the full version,
do not hesitate to contact us
STEPHAN KEESE
Principal
Phone +55 11 3046 7111
stephan_keese@br.rolandberger.com
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