Brazil is the basket case of the global auto industry

Rio highwayRyan Pierse/GettyNot a happy highway in Brazil.

Rio might be hosting the Olympics — and reaping a lot of global attention — but the South American country isn’t hosting a car-buying boom.

In fact, Brazil has gone from being a prospective major player in the international auto industry to being one of the business’ worst stories, in only about five years. In the grand scheme of things, Russia is worse. But that’s about it.

The decline in Brazil has been stunning. “Brazilians bought 3.6 million cars and trucks in 2012, according to IHS,” wrote Bloomberg’s
John Lippert and Fabiola Moura. “This year, they are expected to buy 1.9 million. The Southfield, Michigan-based market researcher predicts that by 2020, the market will grow to 3.1 million — still 14 per cent less than the 2012 level.”

Back in 2011, analysts thought the Brazilian market could get to 6 million in annual sales by 2025. Unless the current pattern dramatically changes, that simply isn’t going to happen.

Automakers doing business in Brazil have been asked about their outlook on Brazil. I’ve done some of the asking. The view now is that nobody expects Brazil, or for that matter South America generally, to come around any time soon. But nobody wants to be left out when South America recovers, and in some quarters there’s an expectation that the recovery will be robust.

But for now, the Brazilian auto bust continues to be one of the most depressing tales in the auto industry. The situation isn’t going to drastically improve until the country’s economy matures beyond its current commodity based model.

Rio Olympics opening ceremonyKai PfaffenbachOlympics celebration masks economic decline.

Even then, Brazil is likely to be out of step with major global automotive trends. The US is becoming mainly an SUV market, a good thing for car makers because SUVs yield fatter profits. China is gradually following that trend, in a market that at around 20 million is annual sales is larger than the US.

Europe is still a small-car world, but it always has been. South America, meanwhile, should morph into being a US/China-style SUV realm, except that it’s still stuck in the el-cheapo small-car stage of its development. If that aspect of the market keeps having to be restarted due to periodic economic upheaval, then Brazil will never live up to the lofty hopes of the world’s automakers.

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