Itaú BBA - Auto Vehicles: Sales Performance Remains Strong

Sector Insights

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Auto Vehicles: Sales Performance Remains Strong

mayo 28, 2013

Delinquency in auto financing increased in 2012, but there are signs of a retreat in 2013.

Following all-time-high sales of passenger cars and light commercial vehicles in 2012, which were stimulated by government incentives, repeating this performance in 2013 is a challenge.

The heavy vehicles segment was heavily affected by regulatory changes for pollutant emissions and presented poor results in 2012. A strong recovery in sales is expected in 2013, driven by the expectation of good agricultural-crop growth and a financing facility from BNDES (Brazilian National Bank of Development) with lower interest rates.

The outlook for agricultural machinery, which performed very well last year, is positive, thanks to the expectation of favorable agricultural figures this year and better conditions from BNDES to finance new equipment.

The motorcycle segment, which experienced a sharp decline in 2012, driven by tighter credit conditions for purchases of motorcycles as well as price cuts for passenger cars, is already showing some improvement this year.

Delinquency in auto financing increased in 2012, but there are signs of a retreat in 2013.


Passenger Cars and Light Commercial Vehicles 

Sales Rebound in April 

The market for light vehicles, which posted poor sales performance in February and March, ended April with record-high sales: 316,705 passenger cars and light commercial vehicles, up 15% mom/sa and 24% yoy. A total of 1,104,404 light vehicles were sold in the first quarter of 2013, up from 1,017,548 one year earlier.

According to auto dealers’ association Fenabrave, the good performance was boosted by fleet renewals by corporations and rental companies and by a higher number of working days (22 in April 2013). Furthermore, the IPI (tax on industrialized products) tax cut was renewed for passenger cars. The tax rate, at 2% for vehicles with engines up to 1,000 cc., was expected to rise gradually throughout the year to 7%. However, in late March, the government announced that the tax rate would remain at 2% until December. Our forecast models indicate that this change in the IPI will cause a positive impact ranging from 2.3 to 4.7 percentage points in auto sales this year.

Vehicle production also rebounded in April, to 301,746 passenger cars and light commercial vehicles, up 3.9% mom/sa and 19.6% yoy (please note that April 2013 had two more working days than April 2012.) Year-to-date, 1,133,778 units were produced, up from 998,492 one year earlier, rising a seasonally-adjusted 13.5%. Strong growth in output was led by the sharp increase in sales in April, caused by the decision to maintain the IPI tax rate at 2%.

In 2012, the market for pre-owned vehicles was affected by the reduction in the IPI, which made new vehicles cheaper and more attractive compared with pre-owned cars. Hence, prices for pre-owned vehicles dropped and sales fluctuated sharply. In 2013, as the IPI tax rate rose to 2%, the market for pre-owned vehicles started to recover. In the first quarter, this segment expanded 5.5% from one year earlier, seasonally adjusted.

Sales of imported vehicles started to decline in mid-2012, reflecting the steep increase in the IPI tax rate (30 percentage points) for part of the segment as well as the IPI tax cut for domestically manufactured vehicles. The tax hike took effect in December 2011, but was not passed through immediately due to the inventories held by importers. Sales fell 6.6% in 2012, compared with the year before.

The market for imported vehicles is recovering in 2013, with sales climbing 21.2% mom/sa in April. The improvement is due mostly to the Inovar-Auto Program, which gave OEMs quotas for imports without the additional increase in the IPI tax rate, and the higher rate for cars made in Brazil.

Heavy Vehicles 

The Recovery Started, Following a Weak Year in 2012

Sales of heavy vehicles were quite weak in 2012, influenced by the large volume of purchases and orders in late 2011, anticipating the change in gas emissions regulations that would go in effect in January 2012 and make vehicles more expensive. This move in 2011 ultimately depressed sales throughout 2012, prompting the government to adopt incentive measures for the sector, such as lowering interest rates for purchases of heavy vehicles and buying trucks to renew the Army’s fleet.

The interest rate in the PSI Finame facility offered by state development bank BNDES for trucks and buses, which stood at 10% p.a. in April 2012, was reduced starting in May 2012 and reached 2.5% p.a. in August 2012, implying negative real interest rates. However, this reduction only had an effect on sales later in the year, and did not prevent a poor result for the sector. In January 2013, the interest rate was raised to the current level of 3% p.a., and should rise to 3.5% in July, still below inflation. The subsidized rate is expected to continue until December this year.

In 2013, with subsidized rates and a good agricultural crop, the sector is already recovering. Data from the first quarter of the year reflect this change: 51,354 trucks were sold between January and April, or about 40% of the total sales volume of 2012.

Please open the attached pdf to read the full report.


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