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Boston, MA -- (SBWIRE) -- 06/21/2012 -- Early indications would suggest that 2012 will be a difficult year for the Brazilian auto sector, as a combination of higher auto import taxes and revised regulations combine to depress demand. New vehicle sales in Brazil in Q112 struggled to match Q111 levels, declining by 0.8% year-on-year (yo- y), to 818,364 units, according to estimates from Brazil's National Association of Motor Vehicle Manufacturers (Anfavea). We believe the contraction was the result of a slew of recent regulatory changes in the autos industry, and we have now revised down our 2012 sales forecast from the 6% y-o-y growth we had previously expected to growth of nearly 4% y-o-y. We are now also more cautious about growth in 2013, on the back of restrictions in vehicle imports and the inability of the domestic production segment to meet local demand.
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Estimates from Anfavea suggest that the contraction in sales witnessed over Q112 was broad-based, albeit marginally, across vehicle segments. All vehicle segments (with the exception of buses) posted lower sales, with the truck segment contracting by almost 5% y-o-y, to 37,632 units. In terms of carmakers, key industry players such as Volkswagen (VW), General Motors Company (GM), Ford Motor and PSA Peugeot Citroen reported significant drops in sales as a result of the government's renewed push towards promoting local production. Some of these carmakers rely on imports from Argentine to meet Brazilian demand, and we believe that Brazil's reversal on auto imports from 'automatic licensing' to 'non-automatic licensing' in 2011 has had an impact on demand.
Acting in support of new car demand over 2012 will be the 14% increase in the minimum wage (which came into effect in January 2012) as well as further monetary easing, recent measures to relax regulatory requirements for private sector lenders and the consequently uninterrupted demand and supply of credit (See Industry Forecast Scenario - Sales section below).
We expect the impact of these regulatory trends aimed at promoting local production to become yet more visible in 2013. Industry players, such as GM, have complained that the sudden changes in the regulatory framework for autos trade between Brazil and its major trading partners have given companies little time to adjust their production strategies. Others, including BMW, have expressed caution about going ahead with planned projects in the country. All of this will lead Brazil to a situation where production will fail to cater to domestic demand, despite the government's intention to boost local manufacturing. We forecast autos production to grow at a lacklustre rate of under 4% y-o-y, to 3.89mn units, shy of market demand of 3.98mn units, during 2013.
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