Rising demand and government incentives are prompting foreign carmakers to boost their investment in Brazil, which analysts say could become the third-largest auto market in the world as early as 2015.
Industry group ANFAVEA forecast that domestic sales of cars and light commercial vehicles may grow by 4 to 5 percent this year compared to last year, to up to 3.81 million vehicles.
Production is slated to reach 3.49 million units, up about 2 percent from last year, the National Association of Motor Vehicle Manufacturers added.
On Thursday, Japanese giant Toyota inaugurated its third plant in Brazil, in the southeastern town of Sorocaba, with the goal of producing 70,000 new Etios compact models a year.
A modified version of a model already being sold in India and South Africa, the Etios will be available from next month, priced at an average of US$17,300 to compete with similar models from Volkswagen, Fiat, General Motors and Hyundai.
Toyota, in Brazil since 1958, said it also planned to begin selling the Prius, its popular hybrid electric car, in Brazil later this year and to invest US$495 million to build an engine plant near Sorocaba.
With a share of the Brazilian auto market of less than 3 percent last year, the Japanese carmaking giant lags behind leading players Fiat, Volkswagen and General Motors.
However, the world’s biggest carmaker plans to double its sales in Brazil to about 200,000 vehicles in the next two years and become one of market leaders in the next decade.
Brazilian Industry Minister Fernando Pimentel said the Sorocaba plant, which employs 1,500 workers, amounted to a vote of confidence by Toyota “in the strength of the Brazilian economy and the Brazilian auto market.”
Although sales dropped 1.2 percent in the first half of this year, leading carmakers and analysts are generally upbeat about the future.
“The Brazilian economy is going to post solid growth in the second half of the year. Interest rates [now down to a record low of 8 percent] will continue to decline and credit will continue to expand,” ANFAVEA president Cledorvino Belini said on Monday last week.
Home to 191 million people, Brazil currently ranks as the world’s fourth-largest car market behind the US, China and Japan.
The industry, which employs 147,000 people, contributes roughly 5 percent of Brazil’s GDP.
However, rising demand for better quality cars by the country’s expanding middle class — now estimated at 95 million people — a low motorization rate (333 cars per 1,000 inhabitants), the absence of domestic producers and government incentives offer good prospects for foreign makers, analysts say.
Roland Berger Strategy Consultants estimates that Brazil, the world’s sixth-largest economy, could displace Japan as the world’s third-biggest market by 2015 and sales rise to 6.6 million vehicles by 2020.
In April, the government introduced new rules to make the auto industry more competitive.
The rules require carmakers to increase regional content by purchasing more locally produced spare parts, invest in engineering and innovation and improve car fuel efficiency, or face higher taxes.
Sao Paulo state, where nearly half of the national auto industry is concentrated, also provides tax breaks to attract foreign makers.
South Korea’s Hyundai is also set to begin production at a US$600 million plant in the state next month while Nissan, Fiat, Volkswagen and PSA Peugeot Citroen are expanding their plants or building new ones.