Growing Brazil economy, customization interest underutilized by US, UK aftermarket companies

Ask the average man on the street to tell you what he knows about Brazil and chances are the answers will revolve around coffee and beef. The overall view of the country is of a mostly agricultural-based economy that produces little in the way of exports. Very few people know that Brazil is one of the few countries worldwide with a burgeoning economy and growing export market that puts most of the world’s major players in the shade.

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In 2001, Goldman Sachs coined the acronym “BRIC” to describe the four countries of Brazil, Russia, India and China who, it predicted, would rank in the world’s top six economies by 2032. As if to confirm this prediction, it was announced in early 2012 that Brazil had overtaken the UK to become the world’s sixth largest economy. Despite its relentless economic growth, Brazil’s per capita income of $11,000 per annum still remains less than one third of the UK’s. However, this disparity is gradually being eroded by an ever-increasing middle class with greater spending power.

While a major percentage of Brazil’s output is indeed focused on agriculture and the processing of foodstuffs, its most important manufactured items are automobiles. Some of the world’s major automobile manufacturers including Volkswagen, Ford, Fiat, Honda and Toyota now have large manufacturing plants in Brazil. Fiat held the top position for car sales in Brazil during 2011, accounting for 22.5 percent of the market, with VW a close second with sales of 22.3 percent. Luxury car sales have grown rapidly, with the Southeast part of the country dominating in terms of automobile fleet and new vehicle registrations. Sao Paulo is the leading state in the region and has the greatest number of vehicles. The most popular types of vehicles are those with flex fuel systems, with their multiple refuelling options. This popularity is encouraged by the Brazilian government’s support for biofuel usage.

In 2011, Brazil overtook Germany to become the fourth largest vehicle market in the world, with sales of some 3.6 million cars and light trucks. Aftermarket sales, however, have not grown in proportion. Brazil has the fifth largest population in the world, with an expanding wealthier middle class that has increased spending power and a growing passion for classic cars, offroad racing and hot rods. This interest in vehicle customization is offset by Brazil’s various vague restrictive laws governing vehicle modification. To help influence changes in these laws and to encourage the aftermarket industry, a new organization is to be set up this year called The Brazilian Association of Automobile Accessories. This hopefully influential association’s founding members will include manufacturers, importers, distributors, publishing companies and performance shops. Despite the many restrictions in force, vehicle customization continues to grow in popularity in Brazil, with the aftermarket products most in demand including tires, wheels, audio systems, suspension parts, performance items, turbochargers, high flow air filters, ECU reprogramming and exhaust systems.
 

Brazil’s main world trading partners are the United States, Colombia, Germany, Japan, Argentina, China, Canada and the UK. In terms of trading position, China ranks at No.1, accounting for some 14 percent of Brazil’s trade flows. While Brazil’s main exports to China are iron ore, soybeans and crude oil, manufactured items are China’s main imports into Brazil. This has led to Brazil’s local manufacturing industry struggling to compete with China’s low cost advantage, which has been brought about by the country’s undervalued currency and low production costs.  With China’s advantage of cheaper production, it can offset the Brazilian import taxes and tariffs, which make US auto parts expensive and unaffordable for the average Brazilian motorist. Import tariffs on auto parts can range between 14 percent and 20 percent, with a further series of taxes and import fees on top. With its vast, low-salaried workforce, China can produce inexpensive quality aftermarket parts, often with whole areas focused on the production of one genre of item. In order to overcome these high import duties, some exporters to Brazil work around these import restrictions by bringing their products into the country via the Free Zone in Uruguay as part of the Mercosor economic and political agreement that exists between Brazil, Paraguay, Uruguay and Argentina.

It quickly becomes apparent that the US and UK need to up their game if they want to tap into the burgeoning motor trade aftermarket in Brazil. This is brought into sharp perspective by the fact that the UK exports more goods to Ireland than it does to Brazil, China, India and Russia combined. Pitted against the US and UK ‘s aftermarket industry’s efforts to trade with Brazil is the manufacturing colossus of China and its fellow BRIC countries. With their low production costs, these countries can offset Brazils punitive tariffs and import taxes, enabling them to trade profitably while other countries will struggle to make a profit. This doesn’t mean that profitable UK and US trading with Brazil is impossible. The strong history and tradition of vehicle customization in the US means that US customization companies are in a very good position to tap into this fast growing interest in Brazil. To this end, interested US parties and other exporters to Brazil should do all they possibly can to encourage the efforts of the fledgling Brazilian Association of Automobile Accessories and their efforts to lobby for change in Brazil’s vehicle customization laws. Encouragement could also be given to the growing interest in vehicle customization, especially in the key cities like Sao Paulo. Any legal import duty loopholes can also be exploited to make exporting aftermarket items to Brazil more profitable for interested US companies.