SA OEM risk

Augusto Amorim, Senior Manager, Americas Vehicle Sales Forecasts

27 September 2019

South american automotive market

Which OEMs are most at risk in the volatile South American market?

Although South America represents only around 10% of global Light Vehicle sales, it is a critical market for several OEMs. Brazil alone is among the ten largest markets for FCA, Ford, General Motors, Honda, Hyundai, Renault-Nissan-Mitsubishi, Toyota and VW Group. The country hosted Toyota’s first plant outside Japan and VW Group’s first factory outside Germany. And American OEMs have been present in the region since the 1910s.

“Thanks to a boom in commodity exports in the early 2010s, several countries broke their sales record, but volumes have fallen since then, with little prospect of them being realised again anytime soon.”

Yet, South America is a constant challenge for automakers. Thanks to a boom in commodity exports in the early 2010s, several countries broke their sales record, but volumes have fallen since then, with little prospect of them being realised again anytime soon. Following year-on-year declines of 26% in 2015 and 20% in 2016, Brazil has been recovering, but we expect the rate of growth to slow down to 6% this year, from 14% in 2018 – and only 2% in 2020. Sales in Argentina are forecast to plummet by 43% this year, with Chile likely outselling Argentina in 2020 for the first time in history.

Given the current scenario, which OEMs are most at risk in South America?

  • Ford: As Ford focuses on SUVs and Pickups for developed markets, it has yet to establish a clear strategy for South America, where Cars are still the core body type. Suppliers are getting impatient as they are required to develop parts for programmes that often end up cancelled, leaving them with financial losses. The KA is on track to end the year as the second most popular vehicle in Brazil, but 51% of its sales were fleet in the year to August. This compares with 43% fleet sales for the market-leading Chevrolet Onix. On top of that, the EcoSport created the Small SUV segment in 2003. For almost a decade, it had no competition and was a cash cow for Ford. Now that most brands have entered the segment, however, the EcoSport is struggling. While demand for Small SUVs soared by 26% in the first half of 2019, the EcoSport dropped by 3%.

 

  • Honda: Honda doubled its capacity in Brazil by completing construction of a second factory in 2015, but decided against operating both plants as the market started to crash. The new facility only came on stream in February this year, but at the expense of closing down the original plant. The HR-V has been in production in Argentina since 2015, but will bow out in May 2020, when Honda will instead begin making motorcycles in the country. We also expect the Civic – Honda’s second most popular product, tied with the Fit – to exit production in Brazil in 2021. Importing the model will make it more expensive, which is likely to curb demand significantly.

 

  • PSA: Historically, the French OEM is the only automaker to have sold more vehicles in Argentina than in Brazil, and this level of exposure to the Argentinian market is bound to hurt the group. Brazil is likely to outsell recession-hit Argentina this year, but, despite an upturn of 11% in the overall market in H1 2019, Peugeot’s Brazilian sales fell by 10%. The launch of the C4 Cactus boosted Citroën’s volume by 44%, but its former bestseller, the C3, plunged by 47%. Brazilians associate the two brands with low quality and expensive maintenance, and their models devalue faster than those of their competitors.