Brazil becomes engineering hub for global car makers Motor industry set to attract US$23bn in investments over next four years

Just a few years ago, most car manufacturers in Brazil were losing money and laying off workers in droves, as the huge market they had anticipated had not materialised.

But these days, business is so good that vehicle manufacturers are adding shifts and spending billions of dollars to keep up with demand in the South American country. After three years of torrid growth, Brazil’s car market is showing signs of cooling as rising interest rates start to crimp consumer demand.But analysts and industry players say the slowdown is unlikely to snowball into a slump because there is so much pent-up demand for cars.”Brazil is definitely a major part of the global chess game for the automotive industry,” said analyst Guido Vildozo of consulting firm Global Insight.”And that’s clearly reflected in the amount of investment that Brazil is getting.”With sales lagging in traditional markets such as the US, Europe and Japan, and once-promising regions such as China and India not living up to expectations, car makers are pouring money into Brazil.The motor industry is set to attract a whopping $23 billion (N$181 billion) in investments in the next four years, lifting overall capacity by 2,5 million vehicles to 6 million a year, according to the National Automakers’ Association.US and European manufacturers, which have long dominated the Brazilian market, are leading the spending spree.General Motors expects to invest about $3 billion over the next five years as Brazil has become an engineering hub for the car manufacturer, as well as its third-largest market.Ford Motor, which not long ago considered pulling out of Brazil altogether, plans to spend more than $1,6 billion in the next four years on product development and to double capacity at its engine factory.Volkswagen will invest about $1,86 billion until 2011 in Brazil, where it now sells more cars than in Germany.The rush to invest in Brazil comes as the market appears to be cooling.Car and truck sales slumped 15,1 percent last month from an all-time high in July, suggesting that a recent spike in interest rates is starting to hit the economy.After a long run of breakneck growth, vehicle makers say a slowdown is to be expected.With interest rates poised to keep climbing and the economy losing steam, some analysts worry that vehicle financing – a key ingredient in the industry’s revival – may start to shrink.Others fear that those who have already financed a car may struggle to make payments, but lenders do not seem worried about defaults.All the big private sector banks are expanding their car financing businesses.And state-run Banco do Brasil is teaming up with South African group FirstRand in a joint venture to provide car loans.”The fears about credit are a little overblown,” said Rogelio Golfarb, the director of corporate affairs for Ford South America.”Banks are realising that automobile financing in Brazil is a great business to be in.”Business ReportAfter three years of torrid growth, Brazil’s car market is showing signs of cooling as rising interest rates start to crimp consumer demand.But analysts and industry players say the slowdown is unlikely to snowball into a slump because there is so much pent-up demand for cars.”Brazil is definitely a major part of the global chess game for the automotive industry,” said analyst Guido Vildozo of consulting firm Global Insight.”And that’s clearly reflected in the amount of investment that Brazil is getting.”With sales lagging in traditional markets such as the US, Europe and Japan, and once-promising regions such as China and India not living up to expectations, car makers are pouring money into Brazil.The motor industry is set to attract a whopping $23 billion (N$181 billion) in investments in the next four years, lifting overall capacity by 2,5 million vehicles to 6 million a year, according to the National Automakers’ Association.US and European manufacturers, which have long dominated the Brazilian market, are leading the spending spree.General Motors expects to invest about $3 billion over the next five years as Brazil has become an engineering hub for the car manufacturer, as well as its third-largest market.Ford Motor, which not long ago considered pulling out of Brazil altogether, plans to spend more than $1,6 billion in the next four years on product development and to double capacity at its engine factory.Volkswagen will invest about $1,86 billion until 2011 in Brazil, where it now sells more cars than in Germany.The rush to invest in Brazil comes as the market appears to be cooling.Car and truck sales slumped 15,1 percent last month from an all-time high in July, suggesting that a recent spike in interest rates is starting to hit the economy.After a long run of breakneck growth, vehicle makers say a slowdown is to be expected.With interest rates poised to keep climbing and the economy losing steam, some analysts worry that vehicle financing – a key ingredient in the industry’s revival – may start to shrink.Others fear that those who have already financed a car may struggle to make payments, but lenders do not seem worried about defaults.All the big private sector banks are expanding their car financing businesses.And state-run Banco do Brasil is teaming up with South African group FirstRand in a joint venture to provide car loans.”The fears about credit are a little overblown,” said Rogelio Golfarb, the director of corporate affairs for Ford South America.”Banks are realising that automobile financing in Brazil is a great business to be in.”Business Report