Roundup: Mexico's auto boom meets with Brazil's sharp downturn

The Brazilian auto industry faces the worst downturn in a decade while the Mexican sees booming sales. Mexico is thus likely to beat Brazil again as the Latin American top auto producer in 2015.

Automobile demand in Brazil has sharply dropped due to an economic recession starting last year, leading to a downturn in auto output and sales.

In the first eight months of 2015, Brazilian auto production amounted to 1.73 million units, down 16.9 percent year on year, reaching the lowest level of eight-month period in a year since 2006, according to the Brazilian Association of Automobile Manufacturers (Anfavea).

According to market forecast, auto production in Brazil will be no more than 2.5 million units for the whole year, falling 18 percent than 2014.

Sales of new auto had plunged 18 months in a row, and light-vehicle sales in the first eight months of 2015 decreased by 20.4 percent compared with the same period last year, according to the Brazilian National Automobile Dealership Association (Febavrave).

Many well-known auto makers were forced to cut labor and production due to the sales crisis.

The number of auto workers dropped to 13.43 million at the end of August, falling almost 10 percent year-on-year, worsening Brazil's already-poor employment market, said the Anfavea.

Mexico is quite another story. Its auto industry appeared to expand at a solid pace. Sales increased by 20.95 percent to 721,539 from January to July this year, making it the fastest growing auto sector in Latin America, said the Mexican Auto Industry Association (AMIA).

Mexican promising auto industry outlook is underpinned by the soaring inbound investment. The industry attracted 26.543 billion U.S. dollars of foreign investment in the first half of 2015, up 14 percent compared with the previous corresponding period, said the AMIA.

DIFFERENT ECONOMIC FUNDAMENTALS

The contrary performance in auto industry reflects different economic fundamentals of the two countries.

The Brazilian economy trapped in stagflation was expected to shrink by 2.4 percent this year with inflation to reach 9.3 percent, according to the country's Planning, Budget and Management Ministry on Tuesday.

The Mexican economy is stronger than Brazil, partly because it has been closely integrated with the U.S. economy.

Mexico's gross domestic product (GDP) saw a 2.2-percent year-on-year rise in the second quarter this year, and was expected to grow at 2-2.8 percent for the whole year, according to the official data.

Apart from economic fundamentals, the two countries also differ in market orientation.

Brazil focused on its domestic market, but Mexico put more efforts overseas, said PricewaterhouseCoopers auto industry lead analyst Luis Lozano.

Mexico enjoys advantages of geographic location, low labor costs and multiple free trade agreements. Bolstered by the U.S. recovering economy, North America market once again became the engine of Mexico's auto industry growth.

Mexico's domestic market was also spurred by growing confidence in durable goods consumption and convenience in getting loans.

Mexico overtook Brazil as the top Latin American auto producer in 2014, and was likely to retain its leading position this year.

CHINESE AUTOMAKER EXPAND IN BRAZIL DESPITE CRISIS

Although Brazilian auto industry faces a crisis, China's automaker Chery expanded its operations in the country with faith in future growth and export to other markets in the region.

Chery started operating in Brazil in 2009, introducing the QQ, Tiggo and Celer models. With the aim to produce 10,000 vehicles this year, the company announced a bold move in May to invest 700 million U.S. dollars to construct a giant industrial park around the present Jacarei factory.

Despite the current crisis, Brazil is still the biggest economy in South America, and the park will serve as a production, logistics and service center to facilitate the company's regional market development.

In the long run Brazil's auto industry will be very attractive. By 2034, Brazil's auto output will fall between 6.3 million and 8.4 million, the China & Brazil Research and Business Center CEO Ronnie Lins said.

The Brazilian government offered financial aids to the depressed auto industry through two national banks who had provided credit lines for auto makers. The government also planned to stimulate auto exports with financial support and to cut import tariffs on auto parts. Endi