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Wednesday, September 4, 2013

Economic scenario - Dollar increases, spreadsheets are revised

AutoData Newsdesk
The significant devaluation of the real during the past months, and its short-term consequences, are still being digested by the Brazilian automotive industry executives. At first sight, however, the scenario for vehicle exports appears to improve while, in the opposite side, there is concern about eventual cost increases of imported raw materials and components, some of them, without similar local production. The definition of a clearer horizon will demand additional time, believe the executives, especially since the new exchange level may not necessarily be consolidated. This is, according to Décio Carbonari, president of Anef - the financial institutions belonging to the vehicle manufacturers in the country - a source of concern. He believes that there are those who think that a more realistic level for the exchange rate would be at R$ 2.20, while others are talking about up to R$ 2.60. "It is difficult to know how long this movement will continue and, as a result, what would be the resulting impact on inflation, and the consequent governmental measures." In any event, the exchange rate of the US currency is already at a level that enables some companies to rethink their strategies. The president of General Motors Brazil, Santiago Chamorro, for example, is already considering the possibility of increasing shipments of Brazilian finished vehicles, parts and components, including opening up new markets. GM shipped 45,000 complete units and 11,000 CKD kits up to July of this year, almost entirely to Argentina, a market that has experienced a strong recovery. These volumes represent an increase of 30% when compared to the same period last year. By the end of the year, the executive believes the company should export 100,000 vehicles, representing an increase of around 40% when compared to last year. Judging by Chamorro's disposition, the mission proposed by Luiz Moan, president of Anfavea, of making the Brazilian industry to ship abroad 1 million vehicles per year by the end of his mandate, in April 2016, no longer seems to be so implausible. The association, incidentally, has revised its export projections for this year. Initially, Anfavea estimated exports would drop 4.6% when compared to 2012, representing 420,000 units. Now, it projects an increase of 20%, that is, 534,000 vehicles. The autoparts industry estimates that a more competitive exchange rate not only opens more robust export possibilities, but also provides a positive scenario for producing components locally in the medium term. Arnaldo Iezzi Jr, director-general of Borg-Warner, revealed that, despite the high cost of labor in Brazil when compared to the company's units in Poland and Mexico, this new scenario enables the company to conduct studies for the production of the cooling gas for the EGR system used in diesel engines, and the variable valve command, for production at the company's facility in Itatiba, SP."Today, various truck models in Brazil use our imported coolers. We are evaluating." According to the executive, customers have consulted the company regarding the possibility of local production, but the instability of the exchange rate makes budget planning more challenging. Luis Marques, sales and marketing manager at Meritor Brazil, possibilities there are benefits for producing components locally. "The exchange rate devaluation ends up contributing to the process of establishing new technologies from abroad more competitively into the country." According to the executive, Meritor has a constant program of producing components locally.

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