Firms plan to produce locally to avoid paying high tariffs
A slowdown in India's auto market may mean a windfall for fellow BRICS countries, especially Brazil, analysts in the media predict.
Several domestic automakers have announced that they are postponing investment in India due to market conditions there, according to India's authoritative business newspaper the Economic Times.
The paper predicts that the investments will flow to Brazil based on previous statements by Chinese automakers, who have expressed interest in increasing investments there.
The South American country is now the fifth-largest automotive market in the world.
For a long time, the world's auto giants have viewed the country as a foothold in the South American market. Foreign automotive companies like Volkswagen, Ford and GM have captured over 70 percent market share in the country.
Many Chinese automakers are also turning to this emerging market because intense competition from foreign automakers at home leaves them little room to develop.
In addition, Brazil's new investment policies have further piqued the interest of increasing numbers of Chinese automakers.
Last April, the Brazilian government announced it would levy a 30 percent industrial product tax on imported vehicles, but if more than 65 percent of its spare parts are made in Brazil or Argentina, Uruguay and Paraguay - all members of the South American Common Market - the automaker is eligible for a tax refund or even an exemption.
The regulation has prompted more and more Chinese automakers to consider building plants in Brazil to avoid the high tariff.
In August last year, Zhejiang Geely Holding Group began exporting vehicles that were made in Uruguay to Brazil, and it announced a plan to build a plant in the country with an initial investment of between 400 million yuan ($64 million) and 500 million yuan and an annual production capacity of some 100,000 units.
In the same month, domestic automaker Lifan announced that it has invested $30 million in purchasing Uruguay's Besiney Company.
Lifan will build new facilities in Uruguay and Brazil that will have a combined production capacity of some 10,000 units when they become operational in 2014.
Earlier, on March 12 last year, Great Wall Motors' Brazilian partner Latin American Motors announced that their joint venture production facility, with an investment of nearly $1 billion and a designed capacity of 100,000 units, is expected to be operational in 2014.
Also, other Chinese companies like Chery and JAC have started construction of new plants there. JAC was the first Chinese automaker to invest in Brazil and is currently the largest Chinese automaker in the country.
Although the market is essential and full of potential, analysts warned that Chinese automakers should not be overly optimistic about expansion in Brazil. They suggest domestic investors pay close attention to the country's investment policies and currency rate risks.
Statistics show that this February, Brazil's auto sales decreased roughly 6 percent year-on-year, and Chinese ventures have yet to recover from the decline that started last year.
JAC Motors had a sales decline of 24 percent in 2012 over the previous year. Its market share shrank from 2.69 percent in 2011 to 0.5 percent in 2012. However, it remained the 14th-largest automaker among all auto ventures in Brazil.
Chery, which remained the 15th-largest automaker in Brazil, saw its market share drop from 0.63 percent in 2011 to just 0.39 percent last year. Its sales declined 34.4 percent year-on-year in 2012.
Chery's performance in Brazil was even worse this February, with sales dropping 70 percent year-on-year.
Analysts pointed out that the February sales decrease was the result of fewer workdays in the month due to Brazil's Carnival.
They also attributed the decrease in part to the Brazilian government's cancellation of a favorable tax policy intended to boost the automotive market.
Despite recent setbacks for Chinese automakers, opportunities still abound in the country.
Guido Mantega, Brazil's financial minister, said the country's economy has been in the fast lane, and the trend will be strengthened in 2013, with the annual growth rate projected to remain between 3 percent and 4 percent.
PricewaterhouseCoopers recently predicted that Brazil's automotive sales will grow by a rate of 6 percent on average until 2017.
Roland Berger, another consulting firm, projects an even higher rate of 10 percent.
Industry insiders hold the view that Brail is likely to become the world's third-largest new vehicle sales market after China and the United States in the near future.
In addition, analysts predict that Brazil's hosting of the 2014 World Cup and 2016 Olympic Games will offer more business opportunities for investors in the country.