http://news.yahoo.com/s/afp/20110105/bs_afp/brazilautosaleseconomy_20110105182520
I was there towards the end of January and then went back again at the end of the summer and saw a noticeable difference of how many new cars, trucks, and motorcycles were on the road. Like most of the “growth” in Brazil right now, this is also government induced. Will be interesting to see how this one plays out.
Are you sure it’s a bubble?
The article says 3.3M vehicles were sold last year in a country of 192M - 1 per 58 people.
Compartively, in the United States, 11.6M vehicles were sold last year in a country of 310M - 1 per 26 people.
Which one is more likely to pop?
Large Western cars manufacturers are desperate for new sales outlets since their home markets are not only “saturated” but actually collapsing. The predicted 2010 “recovery” turned into a lot of hot air as the car market in Europe went down a jaw dropping 26% over the already horrible 2009, leaving local brands scrambling for new opportunities. FIAT is building a new giant factory in Brazil (something the local press has failed to report, probably because of labor unrest at home) while Volkswagen bought out Suzuki’s auto division, mostly to acquire their Indian operations. It’s a high risk game: rising commodity prices and increasing sophistication will make sure brand new cars will be more expensive to buy and to run, hence less palatable to emerging market buyers. Sadly the car industry is geared towards growth: nobody has ever even considered they may reach a point when sales will slowly grind to an halt simply because people won’t be able to buy and run brand new cars anymore.
Also car manufacturers have been bitten back by their own ideas: stricter and stricter emission and safety regulation (fully backed if not downright inspired by the manufacturers themselves to keep competition out of the market and destroy second hand value in the long run) mean cars built for the Western markets are less and less profitable despite the ever increasing price tag. By “invading” emerging markets, where regulations are looser (at least unitl they’ll repeat their old errors once again) they hope to be able to increase profits, making up for the lost ground at home.
Hopping on an emerging market is a good thing, repeating the same old mistakes is not.
It is a bubble because it is growth stimulated by the government and not the private economy.
Let me preface this by saying: I only have a very limited knowledge of the inner-workings of Brazil.
But - just a thought:
Is it possible the growth (bubble) currently taking place in Brazil is IN SPITE of the gov’t? Rather than due to the gov’t?
I just ask this because Brazil is such a wonderland of commodities right now - (oil, grains, etc.) that the country is benefitting greatly from exports. And obviously the country as a whole is much richer due to all those commodities - which I would think is a good explanation for the growth.
The government, along with Brazil’s central bank, is helping to increase sales by pumping millions into the industry. A lot of the “growth” in Brazil is because of government stimulus. It’s not exactly real growth by any means.