High interest, pricey parts hold back car production in Brazil
Costly credit is making an impact on the sale and production of vehicles in Brazil. However, as car prices have skyrocketed in the last few years, the market should not see a recovery any time soon even if interest rates are lowered, experts heard by Agência Brasil argue.
“What we’ve just witnessed again was the brutal elevation in car prices dictated by the surge in components and semiconductors, currency devaluation, and even by the inflation prevailing in recent years. Back in 2021, it brought us this soaring rise in prices, which was not accompanied by a growth in society’s purchasing power,” Getulio Vargas Foundation Professor Antônio Jorge Martins remarked.
As reported this week by national vehicle association Anfavea, car production saw an eight-percent increment in the first quarter of the year from January–March 2022. In the first three months this year, 496,100 units were manufactured. Despite the jump, last year provides a poor basis for comparison as it displayed the worst result for the sector since 2004.
Interest
The main driver holding back the rebound in sales and production, Anfavea said, is interest. In its last meeting, the Central Bank maintained the nation’s benchmark interest rate at 13.75 percent a year.
“It is quite evident that the level of the interest rate prevents the return of production to higher levels. It has been working as a handbrake to a more significant resumption of production,” said Luis Paulo Bresciani, adviser with DIEESE, an association of trade unions for socioeconomic research.
More expensive cars
In addition to elevated interest, Bresciani went on, the rise in car prices leads to a shrinkage in the consumer market. “On the one hand, there’s interest and severely impaired credit and financing conditions. On the other, our offer of vehicles is concentrated on models whose prices start off at a really high threshold, driving away a sizable portion of potential buyers,” he noted.
The focus on big-ticket models was, Professor Martins believes, one of the industry’s strategies to pass on the increase in production costs, which were also pulled up by investment in technology. “Until then, automakers had focused on keeping the amount produced as large as possible. This was no longer the case after a new goal was set—to reach a profit margin and keep investment coming,” he said.
As a result, a drop in interest rates alone is not likely to be enough for the market to go back to pre-2015 levels, the expert remarked. “A number of criteria should be met before we see a significant improvement in the market as a whole,” he underscored. Lower component prices and the appreciation of the real against the dollar are factors Professor Martins believes can help the industry rebound.
