By on December 24, 2010

Though the final numbers are not quite in yet, according to well-respected Brazilian car market journalist Joel Leite, writing for Brazilian car site, the big losers in 2010 are clear. I for one am quite shocked. Of all makers and importers in Brazil, only four lost share. The rest were all able to keep up with market growth and even gain share. Ready? Brazil’s losers are …

Fiat, Volkswagen, Toyota and Honda.

Fiat lost share in spite of its much ballyhooed new Uno (read here, here and here). VW saw customers deserting in spite of  its much praised Gol (read here and here). Fiat may even sell a little more than in 2009, but it’s not keeping up with the market. Fiat had a 24.5 percent share in 2009. This is down this year to 22.9.

Meanwhile, VW lost more. It had 22.8 percent in 2009. This year it’s fighting hard to keep 21 percent. As the market as a whole grew 8 almost 9 percent, both firms are running hard, but staying in the same place. Both Fiat and VW will repeat their positions from 2009’s rankings though. First and second, respectively.

I talked to some of the people at Fiat. Yeah, some high honchos. Off the record. They admitted to that they’d expected some friendly-fire casualties as the result of the new Uno’s brash success. However, they didn’t expect that it would cost them that much in carcasualties. They have a backlog of 20,000 unsold puppies because they just can’t squirt enough out. They also held the line in terms of pricing pretty much. They told me the company has the healthiest margins in Brazil. Yummy for them. However, they are confident next year they’ll grow again and even gain market share. Why? New Palio and Siena (based on New Uno’s platform) are coming.

Fiat’s  suits are crossing their fingers these cars will replicate the Uno’s homerun. Capacity will be a problem though. A new factory is coming, but it can’t start producing soon enough. Fiat’s plans are mighty and, according to equally well-known Brazilian journo Roberto Nasser (if you can read Portuguese go here), they plan to increase capacity in their original Betim, Minas Gerais State plant to 950 thousand cars a year (from 800K) and to reach production of 200,000 cars in both the old re-activated factory in Córdoba, Argentina and the new one in Jaboatão dos Guararapes in Pernambuco state.

That makes for a grand total capacity of 1 million 350 thousand cars a year (take that competition!) in their three complexes in the Mercosur area. If they don’t do that, Fiat runs the risk of losing the momentum, which would be very dangerous at this junction. Why? (Oriental drums beating in the background). Keep on reading.

VW has a different problem. It doesn’t have much in terms of new product next year. Well, except for the Jetta, but that car isn’t a volume seller in Brazil. VW’s people must be sweating it. To keep their second place, they are making mega/super/hyper promotions all the time. This of course hurts the bottom line. And this is the crux of VW’s problem in Brazil. They insist they are a premium brand. Brazilians don’t believe it. VW offers very decontended cars at prices competitors only dream of commanding. Result: Mass defections of previously satisfied customers. Also, there’s no step up in the VW line. You step up from Gol and Fox and land in a fourth generation Golf. Where’s the pleasure in that?

Fiat at least has this better sorted out, as people stepping up from Uno, Palio or Siena, fall into Idea, Punto, Bravo or Linea. Definitely they feel like they’re getting ahead.

Both of these companies are not yet, but soon will be, suffering the onslaught of popular products (read small, subcompact even) from Toyota (read here and Bertel’s most excellent, on record, piece here) and Hyundai. Not to mention Chery. They’ll start producing locally in 2013 at the latest, and in 2011, they will launch the QQ. This will be the cheapest car in Brazil. It’ll also come with content unheard of in this country at such small prices. Rumor has it selling at around 22,000 Brazilian reais ($13,000 – a bargain in Brazil?. Fiat or VW offerings in this market, with the same level of content (not only A/C and power windows and locks, but air bags and ABS, too) sell for around 33,000 reais ($20,000). 11,000 reais is a whopper of a difference in this country. Chinese cars are so far an unknown factor in Brazil. But they will be a factor. Count on it.

Toyota and Honda suffered from old lines, too (not to mention Hyundai-Kia, wow see their numbers in a future post). The Honda Civic commanded waiting lists for almost two years after launch. Now it suffers cannibalization from the smaller (but more family friendly because of trunk, trunk, very important in Brazil for some reason and not the one you’re thinking!) Honda City.

The City launched this year and already is the leader in the subcompact premium sedan market (cough!), but stole sales from big brother Civic, more than from anybody else. Civics now offer discounts and Honda dealers holler and scream their big offers like everybody else. A far cry from a year ago.

Similar situation at Toyota. They basically offer the Corolla. Next year though could be different for them. A word to the wise at Toyota, hold the pricing. Don’t believe in your own hubris. Small car buyers in Brazil are sensitive to price above all else (and are rather brand loyal, to Fiat, to VW.)

You, Toyota, you have cachet, but do you have that amount of cachet with this crowd? Take a page from Renault that lowered prices on Sandero and Logan (while offering more content) and grew. If you offer bare minimum for highest price in segment, the same fate as VW’s will befall you. Unless you’re going to launch the Etios as a premium subcompact sedan (cough!). If you do that though, you won’t get any closer to your stated goal of having 10 percent of the market by 2015 (a number that always seems to get pushed back by the Toyota brass in Brazil).

Anyway, the Japanese numbers are Toyota down from 3.1 percent to 3. Honda is a little bigger in Brazil than Toyota. However, they also fell. From 4.2 percent to 3.7.

So if these are the losers, who’s getting the Brazilian booty? Full wrap up coming soon.

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21 Comments on “Brazilian Market Wrap-Up Preview: And the Big Losers Are … Hard To Believe! Plus You Get Some Bold Predictions...”

  • avatar

    Marvelous and very interesting article, Marcelo!  Interesting that the Japanese (especially Toyota) can’t seem to put a foot right in the Brazilian market, considering how dominant they are in the Asian market. Maybe they just understand us better (being fellow Asians), or they just got their foot in early enough. Toyotas and Hondas here are overpriced too, Hondas especially. Way too much for what you got. But they have such a bulletproof reputation that people just practically worship them in the marketplace. Premium prices are easier to swallow if the resale price is also excellent, and in fact can be easily recouped from the higher resale vs less popular brands. Looks like they want to try that in Brazil, but the reputation (and resale price) wasn’t there yet, not enough to support the price anyway.
    Honda here recently have found out that bulletproof reputation does have limit, they tried to boost their prices too much (up to the premium category!) while the car themselves seem to have suffered from visible cost cutting,and sales tumble. Serves them right.
    BTW Chery sells the QQ here in Indonesia too. They’re also one of the lowest-priced cars around. There were also big brouhahas over the price and the standard equipment when they first appeared. They flopped, big time. Automotive media reported such interesting “engineering quirks” like a rear door panel that squirmed as you operate the windows, and other such things. Proof that low price does not necessarily makes for a successful product. Plus Indonesians have also had bad experience with awful Chinese motorcycle about a decade ago (they’ve since practically dissappeared from the market) so they’re automatically wary about Chinese vehicles. Didn’t stop them from trying though, which is the right thing for them to do. Who knows, maybe in 15, 20 years they’ll be the next Hyundai? Right now they’re more like the very early Hyundai however.

    I look forward to see who did well in the Brazilian market in the next article! Oh, and Merry Christmas too! :) Actually its Dec. 24 morning here in Jakarta. So you’re ahead.

    • 0 avatar

      Merry Christmas Mr. Whopee!

      As I write this it’s 11:25 am, Friday, Dec. 24 (just so that we can get our time zones resolved)!

      Thanks for the kind words! With respect to the Japanese…You know that Toyota’s first factory out of Japan was in Brazil (if you click on my link to my post on the Etios you’ll find a quick history)? 60 years ago. So time should not really be a factor. Honda has been here forever, too. Most of the time as a maker of motorcycles (of which’s market they command an astonishing hold of 80% down frm 90% just a few years ago). Where do they fail then?

      I believe the answer is two-fold. A certain arrogance that leads to blindness considering consumers’ real needs and perceptions. A little akin to what happened in America with Tundra truck. For better or worse they’re facing an uphill battle there. Consumers are loyal (like in Brazil small consumers split up into 3 camps, the one who don’t care, the Italianphile and the Germanphile, and never the twain shall meet! Nippophiles are so far too small too count, but they surely exist). They have long mostly satisfactory histories with their respective brands. If you want to enter quick, here, pricing is key.

      The second reason was pointed out to me by fellow commenter Stingray. I believe firmly in it now as it helps explain pretty much the rise and fall of VW and the rise of Fiat in Brazil. You see, neither the Beetle or the latter-day Beetle, the old Fiat Uno, are perfect. But they are perfect for Brazil. Why? It’s not a question of never breaking down, of being absolutely reliable (as if such a thing existed). It’s a question of when breaking down, getting yourself back together in short order and very cheaply. The Beetle did it, the Gol does it, both old and new Unos do it, too. The Palio does it, too and the Siena does it much better than the Voyage. So that helps explain VW downfall the Gl is still doing it, but both Palio and Uno arguably do it better than the Gol (not to mention Fox, Polo, Golf which don’t do it anymore).

      How do the Japs stack up here? Toyota is seen as basically reliable, but boring and a little unimaginative in design. But beware if it breaks it’ll break your bank account (real or not that’s the basic perception Toyota embrace if they ever want to grow in Brazil. I think they think the market is stupid and are wrong. Well, that’s a bad attitude to have). Honda is pretty much the same, though are seen as more forward-thinking in terms of design, albeit a little too sporting for those more conservative, though now they have increased the price of their smaller cars so much (City and Fit) that there’s been a definite backlash. Some people love them so much they just put up with it and pay. Most are looking for alternatives (especially after trying the car out and seeing, especially in case of Fit and City, there’s not much there the competition doesn’r offer, too, and for better prices).

      As to resale yes they are better. But better by a very slim margin. Nothing to write home about. Many people in this situation are often dissapointed ’cause they believed the resale would be phenomenal. Well, it’s good but not phenomenal. In the early days Honda dealers paid above market for secondhand cars. Nowadays they don’t do it anymore. They’ve fallen into the proverbial muddy ditch everybody else lives in (as more cars are sold there are more cars in the shop and the former golden gloved treatment is falling by the wayside).

      As to QQ, as I said it starts next year. But they are alreaqdy selling the Face (compact minivan) and Tiggo (compact SUV). Both are selling rather well, though the Cielo (midsize sedan/hatch) is not so much. All are priced lower than competitors and have much more standard content. Brazlians love themselves low prices (Fiat’s key to success 15-10 years ago in the period when they climbed from 4th place to first- nowadays not so much). If Chinese keep it up and correct the most noticeable failings (very cheap finishing, seats with varying firmness, bad ride), they’ll have a chance. Give them 3 to 5 years. They’ll learn.

    • 0 avatar

      Sorry for the time zone confusion,  Marcelo, at the time I wrote that reply it was 24 Dec evening, so it seems that we’re ahead after all! :)
      Anyway thanks for the lengthy reply. Help answer my curiosity of why the Japanese can succeed so well here and not there, and vice versa for European makes such as VW and Fiat. One million plus plant capacity! That’s insane! Just for Brazil or for the whole South America? Even the biggest auto plant here in Indonesia is barely one-tenth of that capacity.
      BTW Fiat used to be pretty big here in Indonesia, they’re used to be considered pretty much like today’s BMW 3-series, kind of prestige car for enthusiast but still somewhat affordable for the common folks. Heck my parents used to have a Fiat 124! Somehow they lost it in the 1970s, though, and by 1980s they’re gone. Beetles and the VW Bus (called Kombi here in Indonesia) used to be very popular as well, yet they were gone by 1980s also. Fiat tried to come back in 1990s with the Uno but did not succeed, and now is no longer sold here. VW has made a comeback as a premium car for the elite, and has done reasonably well in such market (tiny volume!).

    • 0 avatar

      Sorry for the time zone confusion, Marcello. It was Dec 24 evening when I wrote that last reply, so we’re ahead after all.
      Thank you for the lengthy reply! Helps answer my curiosity of why the big Japanese makes succeeded here yet failed there. And the opposite for European makes. I always wonder why Fiat and Volkswagen can succeed so well there.
      BTW both Fiat and VW used to be big here too. Fiat was once considered a premium car for enthusiast that’s still somewhat affordable to the common folks, like BMW 3-series today in the US maybe (Now any new BMWs are strictly for rich folks only here.) They did something wrong in the 1980s, and are now gone from the Indonesian market. Hell, my parents used to have a Fiat 124!
      VW beetle and bus (called Kombi here) used to be very popular as well, but they too were gone by 1980s. VW has made a somewhat successful comeback as a premium, prestige car, with prices and annual volume to match (very high and very low, respectively.)

    • 0 avatar

      Alas, my friend, the VW Bus (also known as Brazil as Kombi, another coincidence bringing Indonesia and Brazil closer together) is still going strong here. Though they know have to share their market with Fiat Fioriono (what we call here a furgão – mix of van and car) and Fiat Doblò both split the market with it. In this segment is where the Chinese find their greatest impact so far. Both the Jinbei Towner (licensed copy of Asia Towner) and Effa (i beleive Changhe in China) M100 are becoming more and more common.

      I think what might have happened to Fiat is that they established a foothold in Indonesia. Then Toyota and Honda came and squeezed them out from bottom. THe opposite of what they’re trying to do here here. Here they’re trying to squeeze them out from top. Won’t work.

      That’s why Chisnese may somehow succeed. They’re being humble. Cpoming in slowly. Bottom up. Like I said, people here are sensitive to a multitude of things, but all things considered if price is right they’ll go for it (like Nissa Tiida US, weird, strange, French, but price right so leader in segment Fit and Corolla, though get all press and praise, be damned!).

      Fiat for many years suffered when they entered Brazil. They entered in the low wrung. They cut everybody else in price. Offered more content (for LESS price, not comparatively less, but absolutely less). After they got out of their late 60s early 80s funk and began producing things the market desired, the market, slowly but surely turned over. So much so they’re now market leader for 9 straight years. And like I said in post, will continue to do so, unless success blinds their eyes and turns the into VW the Returm. In such case, a multitude of Oriental brands are in the wings waiting for a mistake. Chinese, Hyundai and Toyota, too (cause Honda so far has shown even less interest than Toyota to compete on price)

    • 0 avatar

      Wow, I forgot that they’re still making the Kombi in Brazil! Amazing… Though they’ve reverted to the original sliding door design, it seems. In the last years of existence in Indonesia, VW brought a Brazilian version of the Kombi with double doors instead of sliding doors (presumably because the German production has ended.)
      Anyway, I checked out the Fiat Brazil website out of curiosity. The Fiat Palio weekend looks good! Much better looking than the sedan. How come your wife doesn’t like it? Or is it “image” thing, like the way US wives don’t like minivans (mom-mobile and all that)? Maybe get her the Adventure version which is even more butch.

    • 0 avatar

      Dr. Malito… the Palio weekend looks even better in person than in pictures. and has an immense boot/cargo area.

  • avatar
    Educator(of teachers)Dan

    What, no higher resolution version?  No HD?  ;)

  • avatar

    Loved your analysis, Marcelo. And most of all, correct – because I agree with it ;)
    I don’t get the “arrogance towards the market” attitude. Aren’t you trying to sell to the market? Well, then it is what it is. If you are able to change the market’s perception, good for you; but until then, deal with it as it is.
    I believe Honda and Toyota sales would be huge with pricing a little closer to competitors.

    • 0 avatar

      Ah, great minds think alike! Thanks for the kind words. Now, if I see it, and you see it, how come they don’t see it???? Crazy!

      BTW, I believe totally with you. Price the City at 45 and the Fit at 40, they’d kill Punto, Polo, Idea and maybe even get in top ten. As is, everything above 50K reais, they’re just stupid. Or crazy. Or stupid crazy! What do I know?

  • avatar

    What article? ;-)

  • avatar

    I never made it past the video

  • avatar

    I would’ve thought that Suzuki would do really well in this market. They know how to make small profitable cars, well.

    Are you guys waiting for the influx of Indians? Once the Chinese find a foothold I’d expect that they’d follow as well. I wonder when the Chinese Buicks will show up?

    • 0 avatar

      Unfortunately Dimwit, they haven1’t even tried to sell for low price in Brazil. They came in, like all Japs, here, with an attitude. An attitude that said I’m Japanese, I never break, my design is bad but it’s because you (stupid Brazilian consumer) can’t appreciate it.  And if you can’t pay my price, I don’t care. Don’t you know I’m Suzuki? I’m imported? You have to pay for me what you pay for the German holy trinity.

      The market however (except for Brazilians acceptance of Toyota and Honda ) didn’t accept this. And sent them packing a while back. Now they’re back again (the last two years). Low volumes. High margins. That’s the loser’s game they’re playing. Hyundai will kick them out again in a few years.

  • avatar

    Sorry, but my sperm count doubled in the 4:40 of that video.
    I’ve recently started dabbling in drumming – I think with just a bit more practice, I could score a job as a snare drummer in a show like that  :-)

  • avatar

    I don’t know about the Koreans, but the Japanese already lost the train in your market.
    I don’t see the point in selling a car as a luxury item, and then you get in it and find a cheap interior. I have sat in the current Corolla and Civic, and while Civic > Corolla, they still look like the econoboxes they are. However they’re sold at a premium (and people gladly pays for that “status”). I don’t even want to talk about VWs, they improved a lot with the latest SpaceFox (which I recently saw), it now looks nice and decent, not like the 1st gen, which looked cheap.
    If the Chinese are as smart as I think, they will enter and make huge damage to the already established players. I don’t think conditions in China are much different than in Brazil, in the sense that people will buy value and service.

  • avatar

    This is the thing that I don’t understand. Either the times have moved far too fast for the exec suite or they’re just arrogant idiots. With the internet there are NO ignorant customers. Maybe they can’t afford the best offerings of your company but I betcha they know all about them and the more rabid fans could give you chapter and verse on the strengths and failings of the product. Treating them like peasants is going to hurt badly.

    The Jap corps need to approach every emerging market just like they approached the N/A market… interlopers against established players. More value, better designs and interesting models. Don’t do it and you fail.

    The Koreans won’t do that and the Chinese seem to have that mindset everywhere they go.

  • avatar

    Forget about the cars just now. I would not mind wearing just bikines and still sweating like those Brazilian ladies in this freezing weather.

  • avatar

    Great analysis! Anw, i am new to the Brazilian auto market, but i would like to know more about it. Maybe I can start with pricing and car financing. Are cars in Brazil more expensive than the states? What is the average price like? For car financing, what are interest rates and tenors etc nowadays like? I will gladly appreciate anyone’s help here :)

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