Ford Sees Excess Capacity Hurting Brazil

by Derek Kreindler

November 15th, 2012 11:15 AM

We’re committed to finding, researching, and recommending the best products. We earn commissions from purchases you make using links in our articles. Learn more here

ford sees excess capacity hurting brazil

Excess capacity through 2016 will be a royal pain in the butt for Ford, hurting their margins on the all important small car segment.

Despite Brazil’s booming car market, capacity is expected to outpace demand by 20 percent each year until 2016. Mark Fields, Ford’s head of the Americas, told Reuters

“Excess capacity is going to put more pressure on pricing and margins, particularly in the B segment, or small car segment, which is the largest segment in Brazil”

Ford is one of Brazil’s four largest auto makers, with multiple assembly plants in the country. But market share for the “Big Four” has been eroding as new entrants capture the eye of consumers while also building new local plants to dodge hefty import taxes.

#Brazil #Capacity #Ford #FordEcosport #MarkFields #SouthAmerica

Derek Kreindler

More by Derek Kreindler

Comments

Join the conversation

7 comments

L'avventura on Nov 15, 2012

I think the expectation is that the Brazilian car market will hit 6.6 million by 2020. Its expected to become the third-largest in a couple years. The expectation is that we'll be at overcapacity until the Brazilian market explodes. No company wants to be left out when that happens and they'll have capacity ready for that. Many are expecting the 2016 Rio de Janeiro Summer Olympics to be a watershed moment much like 2008 Beijing Olympics were to China. Brazil is one of the few markets left, besides Indonesia, that expects market demand to expand by millions in the next half decade. The issue of course is that protectionism requires Brazilian factories, I'm sure the Brazilian government hopes that any over-capacity will be moved to become exports for the country. Win-win for Brazil.

Like Reply
- See 2 previous
- Th009 on Nov 15, 2012
  
  The hope is for exports ... but with no free-trade agreements (see protectionism), rising labour costs (no need to be competitive thanks to protectionist barriers) and very high benefit costs, it becomes much more difficult to be competitive. http://riotimesonline.com/brazil-news/rio-business/brazil-among-most-expensive-for-business/ Proximity may help with "natural" exports to countries like Argentina and Chile, but it's been a long time since Brazilian-built cars have been sold in North America. I firmly believe that the Brazilian auto manufacturing and market will end up very inward-looking, with both few imports and few exports, until the government policies change.
  
  Like
- L'avventura on Nov 15, 2012
  
  @th009 Regardless if it makes much business sense, Brazil wants overcapacity, you can't export cars if you're buying more than you are building. China has done pretty well for itself being protectionist towards its auto industry, when you have consumers that automakers want, they'll suck it up and play by the rules. If enough capacity is present, investment and tooling are there, companies will be forced to export if there is overcapacity. But as you say, any extra Brazilian-made cars will first be exported to other Latin American countries before North America. Though as we've seen recently with Toyota exporting French-made Yaris' to the US; anything is possible when the conditions are right (over-capacity in Europe, strong yen, weak euro). Unfortunately, what may be happening is that there is just too much capacity all over the world; Brazil, China, Japan, Europe, etc.
  
  Like
- Marcelo de Vasconcellos on Nov 15, 2012
  
  @th009 "I firmly believe that the Brazilian auto manufacturing and market will end up very inward-looking, with both few imports and few exports, until the government policies change." It already is th009, it already is. Brazil exports few cars now (basically Argentina and other South American countries). Back in the 90s Brazilian cars made it to Western Europe, the US, the Middle East. No more. That export push was due to excess capacity back then. With the internal market gobbling up all production (cars sit on lots for less than 20 days and all factories produce at well over 80%), the high margins that are the reality of our market, I know few local auto execs worry too much about exports (BTW, neither do the home offices of makers in Brazil as idle plants are a problem for them in other, specially home markets). Put that ogether with the projected growth (6.6 million is too much, but 5 million is within reaach), despite all the negatives, almost every maker wants in and will have to play ball the way Brazil has decided it wants to play. The question of course is how long this will be the case. Don't really see any change of scenario the next 5 yrs at least.
  
  Like
Marcelo de Vasconcellos on Nov 15, 2012

cry, cry, cry me a river. Too bad for Ford. Guys at Fiat tell me they don't have time to breathe. Last week (think it was Tuesday), Fiat had its 2nd best day ever in production at their factory in Betim. 3,400 cars in one day... Ford could be right though. I love the Ka and all (just bought one), however, it and the so-called Fiesta Rocam are getting way too long in the tooth (make that beautiful concept the Star and make a killing in the under 30k real market, there's stii time before up arrives!). New Fiesta too pricey and mayve too small against the competition. Anyway, this kind of anouncement have a way of becoming true. For Ford that is. Renault could pass them in sales next year, Nissan and Hyundai in 2. Big Brazilian 4 is no more. Now it's like Big 3.3 and Ford could soon lose their "big" status in Brazil.

Like Reply
- See 1 previous
- David Dennis on Nov 16, 2012
  
  Nobody seems to mention that this excess capacity might bring at least a touch of sanity to Brazilian auto prices ... is that possible? D
  
  Like
- Marcelo de Vasconcellos on Nov 16, 2012
  
  @David Dennis I've long said that some sort of price correction is long overdue. However, it just won't happen in the foreseeable future. Government policies have effectively blocked Chinese imports, for example. They were the only ones who seemed willing to low-ball prices. With that pressure gone, the ones in the market have no reason to reduce prices as anything they produce is sold at the current (very) high prices (though if someone would bite the bullet and keep content, I'm positive the market would respond putting many more reais into their coffers). Besides, there is the fact that in 2014 airbags and abs become mandatory. Brazilians are feeling rich and more are buying more feature-laden cars (all they care about is if the monthly "prestação" fits in their budgets), all these factors lead to the perfect storm, as it were, for high prices to go on in the short and mid term. More competition, more factories, more players could lead to a situation of price wars, but if that ever happens, that's far off in the future.
  
  Like