Analysis: The New Brazilian Consumer Rejects Entry-Level Cars
In my recent reviews of entry-level cars in Brazil ( VW up! and Fiat Uno), I spoke of how these new cars are adding technology to confront newer cars sold in the category immediately above, that of the midlevel compact ( Ford Ka). Entry-level car participation in the market is under such pressure, that there are few launches aimed directly at that segment, while the midlevel compact has received a plethora of novelties.
As the podium in September is fraught with new names and new competitors keep jumping into the fray, even though YTD sales have slowed 9% to a total of 2,404,032 vehicles, now is an interesting time to analyze what has changed in the Brazilian market and consumer.
For years the top three spots were Volkswagen Gol, Fiat Palio and Fiat Uno, with little variation, being that sometimes a Chevy Celta or Corsa would manage to snag 3rd place. In common, these models shared the fact that they were de facto entry-level cars with the minimum required by law and as bare bones as could be (power nothing, cold air, are you kidding?). This year the market has suffered a whirlwind. Top three most sold cars in September were Fiat Palio, Fiat Strada and Chevrolet Onix. The Palio compromises two cars: the old Palio Fire is still an entry-level car, while simply “Palio” refers to a firmly midlevel compact. Strada and Onix are also firmly midlevel compacts and priced as such.
What happened? It is my estimation that the reasons for this monumental change are threefold.
Reason number 1 for the change was altered government policy (bless them!). As of the end of last year, all cars in Brazil must come with ABS and double frontal airbags. This led Volkswagen and Fiat to trim their lines and kill off perennial best sellers as updating them through retro-engineering proved expensive. Volkswagen did away with its Gol G4. The Gol G4 was a direct descendent of the first Gol launched in the 80s and sported such antiquities as a north-south engine layout. Due to pricing and fleet sales, that Gol sold as much or more than the much more modern Gol G5 (and now G6) still on sale. Besides the name, nothing else was shared between the two cars. In fact, the Gol G4 was an absolute entry-level car and the G5 and now 6 are firmly midlevel.
Fiat did a similar number and terminated its Uno Mille car. In design and mechanically very similar to the early 80s-launched Uno, it was a survivor. Now only the new Uno remains. Like the Gol, the new Uno uses a new platform and shares nothing with the old one. However, as Fiat used to lump old Uno Mille and new Uno sales together, the Uno nameplate sales has taken a beating and is now only the 6th most sold car in the country.
The second factor is the maturation and segmentation of the Brazilian compact car market. This is reflected in higher transaction prices and better equipped cars. Besides the mandatory airbags and ABS, most private buyers will only buy cars equipped with 4 doors, air conditioning, power steering, electric windows and locks. Makers usually throw in, depending on trim level, such enticements as multimedia centers, as extra dollop of chrome, rain and darkness sensors, and other wow-me technologies. This has created a second category in compact cars, somewhat above the one in which the so-called entry level cars (Uno, Palio Fire, up!, Celta compete). In it are cars like the Chevy Onix, new Ford Fiesta and Ka, Fiat Palio, Hyundai HB20, Toyota Etios, Renault Sandero. This segment has grown 11% compared to 2012, while entry level cars have decreased 34% in the market.
Some makers have even abandoned the entry level sub-segment altogether. Toyota and Hyundai do not compete in it. Fiat’s new Uno is trying to abandon it. Volkswagen’s up! firmly straddles the line between entry and mid-level, tending towards the latter. Ford does not compete in the basest segment, choosing to offer the Ka only as a midlevel offering and the Fiesta in an even higher compact sub-segment, that of the premium compact.
Another segment that competes directly with entry-level cars and takes away from their sales numbers are compact sedans (Fiat Grand Siena and Linea, Nissan Versa, Renault Logan, VW Voyage, Chevy Prisma and Cobalt, Honda City, among many others). Though there are still two entry level sedans (Chevy Classic and Fiat Siena Fire), midlevel sedans are the ones which receive investments and the segment has seen a multitude of recent launches. In comparison to year 2012 levels, the compact sedan category has grown 11%.
A bit more expensive than the sedans, but still derived from compact cars, there is the compact CUV phenomenon. Being the Ford EcoSport and the Renault Duster the two main names in the category, sales have grown 12% since 2012, even managing to grow sales in comparison to the much better year in sales of 2013 (6%). Almost 217 thousand compact CUVs have been registered in Brazil this year.
Riding a similar wave as the CUVs, small pickups grow in popularity year over year. In 2014, the market has grown 5% over 2013 (even though the general market has fallen 9%) and comparing to 2012, there are now 10% more pickups sold every month. This has lead to such phenomena as the Fiat Strada and Volkswagen Saveiro being offered in single, extended and even double cab configurations. In February of this year the Strada was the most sold car in Brazil, the first time ever a pick-up won the sales crown. Underscoring its success, September 2014 will go down in the books as the Strada’s best month ever so far in its history. Fiat sold over 14 thousand of their little trucks in that month alone.
As a result of all of this, entry-level cars are down 34% since 2012. Two years ago almost 725 thousand entry-level cars found a home. Now that number is closer to 480 thousand.
The third and final reason is the continuing prosperity of Brazilians. More Brazilians than ever can afford brand-new cars, and though the market is down as the whole country holds its breath over the end of the election period (and businessmen make use of the opportunity to withhold investments and nose voters in the direction of their interests), the Brazilian real still stretches more than before and can now buy more car for relatively less than ever.
All of this results in a market markedly different from a year ago. Safer, more equipped cars are reaching consumers’ hand. Though most sales still rest squarely in the compact territory, it will be interesting to watch if the entry level is abandoned, or should the economy hiccup its way into malaise, if entry-level cars will again find favor in the market. Projecting for the future and analyzing current trends, it seems logical to say that the new Brazilian consumer is here to stay and makers now adapt to his needs and offers him more in order to keep him happy.
Happy confluence indeed!
More by Marcelo de Vasconcellos
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