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Automotive
World
5th Largest Country in the world (by total land area and by population)
Worlds 6th Largest Economy: GDP~USD 2.4T just ahead of the UK
World Bank: U.S. GDP USD 14.6T; China USD 5.9T; Japan USD 5.5T; Germany USD 3.3T; France USD 2.5T
Brazils Challenges
Overall key challenges ahead
Restructure Fiscal Budget (shift to
capital versus current expenditures)
so as to permit sustainable reductions
of interest rates
Resolve infrastructure bottlenecks
(stressed by global sporting events)
Execute significant tax/labor reforms
Contain the rise of organized crime in
urban areas, and
Further reduce the country's wide
income inequalities.
Brazilian Demographics
In the last 10 years: demographics boom
Age
2010 (%)
Age
100+
100+
95 to 99
95 to 99
90 to 94
2000 (%)
90 to 94
85 to 89
85 to 89
80 to 84
80 to 84
75 to 79
75 to 79
70 to 74
70 to 74
65 to 69
65 to 69
60 to 64
60 to 64
55 to 59
55 to 59
50 to 54
50 to 54
45 to 49
45 to 49
40 to 44
40 to 44
35 to 39
35 to 39
30 to 34
30 to 34
25 to 29
25 to 29
20 to 24
20 to 24
15 to 19
15 to 19
10 to 14
10 to 14
5 to 9
5 to 9
0 to 4
0 to 4
Men
Source: IBGE
Woman
Men
Woman
Brazilian Demographics
By 2050, at least 30% of the population will be at least
60 and life expectancy will reach 81 years of age.
Challenges current and future
Health expenditures and costs tend to
rise
Social security system will have to
undergo further reforms, as it is
already in a significant deficit which
tends to increase
Source: IBGE
28%
Unemployment - %
800
Source: IPEA
Jul-11
Dec-10
2008 2009*
May-10
2007
Oct-09
2006
Mar-09
2005
Aug-08
2004
Jan-08
2003
Jun-07
2002
Nov-06
2001
Apr-06
Sep-05
100
Feb-05
200
Jul-04
300
Dec-03
400
May-03
500
Oct-02
600
Mar-02
14
13
12
11
10
9
8
7
6
5
4
700
credit
growth with positive
impact on the economic
activity
Still interest rates are
amongst the highest in
thr world
140 0
90. 0%
80.3
80. 0%
68.4
120 0
67.3
70. 0%
60.4
100 0
49.7
57.2
50. 0%
45.8
44.4
600
44.1
969
400
200
136
170
249
2003
2004
2005
337
481
1147
708
669
40. 0%
30. 0%
20. 0%
10. 0%
0.0 %
2006
2007
60. 0%
800
2008
2009
2010
2011*
Investments in Brazil
Positive outlook for investments
Investments in Brazil
Strong FDI from diversified inflows
Foreign Direct Investments - Inflows
70
Issue/trend
USD Billion
60
50
40
30
20
10
0
Foreign
Direct
Investments are
expected to achieve
USD 55 billion in 2012,
according to Brazilian
Central Bank.
Investments in Brazil
Strong FDI from diversified inflows
Issue/trend
Coque, oil &
biofuels, 5%
Other industry,
12%
Food , 4%
Non-metallic
mineral, 9%
Metallurgy, 11%
Other
(Agriculture,
livestock,
mineral), 1%
Activities to
support extraction
of minerals, 1%
Other services,
12%
Oil and gas, 5%
Mining of metal
ores, 5%
Telecom, 19%
Investments in Brazil
Strong FDI from diversified inflows
FDI per country (USD million)
Issue/trend
Netherlands
United States
Spain
Japan
France
United Kingdom
Hong Kong
Canada
Luxemburg
Austria
Others
Total
2009
6 515
4 902
3 424
1 673
2 141
1 032
34
1 372
537
48
2010*
6 702
6 144
1 524
2 502
3 479
1 030
83
751
8 819
3 420
Jan-Nov/2011*
16 576
7 784
7 742
7 444
2 680
2 625
2 075
1 565
1 548
1 462
10 001
31 679
18 129
52 583
10 748
62 249
* Preliminary data
Investments in Brazil
2012 FDI Confidence Index the turn of the emerging markets
Brazil,
The
Low
confidence
(calculated from 1 to 3)
High
confidence
Brazilian
Automotive
Market
5.7
5.3
4.7
4.3
4
3.4
3.1
2.7
2.9
2.9
3.9
3,6
3.2
4.3
4.4
4.5
4.0
3.4
3.6
1
0
2008
2009
2010
2011F
Sales
2012F
2013F
Production
2014F
2015F
2016F
Market Competiveness
Passenger Cars Market share in Brazil
Market- share as of -1998
Renault 1%
Others 9%
Others
20%
Fiat
24%
VW 29%
Ford 13%
RenautNissan
6%
Ford
10%
VW
21%
GM 22%
Fiat 25%
GM
19%
The top 4 OEMs (Fiat, VW, GM e Ford), represented 74% of the total market in 2010.
In 1998, the same companies had 90,2% of the market.
Source: Anfavea OEM Brazil association
PSA
4.7%
Other
8.9%
Renault
5.4%
VW
26.1%
Ford
10.6%
GM
19.7%
Fiat
24.6%
120
100
Axis Title
80
60
40
2011
growth
2012
growth (f)
CAGR
2010
2015(f)
Global
4.1%
5.0%
6.5%
Brazil
2.5%
1.1%
8.9%
India
5.2%
12.0%
14.4%
China
4.6%
9.2%
9.9%
Russia
38.2%
2.6%
12.7%
20
Global total
Brazil
2010
2011 (f)
Source: JD Power
India
2012 (f)
2013 (f)
China
2014 (f)
2015 (f)
2018(f)
Russia
Tax Burden
versus Government
Incentives (federal,
state and local)
Increased local
and global
competition
New players
Increase in
imports of vehicles,
IPI Tax
versus
Automotive Regime
Significant
investments for
expansion
Difficulties in
obtaining skilled
labor (Engineering)
New regulations
(air bags)
Increased consumer
demanding technological
demands x
Decreasing
prices
Development of
alternative energy
sources
PCH captive power
plants
Low investment in
Growth of sectors
local R&D
linked to the
versus Technology
production of trucks,
Innovation incentives
tractors and
and
machinery
Automotive Regime
Other: Service Tax (ISS) Municipal tax levied on the rendering of services. Rates vary from 2% to 5% depending on the
municipality; Customs duties (II) Incurred on importation of tangible goods into Brazil; Tax on Financial transaction
(IOF) Applicable to most financial transactions such as, currency exchange, credit, insurance and securities. Rates vary
according to the transaction. Most common rate is 0.38%.
Prior regimes (i.e., 1995-1999) provided significant reductions of customs duties and other
taxes, and the main object of policy was twofold, the protection of manufacturing employment
(also targeting certain areas of the country) and enhancements in the balance of trade
(reduction of imports and increase of exports) with a 60% local content requirement.
The Current regime operates under a slightly different logic. The IPI tax was increased,
effectively from 25% to 55% affecting imports of all vehicles, and its reduction is conditioned to
local development projects with creation of engineering and technology activities and jobs in
the country. Now the Automotive Regime is intrinsically linked with Brazils new policy on
Technology Innovation and Development. Trade agreements (i.e., Mexico) subject to QUOTAS.
Local production of certain products with a 65% local content requirement is necessary to
enable the importation of assembled vehicles.
The automotive regime effectively forces companies that did not historically have full
manufacturing in-country and that were successful in the recent years importing finished
vehicles (JAC, Chery, BMW and Land Rover to name a few) to implement local plants in the
coming years, or to face a substantial competitive disadvantage to sell into the local market.
The plan's objective is to stimulate the industry, which must accompany the growth of domestic
demand and the level of consumer demand in Brazil. To this end, measures were announced
in eight areas: foreign exchange, taxation, credit, stimulating the production with an increase
in government procurement, export promotion, trade defense actions in the sector
of communication and information and new automotive regime.
There will be exemption of 20% contribution to the National Social Security Institute (INSS) on
the payroll. In exchange, the companies collect a new tax of 1% to 2.5% of revenue domestic
sales for manufacturers of automotive components, will be 1%.
For large companies, the acquisition of trucks and buses can now be done with a rate of 7.7%
per annum and a term of 120 months (previously 10% per year and 96 months), with funding
of up to 90% of well (it was 70%). For Procaminhoneiro line toward autonomous, micro,
small and medium enterprises, the interest rate is now 5.5% pa (was 7% per year), also with
120 months to pay and fund 100% of the well (it was 80% .) Was kept at special rate of 5%
per annum for the purchase of hybrid buses.
IPI Tax
To qualify for the scheme, companies first need to meet at least three of four requirements
to receive government incentives, ranging from the elimination of 30 additional points to the IPI
extra discount of 2 points in the normal rate.
The first requirement is to invest at least 0.15% of gross revenue obtained in the country
in research, technological development and innovation. This percentage rises to 0.5% from 2017.
The second condition is to invest a further 0.5% of gross sales in engineering and basic industrial
technology - a percentage that rises to 1% from 2017.
The third measure is to obtain the qualification meet in Brazil at least 8 of 12 stages of
production of light vehicles and 10 of a total of 14 cases in the case of heavy vehicles. By 2017
this figure rises to 10 of 12 steps in the production of light and 12 of the 14 heavy.
The fourth requirement of the new automotive regime concerns the efficiency of the models
produced in the country from next year, automakers will need to register at least 60% of car
models manufactured in the labeling done by Inmetro. This index will reach 100% in 2017.
After registration under the new regime, fulfilling three of the four requirements above, IPI will get
discounts at companies that buy in Brazil and Mercosur vehicle parts and supplies, with minimum
rate to be stated in the decree to be published.
The reduction of 30 percentage points (pp) IPI is calculated based on the value of purchases
of parts and materials in the country The larger the purchase, the greater the discount, up
to 30 percentage points. There will be additional reduction of up to 2 percentage points in the IPI
for companies that meet the goals of investment in R & D (0.15% of gross sales) and engineering
(0.5% of revenues).
E&Y and
the Industry
It
The