Struggling Automakers Find Open Road in Brazil

There aren’t many bright spots in the global auto industry—so when carmakers find one, they go all in. With ebbing demand in the United States, and subsidies propping up Japan’s industry set to expire, the real bright spot is Brazil. In 2003 the country was the world’s 10th-largest car market; this year it is on pace to surpass Germany as No. 4. By 2014, demand is forecast to hit 4 million new cars per year. Sensing opportunity, Asian auto companies are leading a surge of investment. Toyota is building its second Brazilian factory for $600 million, due in 2012, the same year the country’s first Hyundai-owned plant will come on line. China’s Chery Automobile Co. Ltd. is also investing $700 million to open its first factory there. Together, the three plants will create more than 400,000 new vehicles a year.

The goal is to take market share from current giants like Volkswagen, Ford, and GM, which have themselves pledged to pour at least $8 billion into Brazil by 2015. In spite of the global recession, Brazil has had relatively low unemployment and ample credit for an expanding middle class, says Julian Semple, a senior consultant for Carcon Automotive, a Brazil-based consulting firm. Tax laws also favor setting up shop in-country, to avoid a 35 percent federal tax on most imports. And hosting the world’s two largest sporting events, the 2014 World Cup and 2016 Olympics—plus building the massive infrastructure projects they require—is a near-guarantee of continued growth. For automakers, the road to recovery may run through Brazil.