BEYOND MAINSTREAM
ROUGH ROAD AHEAD
Executives shared their
feelings about the
challenging year of 2014
AUTOMOTIVE
PERSPECTIVES 2014
BRAZILIAN
AUTOMOTIVE
Erferum et optae moluptat aut alitium hic libeaque consequi
PERSPECTIVES
2014
Industry expects profitability downturn, overcapacity, price war
and investment freeze this year
APRIL 2014
THINK ACT
BRAZILIAN AUTOMOTIVE PERSPECTIVES 2014
THE BIG 3
1
Market growth
57%
USD 80 billion
has come to an end for the Brazilian automotive industry in 2014
2
of Brazilian top executives are worried about profitability
3
is the announced investment that is yet to be realized
2
ROLAND BERGER STRATEGY CONSULTANTS
THINK ACT
BRAZILIAN AUTOMOTIVE PERSPECTIVES 2014
Brazilian automotive sector expects
2014 to be full of challenges, with
stagnant or moderate growth
Roland Berger Strategy Consultants and media company Automotive Business jointly present the Brazilian
Automotive Perspectives 2014 – a survey of how executives working in Brazil expect the business environment to develop this year.
According to the survey, automotive industry executives in Brazil are primarily concerned with profit
margins (57%), idle capacity (31%) and supplier relationships (28%). Other less important factors included
logistics (16%) and R&D (9%).
According to respondents, the issues at the top of
the industry's strategic agenda were price wars among
automakers (51%), entry of new players (47%), portfolio renewal and productivity ramp-up (both 31%).
At the bottom of the strategic agenda for 2014
were investments in new plants (13%) and new production lines (16%), which confirms the slowdown in
new investment in Brazil. It remains to be seen whether previously announced investments of around USD
80 billion, including product development, will actually be made.
Major challenges
(% of interviewees who perceive the subject
as a major problem)
Quality 9%
R&D 9%
Profitability 57%
Logistics 16%
Stock 22%
Forein
competition
23%
Overcapacity
31%
Skilled labor
force 24%
Supplier relationships 28%
Priority topics in 2014
(% of executives who rate the topic as most
important on their strategic agenda)
Wast Managment 8%
(reduce, reuse, recycle)
New plants/
footprint review 13%
New production line
investment 16%
THE INTERVIEWEES
258 executives in the Brazilian automotive
industry took part in the survey, of which
92% were CEOs, directors or senior managers. OEMs, suppliers, distributors, service
providers, associations and government
officials were represented. Interviews were
held in December 2013 and January 2014.
New markets 7%
Price war 51%
Logistics
improvement
17%
Productivity
ramp-up 31%
Portfolio renewal 31%
ROLAND BERGER STRATEGY CONSULTANTS
Entry of new
players 47%
3
THINK ACT
BRAZILIAN AUTOMOTIVE PERSPECTIVES 2014
Opposed to previous years, light
vehicles sales are expected to slow
down in 2014, although production is
expected to go up
Price trend in 2014
(% of executives who believe prices of light vehicles
will develop in that way)
Slight increase 40%b
Stagnation 54%a
Slight decline 4%c
Strong increase 2%d
Strong decline 0%e
a -5% to 5%, not inflation adjusted
b 5% to 10%, not inflation adjusted
c -10% to -5%, not inflation adjusted
d above 10%, not inflation adjusted
e more -10%, not inflation adjusted
Of the respondents in the light vehicle segment, 56%
believe that sales will stagnate this year, albeit with
minor fluctuations from -2% to 2%, versus 31% who
expect a slight increase of up to 5%. The main reasons given by industry executives for this scenario are
tax policies, car prices, economic uncertainty in Brazil and access to credit. Despite the expected stagnation, executives believe that there will be a modest
increase (5%) in production, driven by a slight recovery
in exports. This expectation is in contrast with the results of the 2014 first quarter, which closed at -1.7%
for sales and -8.8% for production, compared to 2013
first quarter.
Regarding the prices of vehicles manufactured in
2014, 54% of respondents believe that prices will stay
largely stable – ranging from -5% to 5% year on year.
40% of respondents expect to see a slight increase:
5-10% compared to 2013. Even though the prices of
most brands already rose between 2.5% and almost
5% points since the end of 2013, a farthest increase
by the end of 2014 is more likely, since automakers are
struggling to sustain their profit margins – which have
fallen every year over the past decade. The question is
how the market will react to such an increase.
-1.7% and -8.8%
Despite the positive expectations within the industry, the
industry reported decreased sales and production
volumes of -1.7% and -8.8% respectively for Q1/2014,
compared to the same period last year
4
ROLAND BERGER STRATEGY CONSULTANTS
THINK ACT
BRAZILIAN AUTOMOTIVE PERSPECTIVES 2014
COMMERCIAL VEHICLES –
where the growth is expected to be
SUPPLIERS –
the challenge of profitability
More optimism is found in the commercial vehicles
sector: 55% of the executives in this segment expect
2014 to be a year of moderate growth (of 5%), with
prices remaining stable (from -5% to 5%). Again, this
positive perspective contrasts some what with the actual performance of 2014 first quarter, which closed at
-11.3% for sales and -1.5% for production compared to
the first quarter of 2013.
As in the light vehicle market, the biggest concerns
for the commercial segment include economic uncertainty in Brazil, tax policies and access to credit. Fleet
renewal programs, prices and product portfolio renewal are the priorities for supporting segment growth.
In addition, the survey participants expect an increased product differentiation within the commercial
vehicles segment including engine performance, air
emissions efficiency and product development using
alternative energy sources.
Among the automakers and suppliers interviewed,
46% expected their business relationship to remain
the same, compared to 30% who expected a deterioration in the relationship this year.
The major reason listed for the expected disagreements was price (76%). Other considerations that may
cause problems are investment in R&D (7%), production volume (6%) and quality (4%).
The sector's main concern remains the challenge
of profitability (53%), which is directly impacted by
exchange rate, raw material costs and a struggling
tier 2 supply chain; competition from imports (17%)
and quality (3%) are additional topics on the suppliers agenda. Automakers and suppliers alike also mentioned the need to pass on the cost inflation to their
respective customers in order to reduce the impact on
their profit margins.
Among the second-tier suppliers, 33% expect a
wave of mergers and acquisitions to consolidate operations and reduce costs. Another 24% say they need
funding, while 20% see growth in exports as an option for improved margins, and 17% are considering
insourcing.
In general, revenues are expected to slightly increase (about 2% to 5%). Suppliers still believe that
the country will continue to see a low level of exports
due to the lack of competitiveness caused by labor
cost (23%), raw materials (22%) and exchange rates
(21%).
The increase in global platforms is still seen as
neutral or negative by 44% of respondents, who believe that this trend increases the risk of losing ground
to global suppliers.
There is widespread dissatisfaction with government incentives for national product competitiveness
– 94% of interviewees state that incentives are "insufficient" or "negligible" for suppliers, versus just under
5% who think they are "sufficient".
Major trends for
commercial vehicles in 2014
6º Recyclability
5º New technologies
and green
materials
1º Engine
performance
4º New
segments
3º Product
development
with alternative energy
2º Emission
reduction
ROLAND BERGER STRATEGY CONSULTANTS
5
THINK ACT
BRAZILIAN AUTOMOTIVE PERSPECTIVES 2014
DEALERS –
Concerned about margins
Regarding sales and distribution in the Brazilian automotive sector, dealers said their main concerns for
2014 were pressure on new vehicle margins (42%) and
high stock levels (18%).
Around 83% of respondents think that relations between automakers and dealers will remain the same or
improve moderately, compared to 17% who think the
relationship will deteriorate slightly or significantly. Challenges in finance and insurance, used cars and parts &
accessories are of less concern to dealers – but as these
are the weakest points, they also require attention.
Interestingly, the share of revenue is expected to rise
precisely in these areas, namely in services (30%), parts
& accessories (24%) and used cars (22%).
Manufacturers and dealers highlight the need to
support programs that boost sales (both financial and
non-financial), improve sales processes and the aftermarket (modernization and redesign) as well as initiatives to train and retain salesmen and mechanics.
Dealer networks will continue to consolidate in Brazil, driven primarily by the entry of international investors and growth of large industry players. The trend is
towards moderate growth, with sales per dealership
staying stable.
Priorities for dealers
(% of executives that see the issue as a concern)
9ºInfrastructure costs
8º Used car sales
7º F&I operations
6º Labor cost
1º Pressure on
new vehicles
margins
5º Repair
shop
4º Direct
sales
volumes
3º New car
sales volume
6
2º Pressure to
increase new
car stock
CONSUMERS –
Brand as a top priority when
buying a new car
Customers are perceived as less loyal to brands and
no longer afraid of trying out other manufacturers when
the time comes to buy a new car – this is the profile
of the new Brazilian customer, according to 56% of
respondents. Even so, factors such as brand, price,
durability and design (in that order) are the key points
considered when buying a new car, according to the
executives.
Maintenance costs (increasingly fixed for the first
years), financing terms (similar among competitors)
and resale value (similar among competitors) have lost
their influence on the final decision.
Among the featured options, the traditional features of power steering, air conditioning, electric car
lock, power windows, and car alarm remain the most
preferred when choosing a vehicle in Brazil. Media systems and automatic transmission are also priority options for consumers. Wheel size and cruise control are
the least attractive among typical options.
REGULATION –
Well-received, but more transparency
is required
Over 66% of executives have a positive view of the Inovar-Auto government program, and find the requirements of local production, energy efficiency, investment in R&D and engineering necessary.
Inovar-Auto is expected to result in the entry of
more players with local production. The major drawbacks of the program, according to the industry, are
how to audit the adherence to the program (38%) –
respondents believe there are no clear guidelines or
rules on the subject.
Regarding Inovar-Peças (the planned governmental program for autoparts), respondents expect to see
funding for expanding capacity, automation and training, as well as tougher requirements regarding domestic content.
ROLAND BERGER STRATEGY CONSULTANTS
THINK ACT
BRAZILIAN AUTOMOTIVE PERSPECTIVES 2014
ABOUT US
Roland Berger Strategy Consultants
Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies. With
2,700 employees working in 51 offices in 36 countries worldwide, we have successful operations in all major international markets. The strategy consultancy is an independent partnership owned exclusively by about 250
Partners.
Automotive Business Media Group
Automotive Business is a communications company that publishes a bimonthly magazine, maintains the portal
www.automotivebusiness.com.br, sends a daily e-newsletter for professionals and promotes events related to the
automotive industry.
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AUTOMOTIVE INISGHTS
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The first Automotive Insights
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the opportunity to look back
at last year's highlights and
get a taste of the most
important trends coming up.
THE BRAZILIAN PROFITABILIT Y CHALLENGE
Despite a successful first
semester 2013, the current
economic scenario in Brazil
indicates a more conservative outlook for 2014 – 2015.
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Publisher
ROLAND BERGER
STRATEGY CONSULTANTS GMBH
Mies-van-der-Rohe-Str. 6
80807 Munich
Germany
+49 89 9230-0
www.rolandberger.com
The authors welcome
your questions, comments
and suggestions
STEPHAN KEESE
Partner – Roland Berger Strategy Consultants
+55 (11) 3046-7111
[email protected]
MARTIN BODEWIG
Principal – Roland Berger Strategy Consultants
+55 (11) 3046-7111
[email protected]
PAULO RICARDO BRAGA
Newsroom Director – Automotive Business
+55 (11) 5095-8886
[email protected]
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