October 28, 2008: 02:20 PM ESTSAO PAULO -(Dow Jones)
Brazilian auto makers will be looking back on another year of record sales come Christmas but will be casting a wary eye on the prospects for 2009.
Local auto sales are already stumbling amid the restriction of credit, which indicates an end to five years of growth.
"We expect sales to be stable next year, which isn't bad considering the [ financial] crisis," said Peugeot Chief Executive Laurent Taste, referring to the global credit crunch and the likelihood of an economic slowdown in Brazil.
Credit is the lifeblood of the local auto industry, with 65% of domestic sales financed. However, the international credit crunch has seen finance availability tighten.
The first impacts of the crisis appear already to be having an impact.
The Brazilian Motor Vehicle Manufacturers Association, or Anfavea, expects sales to rise 24% to 3.1 million in 2008. But Peugeot's Taste said he thinks the crisis means sales will probably reach only 2.7 million cars.
In addition, Renault CEO Jerome Stoll said the company also lowered its estimate to 2.75 million units.
Domestic vehicle sales in the first 24 days of October totaled 172,254 units, down 12% from 195,396 units sold in the first 24 days of September and 4% lower than the same period of 2007, according to preliminary data.
Demand was boosted by economic growth.
Gross domestic product in Latin America's largest economy is seen expanding 5.23% this year, according to a central bank survey of analysts, but it is expected to subside to 3.19% in 2009.
Despite the concern about 2009, big players are maintaining medium- to long- term expansion plans.
According Jaime Ardila, General Motors Corp (GM) region chief executive, the company will maintain its investment plans in Brazil over the next four year and is negotiating additional investments with the company's headquarters.
GM plans to invest $1.5 billion in Brazil by 2012. Part of that money has already been spent. Ardila that GM in Brazil was also talking to the corporate headquarters in the U.S. for another $1 billion. A decision on that isn't expected until sometime next year.
"Brazil has become the last island in the storm," said Bill Mann, an automotive analyst at Motley Fool in Alexandria, Va.
Executives of the major car companies also said that the weaker local currency will make Brazilian-made cars more affordable in nearby Latin American nations.
"GM, Ford (F) and others are looking for the best return on investment, and South America is among the bright spots in the world today for them," said Tim Gilbert, chair of the automotive department at Northwood University in Florida.
"Brazil stands in complete contrast with the declining fortunes of their U.S. and European operations, which have been hit hard by the current financial crisis."
Mann warns that even if return on investment in Brazil makes the most sense for General Motors, in particular, "my bet is that the bulk of these investments won't really kick in until 2011. I still think they will be conservative, even in Brazil," Mann said.
GM's local rival, Italy's Fiat (FIATY), will also maintain investments worth BRL5 billion programmed for the 2008-2010 period despite the threat of global recession.
"The fundamentals of the Brazilian economy continue to be strong," said Cledorvino Belini, chief executive for Fiat in Brazil. "We are maintaining all projects here."
-By Rogerio Jelmayer and Kenneth Rapoza, Dow Jones Newswires
http://money.cnn.com//news/newsfeeds/articles/djf500/200810281420DOWJONESDJONLINE000676_FORTUNE5.htm
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