brazilian new automotive policy inovar-auto · balance trade for automotive parts sector has turned...

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1 Brazilian New Automotive Policy INOVAR-AUTO 25 th March 2013 Ugo Ibusuki Researcher, Institute of Auto-parts Industry, Waseda University Visiting Professor, Department of Post-graduation, University Center of FEI ESCOLA POLITÉCNICA UNIVERSIDADE DE SÃO PAULO

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Page 1: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

1

Brazilian New Automotive Policy

INOVAR-AUTO

25th March 2013

Ugo Ibusuki

Researcher, Institute of Auto-parts Industry, Waseda University

Visiting Professor, Department of Post-graduation, University Center of FEI

ESCOLA POLITÉCNICA

UNIVERSIDADE DE SÃO PAULO

Page 2: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

2

1. Brazilian Automobile Industry

2. Brazilian Auto-Parts Industry

3. Brazilian New Automotive Policy – INOVAR-AUTO

4. Critical Analysis of INOVAR-AUTO

Outline of the Presentation

Page 3: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

3 Source: ANFAVEA, Roland Berger

Based on strong growth in the last years, Brazil has now become the 4th largest automotive market

globally

Page 4: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

4 Source: ANFAVEA, Roland Berger

And in the next years, the Brazilian automotive market will show a sustainable growth

Page 5: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

5 Source: ANFAVEA, Roland Berger

The future growth of the Brazilian automotive industry is based on three fundamental trends

Page 6: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

More than US 20 billions was announced in investments to increase capacity in more than 2.5 million units

until 2015

PASSENGER CARS COMMERCIAL VEHICLES

Source: Roland Berger, Team analysis

*

*Substitution

KEY PRIORITY BY NEWCOMERS WILL BE GENERATING LOCAL CONTENT

New planned factories in Brazil as well as expansions 2012-2015

6

Page 7: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

7

1. Brazilian Automobile Industry

2. Brazilian Auto-Parts Industry

3. Brazilian New Automotive Policy – INOVAR-AUTO

4. Critical Analysis of INOVAR-AUTO

Outline of the Presentation

Page 8: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative

11,1

9,6

6,6

9,1

7,5

4,8

15,8

13,2

9,19,2

6,7

4,3

-4,6-3,6

-2,5

-0,1

0,80,5

`07 05` 03` `09 11` `10

balance

imports

exports

23%

17%

Others

Autoparts OEM

60%

BALANCE TRADE [US$ BILLIONS FOB] DISTRIBUITON OF IMPORTERS

Source: Sindipeças, Abipeças, Team Analysis

8

Page 9: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

Brazil un-competitive in global scenario on the costs side

Source: Roland Berger, Press Clippings, IEDI, ONS

9

Page 10: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

10 Source: World Bank, FIESP, Roland Berger

Difficulty of paying taxes Difficulty of getting credit

Structural related indexes indicate clearly the un-competiveness of Brazil

Page 11: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

Brazil was not able to offset the increase of cost by productivity and the trend to automation is slow

255

208

130

320

175

100129122118112100

107

2002 2004 2006 2008 2010 2012

Labor cost x productivity [Index 2002=100] Evolution of robot imports 1) [USD m]

Productivity

Cost per hour

23

24

10

64

74

6

52

58

1

97

66

73

7

106

9

2010 2011f 2008 2007 2009

Other industrial robots Welding robots

Source: MDIC , Roland Berger 1)Data for 2011 extrapolated

Page 12: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

COST

PRESSURE

REDUCED

MARGINS

OEM

PRESSURE

NO

INVESTMENTS

SUPPLIERS

FIGHT FOR

SURVIVAL

• OEM putting

pressure on

suppliers

based

strongly on

substitution by

importation

• Raw material

suppliers pass

price increases

without much

discussion

• Labor and other

cost increasing

fastly

• No possibility to

pass cost

increase to

OEM’s

• Suppliers are

not able to

compensate

cost increase

• No possibility

to pass cost

increase to

OEM´s

• Low margins

due not allow

investments

• Little or no

chance to get

credit due to

bad financial

performance

• Poisoning

combination

of increasing

cost with

continuously

reduced

margins

The dynamics of the Brazilian supplier market, specially for Tier 2 and 3 can be described as follows

12

Page 13: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

13

1. Brazilian Automobile Industry

2. Brazilian Auto-Parts Industry

3. Brazilian New Automotive Policy – INOVAR-AUTO

4. Critical Analysis of INOVAR-AUTO

Outline of the Presentation

Page 14: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

14

Regional

content

Local

Manufacturing

Investment

in local R&D

and

Engineering

Energy

efficient

products

• Additional IPI reduction of -2% if yearly

targets of % of revenues invested in R&D

• Targets start at 0,65% (combined

development + research) in 2013 and go up

to 1,5% in 2017

• Only valid for passenger cars at a first step

• Brazilian car fleet have to get 12% more

fuel efficient by 2017

• If targets are overachieved add. reductions

of IPI of -1 or -2% possible

• For 2013 at least 6 out of 12 predefined

manufacturing processes have to be local

• From 2013-2017 increasing up to 8 (2017)

processes out of 12 predefined processes

have to be local (passenger car)

• The program

has 3 main

objectives:

protection of the

industry and of

the domestic

market, increase

stimulation of

investment and

innovation,

improve the

energy efficiency

of the vehicles

produced in

Brazil.

• Additionally to Mercosur local content

requirement of 65% over Revenue

• Calculation of local purchase via a

multiplying factor to offset additional

30% of IPI

4 major pillars of INOVAR-AUTO program which impact on OEM and suppliers

Page 15: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

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Overview of the conditions of the INOVAR-AUTO, for the period 2013 to 2017

INOVAR-Auto Conditions

6 7 7 8 8

4

Page 16: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

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How the government classifies R&D and Engineering expenses and how to obtain further 2% IPI reduction

Investment in R&D and Engineering

Page 17: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

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Manufacturing Steps

Minimum Manufacturing Steps

c

c

Page 18: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

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Information to the Consumer, as already happen in other sectors and other countries

Car Labeling

Page 19: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

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All Passenger cars must meet an average target of 1,82 MJ/km in 2017, a 12% decrease in today figures

Energy Efficiency Target

Page 20: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

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The amount of Local Purchases multiplied by a decreasing factor will offset the additional IPI

Local Purchase

Page 21: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

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There will be quotas for extra-zone imported vehicles without additional IPI

Quota for Imported vehicle

For new comers, an exempt of additional 30% IPI could be applied for

50% of vehicle production capacity during the 2 years period of plant

installation; other alternative specially for low volume car manufacturers

(upto 35 thousand units per year) a minimum investment of 17 Thousand

Reais per vehicle in order to have the multiplier of local purchase fixed on

1.3 for total period of INOVAR-AUTO

Page 22: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

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1. Brazilian Automobile Industry

2. Brazilian Auto-Parts Industry

3. Brazilian New Automotive Policy – INOVAR-AUTO

4. Critical Analysis of INOVAR-AUTO

Outline of the Presentation

Page 23: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

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New Opportunities for the Auto-Parts Manufacturers

1 Higher local demand – Newcomers as well as established OEM´s will

be forced to localize in relatively small time period by INOVAR-AUTO

2 Investment in capacity – in short-term supplier basis is the same,

however we expect a run for capacity to meet INOVAR-AUTO

4

Partnership orientation – since new suppliers will try to enter for

follow sourcing of new OEM’s, there are opportunities for JV and

Technology transfer 3 Technology upgrade – there is a need of local supplier to invest in

technology to follow auto-manufacturers on new product development

5 Fiscal Benefits – INOVAR-AUTO has created several fiscal benefits

which could support the development of local supplier chain through

partnership with local OEM’s

Page 24: Brazilian New Automotive Policy INOVAR-AUTO · Balance trade for automotive parts sector has turned from a slight positive balance to strongly negative 11,1 9,6 6,6 9,1 7,5 4,8 15,8

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Thank you for your attention!

Contact: [email protected]