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Business & Marketing
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Auto Industry in Brazil (Research Paper Sample)

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Analyzing the automotive industry in Brazil and relating it to the auto industry in the US

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Automotive Industry in Brazil
Jaguar Land Rover (JLR) has initiated plans to invest 750 million reals in the Brazilian auto market by building a vehicle manufacturing plant in Rio de Janeiro. The company aims to begin the construction process for the new factory by 2016. The proposed factory is estimated to produce approximately 25,000 vehicles each year. Jaguar Land Rover is a subsidiary luxury brand owned by Tata Motor Corporation. Currently, Jaguar Land Rover controls an estimated 53% of the luxury SUV market. Information concerning the Brazilian auto industry will be beneficial information for Jaguar Land Rover and other auto companies intending to invest in Brazil. The major brands for JLR are Freelander, Range Rover Evoque, and Land Rover Discovery.
Brazil Auto Market
Brazil has one of the fastest growing automotive industries in the world. It is the largest consumer market in South America and its auto industry has experienced phenomenal growth over the past couple of years. In 2013, over 3.51 million vehicles were produced representing an increase of over 4.8% when compared to the volume of vehicles produced in 2012 (Datamark Market Intelligence Brazil). The Brazilian auto sector is among the top five largest auto sales market in the world. This can be attributed to increased investment by the global automotive industry coupled with the improving Brazilian economy. These statistics present favorable conditions for Jaguar Land Rover to invest in Brazil.
Over the last 15 years, the volume of foreign direct investment (FDI) inflows into the Brazilian manufacturing sector increased tremendously (Guyette 5). In turn, this has led to an increase in the vehicle production capacity. According ANFAVEA, the automotive industry in Brazil controls 80% automotive market share in South America and accounts for 5% of the Gross Domestic Product in Brazil. The Automotive Manufacturers Association in Brazil (ANFAVEA) estimates that foreign direct investments between 2010 and 2012 amounted to US$11.2 billion.
The automotive market in Brazil is ranked as the world’s fourth largest automotive market. The automotive industry is comprised of 13 agricultural machinery plants, 25 automotive plants, and 12 components and engine plants. The industry has a further 50 industrial units for manufacturing and assembly of automotive parts across eight states within the country. The leading foreign manufacturers in Brazil in terms of market share include FIAT, Volkswagen, GM, Ford, Renault, Honda, Toyota, and Nissan. New automakers such as BMW, Hyundai, Kia, Geely, Chery, and Tata are other global manufacturers that have strengthening prospects in Brazil.
The OEM segment is the most attractive segment in the country because it has experienced strong growth and opportunities over the last few years. Global auto manufacturers prefer the production of OEM products in Brazil because Brazil levies high import tariffs on imported OEM products. Manufacture of EOM products eliminates high tax burdens that could have been incurred if global automakers imported these products from their home countries. The country’s tax calculation procedure is wide and complex because it is subject to a multiplicity of factors that depend on state, municipal, and federal taxes (Roberts 5).
The Brazilian government has initiated several developments in order to attract investment and encourage local production. These developments are also aimed at stabilizing the Brazilian auto market and promoting sustainable growth. The revision of policies and regulations enabled the government to protect the automotive industry and deliver a conducive environment that is favorable to local manufacturers and foreign investors (Roberts 5). The government deployed the Inovar-Auto in order to motivate auto manufacturers to invest in modernization, expansion of factories, increase advancement in technology, and develop energy efficient production tools (ANFAVEA Brazil 5).
The future sustainability of the automotive industry in Brazil depends on three critical factors. The increase in the level of disposable income among households in Brazil presents positive economic prospects for the industry and industry players. The rising middle-income earners means that the ability to own a car among many households increases. The second factor is the rate of economic development in Brazil. The growth in GDP levels coupled with reduction in interest rates and stabilized inflation rates present a prospective future to support economic development. Finally yet indispensable, the expansion of the construction sector and other upcoming developments such as the FIFA World Cup and Olympic Games is likely to increase the opportunities for players in the automotive industry.
Issues and Trends facing the US Automotive Industry
The US Automotive industry is among the most prominent industries in the US economy. The industry contributes 4-5% of the total US GDP. The auto industries in Japan and China are the only significant competitors of the US auto industry in terms of production numbers. Approximately two million people are employed directly by the US Automotive industry with another 6% of the population being employed indirectly by the auto industry. The major domestic players in the US automotive industry are General Motors, Ford, and Chrysler. However, there is high competition from foreign vehicle manufacturing companies such as Toyota, Hyundai, BMW, Honda, and Volkswagen (Uzwyshyn 14).


Source: Wall Street Journal
The US automobile market is characterized by a multiplicity of trends that include the establishment of global alliances such the merger of Chrysler, GM, or Ford with other international companies. For instance, the Chrysler Daimler-Benz merger was aimed at strengthened the competitive position of Daimler-Benz in the US. Another notable trend is the aspect of industry consolidation among automakers. Mergers between upper and lower tier automakers is undertaken to strengthen the market position of automakers in different markets.
Signs of economic recovery present a favorable traction to US automakers with 2014 sales estimates expected to increase by 4.9%. This represents 16.3 million units to be sold in 2014 when compared to 15.6 million ...
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