December 2, 2012 8:31 pm

Chinese carmakers head for Brazil

Friday June 1 this year was a historic day for São Paulo, the biggest city in the southern hemisphere. At about seven o’clock in the evening, as workers were heading home in the rain, the Brazilian city set a record for the amount of traffic on its roads.

In total, the authorities recorded 295km (183 miles) of congestion – the equivalent of a traffic jam all the way from London to Manchester in the UK or from New York to Baltimore in the US.

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A surge in car ownership among the country’s booming middle classes has brought many Brazilian cities to a standstill, but proved particularly lucrative for the Chinese who have stepped in to capitalise on this sudden demand for cheap vehicles.

While a Volkswagen Polo costs about R$50,000 (US$23,900) in Brazil, similar Chinese-made cars can cost half that and are a popular choice for first-time owners who pay in as many as 84 monthly instalments.

As a result, sales of Chinese-made cars in Brazil have exploded from only 143 in 2007 to more than 69,000 last year, according to the Brazilian auto import association, Abeiva.

However, the party may be coming to an end for Chinese carmakers, as well as their South Korean rivals, says Ricardo Strunz, Abeiva’s financial director.

After reaching a high last year, sales of Chinese-made cars in Brazil have slumped 30 per cent this year as the government raised taxes on imports to protect the struggling local car industry.

Under Brazil’s 2013-17 car regime, companies with factories in Brazil will gain huge tax exemptions.

Chery has begun construction of a $400m plant in São Paulo state, the first Chinese car factory in Brazil, which is expected to start operations next year and produce up to 170,000 vehicles a year. Jac Motors is also set to open its first plant in 2014.

Conditions are set to remain tough for newcomers that do not yet have enough scale to justify local production, says Mr Strunz.

Nevertheless, Brazil remains a relatively attractive market – as shown by the large number of Chinese auto executives mingling uncomfortably among footballers and sequin-clad models at São Paulo’s annual car show last month.

“It’s very tough in the US, Europe is difficult and they have zero chances in Africa for the next few years,” says Mr Strunz. “The only places that are left really are Russia, India and Brazil.”

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