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Brazil does not have indigenous car brands that consumers are inclined to buy because of a sense of national loyalty. However, many foreign OEMs such as FIAT, Ford, GM and VW are so well established in the country that they are invariably seen as Brazilian. Furthermore, the industrial production tax (IPI) and duties imposed on imports mean premium cars are not competitively priced and hence why their share of the market peaked at just 1.5% in 2011 before contracting to 1.1% following a hike in the IPI. This therefore explains why, even at the record level recorded in 2011, premium light vehicle sales equated to just 1% of households with annual disposable income over US$55,000. To put this into perspective, however, premium car sales consistently equate to more than 10% of the number of these households in South Africa and China.
Euromonitor forecasts that there will be 64% more such homes in 2020 than in 2013, nudging 10 million. This is about half as many as in Germany and so it is understandable that BMW, Mercedes, Audi and Jaguar Land Rover are now all looking to invest in local assembly in Brazil in order to be able to bring prices down to competitive levels and thus tap into the long-term market potential. Interestingly, similar to Brazil, premium-brand light vehicle sales only equate to 1% of the number of households with over US$55,000 annual disposable income in India. However, a notable difference is that premium demand grew more than tenfold over the period from 2006 to 2012 in India, underpinned by just a 50% expansion of the number of sufficiently affluent households in the country.
Premium Light Vehicle Sales in Brazil and India, 2005-2012
Source: JATO Dynamics, Wards Auto
This is fundamentally because of the investment in local assembly in India by car companies such as BMW, Audi and Mercedes in order to circumvent high import duties and thus serves as a positive indicator for the potential in Brazil. In fact, there have always been twice as many affluent households in Brazil as in India, which begs the question as to why investments by the premium carmakers have been far more forthcoming in India than in Brazil.
Households with Annual Disposable Income Over US$55,000 in Brazil and India, 1991-2020
Source: Euromonitor International