Brazil’s FINAME PSI financing programme has been renewed for a further year, but with conditions that are markedly more stringent than those that applied during 2014. Given the overall parlous state of the Brazilian economy, this can only be viewed as a negative for market prospects through 2015.
The Brazilian market for heavy and semi-heavy trucks continued to fail to excite during 2014; that said, some FINAME funding opportunities were lost during January which had a clear negative impact on the year. But new conditions for 2015 are onerous for two reasons; 2015 interest rates are in a range of between 9-10% against 2014’s 4-6%. This represents a significant increase, but of greater concern is the decision to eliminate what was previously 100% funding and now cap the maximum at between 50-70% of the vehicle’s value. A down payment of between 30-50% will thus be required, and it is hard to see how this cannot prove to be a significant restraint to recovery during 2015.
At present – these figures are good through November 2014 – the heavy duty segment within Brazil is dominated (80% market share) by three European OEMS: Volvo, Scania and Mercedes-Benz. The semi-heavy duty segment is similarly dominated by three OEMs, with MAN/VW, Mercedes-Benz and Ford making up nearly three quarters (74%) of the marketplace.
As this chart demonstrates, FINAME funding has a clear impact upon production within the Brazilian truck segment. If funding is reduced, then we can expect production also to fall. And as the following chart demonstrates, with exports at a low ebb we can expect little regional help during 2015. That MAN is reportedly furloughing workers at its Resende plant serves only to add to the gloom.
Are there any bright spots to look forward to? Both soy and corn harvests look set to be at or near record levels during the 2014/2015 harvest season. As this chart demonstrates, there is some historical correlation between corn harvest and truck demand, but the extent to which 2014 uncertainties over FINAME renewal may have pulled this demand forward remains unclear.
If we look at bodywork and trailer data however, a slightly more involved picture develops. These charts group trailers and bodies by four economic groups – agriculture, construction, retail and industrial – and map current performance against a moving 12 quarter average (12QMA).
While construction and agriculture are still trending downwards below their respective 12QMA, both retail and industrial are moving upwards. It would be overly brave to argue that this implies anything more than a stabilisation, but most recent PMI data shows Brazilian manufacturing expanded for only the second time in 2014 during November, while retail sales also showed a reasonable year-over-year improvement during October.
In sum, the picture for 2015 is a confused one. FINAME conditions will likely serve as a restraint, but both industrial and retail segments are showing, if not signs of life, then at least of less death than previously.
About the author: Oliver Dixon is Principal at West End Companies, www.westendco.com
