The Rise Of Automotive Parts Manufacturing In Brazil

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February 16, 2016
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The Rise Of Automotive Parts Manufacturing In Brazil

Unpaved roads and sprawling farmlands aren’t stopping Brazil from buying new cars at one of the fastest rates on the planet. The region is becoming a leading manufacturer of autos — and automakers from around the globe are clamoring for a piece of the action.

What’s driving this manufacturing revolution in a region that only recently embraced automotive travel as the norm? Read below to learn more:

What’s Happening in South America?

Brazil is considered to be one of the most rapidly developing global economies. In 2010, the country hit a symbolic benchmark when their gross domestic product finally topped $10,000. The figure is in part driven by an aggressive auto-making industry that has exploded in recent years. The conditions for a manufacturing-driven economic boom have been right for some time.

Brazil is embracing their new role as an automotive fertile ground, and carmakers are happy to oblige. Currently, the trend shows no signs of slowing. A leading auto-industry trade group, Anfavea,recently predicted that Brazil would soon overtake Japan as the world’s third-largest car market.

What Are the Factors Contributing to this Change?

Brazil’s entry into the automotive market is a long time in the making – with Brazilian manufacturers slowly making inroads for about 40 years. A shifting economic system that increasingly favors capitalism over isolationism is partly to credit, as is a Brazilian consumer base that is more empowered and increasingly hungry to make major purchases.

Despite a lack of paved roads (less than 15 percent, by some estimates), Brazil has a booming consumer market that is eager to get behind the wheel, according to Forbes. It’s a fact compounded by rising wages and a growing middle class. Overall, the environment favors automakers willing to invest in the region, and they are doing just that.

What Does that Mean for U.S. Manufacturers?

Though it might seem like a threat for domestic manufacturers, it’s worth noting that the country is not directly competing with U.S. automakers. Brazil is not creating their own vehicles so much as being another location for international companies (from the U.S. and elsewhere) to do business. In other words, when companies like GM and Ford do well in Brazil, it’s good for the company back home — which in turn, is good for domestic manufacturers servicing American consumers.

Other factors are keeping U.S. automakers from going all-in in South America. The Brazilian government is still cautious about globalization and international trade. Tariffs have been put in place to cool off overly ambitious automakers in the region. Similarly, labor costs in South America remain higher than in Asian markets.

Regardless of those obstacles, Brazil remains an auto hotspot, and it will be interesting to see the manufacturing industry’s role in elevating that region’s economy to the next level.