Light vehicle sales in Brazil dropped 0.9 percent in 2013 after averaging over 10 percent annual growth in the previous 10 years, according to national carmakers' association Anfavea. The slight decline was attributed to weaker consumer confidence as well as tighter credit. Carmakers have been complaining of high taxes and labor costs in the country, but dealers managed to keep business in order thanks to government incentives.
However, sales growth is expected to slow down to just 3 percent annually over the next decade, according to economists advising an association of Brazilian car dealers. Further worsening the slowdown are traffic-choked Brazilian cities and rising family debt loads, which have so far undermined the tax breaks that President Dilma Rousseff offered the auto industry.
While Rousseff's stimulus package helps boost sales when they were launched in 2012, economists warned that they only affected the timing of purchases instead of underlying demand. Dealers are expecting sales to stagnate or drop again in 2014, as Brazil gradually restores its taxes to normal levels.
Higher interest rates and more expensive mandatory safety equipment may affect demand for new cars – thereby making carmaker post lower returns. So far, Fiat S.p.A., Volkswagen AG, General Motors Co. and Ford Motor Co. have made the biggest investments in their sites in Brazil, and accounted for over 70 percent of vehicle sales in the country.