Features
11 mar 20

Brazil, Mexico automobile trade, the tide is turning

When talking about the automobile industry in Latin America, one cannot go without mentioning the region’s two largest automobile markets, Brazil (No. 1) and Mexico (No. 2). In recent years, the country which has been selling more to the other is Mexico. 

However, the tide does look to be turning. While the value of car shipments from Mexico to Brazil last year fell 24% (by US$320mn) year-over-year to US$980mn, local news portal Expansion reported that shipments from Brazil to Mexico rose 51.4% (by US$222mn) to US$656mn.

Automobile shipments between Mexico and Brazil in US dollars

Year

Value of Automobile Shipments: Mexico to Brazil

Value of Automobile Shipments: Brazil to Mexico

Surplus

2019

US$980mn

US$656mn

Mexico + US$324mn

2018

US$1.3bn

US$434mn

Mexico + US$866mn

2017

US$694mn

Nearly the same

---

2016

US$546mn

Nearly the same

---

2015

US$1bn

US$545mn

Mexico + US$455mn

                                 Source: Anfavea

In March of last year, the two countries signed a free trade agreement regarding the sale of light commercial vehicles and automobile parts. The agreement, which eliminates quotas and fees on exports and imports, will also include heavy vehicles (trucks and buses) as of 2022.

In light of this, we can see that the trade balance between the countries is starting to change in favor of Brazil but why? To give you the lowdown, here is a brief snapshot of the scenario in each country.

BRAZIL

Much of the country’s focus is on the domestic market. While national sales rose 8.4% in 2019, exports to both Mexico and Argentina (No. 3 automobile market) were down, the latter which has been impacted by a financial crisis since 2018.

Although vehicle sales performance was better in Brazil than Mexico last year, the Achilles heel of the country is its tax complexities, something that also impacts automotive trade with its neighbor to the North.

“Our products cannot compete internationally, and the reason is the Brazilian cost. It is a harmful combination of obsolete laws, excessive bureaucracy and infrastructure deficiencies, as well as an old tax system that is a real madness,” Expansion reported Brazil’s automobile manufacturers association Anfavea president Luiz Carlos Moraes as saying.

The industry spends about 2.3bn reais in calculating taxes alone, according to Mr. Moraes, adding that Brazil’s fiscal structure does not established clear rules for Mexican importers.


Anfavea president Luiz Carlos Moraes (source: Motor 1 / Anfavea)

 

MEXICO

Nearly 80% of the vehicles manufactured in the country are made for the US market. According to Brais Álvarez who is an automotive analyst for JD Power, these types of cars just don’t appeal to South America.

In general, the US seeks large cars and Brazil does not, adds Guido Vildozo who is an IHS Market analyst for the automobile industry in the Americas.

However, the scenario could be changed if Mexico focuses on making cars that the Brazilian market does not really produce (e.g. luxury cars). For one, BMW just kicked off a new automobile plant in the city of San Luis Potosí last year.

Mexico does have the advantage of making sporty cars that are more stylish, says Mr. Alvarez.

Authored by: Daniel Bland