Tuesday, March 22, 2011

Gentlemen, start your engines

Brazil has a long history of a local vehicle manufacturing industry. In the 50s, Toyota built the famous Bandeirante, then in the 60s Volkswagen setup a factory to build the Kombi and then Fusca. And it went on from there. Today, the assortment is broad with Nissan, Renault, Peugeot, Citroën, Honda, Hyundai, Chrysler and Audi producing locally on their own or in partnerships, apart from the established VW, GM, Ford and Fiat. The only local company producing is Troller, which builds jeeps said to master any terrain.

But the latest coup is from Hyundai. Already with an OEM in the Goias state (with CAOA), the Korean firm is now setting up shop in Piracicaba (roughly 100km from Sampa) with a factory that will be the largest outside of Korea. Next year, up to 3000 Korean expats are said to start coming there to prepare all the engineering work and production setup. Hyundai will overtake Ford as 5th largest producer in Brazil in 2013 and already today has 3% of the market - the plant, a total investment of 600m USD, will boost this growth. Local business is already excited: Real estate prices have shot up since the announcement last year and even a golf course is under construction to accomodate Korean Execs.

The investment makes so much sense because importing to Brazil is prohibitively expensive. Duties are 35%, local taxes another 60%, plus fees means that the local price will be roughly double of what a car costs abroad. If Hyundai can keep a part of this money in its own pocket and keep growing like they have, this will mean great business.

In addition, more local manufacturing will help the Brazilian economy further diversify away from commodities - even if under the current exchange rate scenario, importing is so cheap.