Sao Paulo auto show: GM plans seven new models for Brazil
Photo credit: Bloomberg
SAO PAULO (Bloomberg) -- As Nessim Azar walked the lot at one of his Chevrolet dealerships in Sao Paulo last week, he pointed to a white Chevrolet Cruze.
"It's very popular," he said. His Chevy showrooms sold 100 Cruze compact cars last month. "Today, if you want to buy a Cruze, I don't have a Cruze to sell you," he said.
The Cruze, General Motors Co.'s top-selling vehicle worldwide, went on sale in Brazil late last year as part of GM's most aggressive new-product push ever in the country and part of a plan to become solidly profitable again in South America. The effort is highlighted by seven new vehicles going on sale this year, including the subcompact Onix that will be displayed at the Sao Paulo auto show this week.
"Have we had seven new vehicles in our lineup? Of course, but not seven new vehicles in one year," Gustavo Colossi, Chevrolet marketing director for Brazil, said last week in an interview here.
The stakes in Brazil are high for GM. The region's largest country accounted for 58 percent of GM's South America sales in the first half of last year. With GM losing money in Europe and facing slowing growth in China, it can't count only on its strong profits in the U.S. It's looking to turn around its operations in South America in a hurry -- after a decade of other automakers eating into its market share.
The automaker's South American operations lost $122 million last year before interest and taxes after posting an $818 million profit in 2010. For the first half, GM reported profit before interest and taxes in South America of $64 million. Profit from Brazil isn't broken out.
The Sao Paulo auto show, which opens to the public on Wednesday, is the largest in Latin America, according to show's organizers. The Brazilian light-vehicle market is the world's fifth-biggest, according PricewaterhouseCoopers LLP.
GM's market share in Brazil fell to 18.3 percent last year from 24.3 percent in 2002 as new competitors such as Hyundai Motor Co., Nissan Motor Co. and Chinese automakers arrived, according to industry researcher LMC Automotive. The increased competition comes as the market slows. Brazil's light-vehicle sales fell 2 percent through August to 2.26 million, according to LMC.
"Brazil has typically had these models that have been around for decades, in some cases taking up a lot of the volume because they're very affordable," Jeff Schuster, an analyst at LMC, said of the industry. "It seems like collectively everyone is pulling back from that."
GM's old lineup turned off Nelson Munhoes, 40, and led him to Hyundai and BMW after owning an Astra, an Opel model now sold in Brazil as a Chevy.
"A long time ago I was a good client of General Motors, but they were not changing the cars like the other companies, so I stopped buying General Motors," said Munhoes, who is a partner in a transportation company. He returned to GM in December when he saw the new Cruze. "It's a very good car," he said. "It's different from the others that we have here."
More important than the Cruze will be the smaller Onix, which debuts at the show this week.
"The Onix is pretty much this inflection point of moving out with the old and coming in with the new," said Guido Vildozo, an industry analyst with IHS Automotive. "It's a critical product because most of the market belongs to the B- segment. It's a segment you have to be in and it's a segment that's seen a lot of competition."
The Onix, once fully introduced with different variants, will make up as much as 30 percent of Chevrolet sales in 2014 in Brazil, Colossi said. Subcompact, economy and small cars combined make up as much as 60 percent of Brazil's auto sales, he said. Cars with smaller engines are taxed less.
"Onix is very important for us," he said. "It's a big innovation for our product line, the largest innovation in terms volume for the last 15 years."
The new vehicle, designed and developed for the Brazil market, will be offered with an automatic transmission and that should make it appealing to buyers wanting a premium touch in a segment not accustomed to such features, said Azar, the dealer.
"Ten years ago, nobody wanted an automatic transmission; now everybody wants automatic transmission," he said.
GM sales rose 1.9 percent to 470,000 through September in Brazil, according to the automaker's regulatory filings and Klaus-Peter Marin, a company spokesman. GM sold 30,872 Cruze cars through August, LMC said. GM sold 13,769 of the small car last year in Brazil after its introduction, according to LMC.
GM's average transaction price has increased by as much as 20 percent on the new vehicles compared with their predecessors, Colossi said.
The company may even offer Cadillac models for sale in South America within five years, CEO Dan Akerson told reporters in Sao Paulo.
"I do think that it is a market that's evolving," he said. "I do think the per-capita income is increasing, I do think the middle class is growing, so this is an attractive market."
GM could benefit from another brand in Brazil, where it remains a "powerhouse," Warren Browne, a former GM executive in Brazil, said in an e-mail last week.
"The organization does very well when it focuses on execution," he said. "If they are going to invest that much effort into proliferation, they should look at an additional brand."
The automaker sees the Brazil market growing to 4 million vehicles by 2015, said Grace Lieblein, who runs GM's unit there. GM has invested about $3 billion in Brazil in the past five years to develop products and update plants, she said.
GM CFO Dan Ammann attributed a $100 million improvement during the first quarter to shifting sales in Brazil to higher-margin vehicles such as the new Cruze and S- 10 pickup, which was designed by GM's staff in Brazil.
Even with new products, challenges remain in Brazil, such as greater exposure to changes in the local currency, Chuck Stevens, GM's chief financial officer for North and South America, said in August.
"On our new products, we've got a pretty significant level of imported content and we've got exposure to the weakening real from that basis, so we need to work on that," he said.
Another area GM has been working on is lowering its fixed costs. About two-thirds of GM's operations are in high-cost locations in the Sao Paulo area, Stevens said.
"When you look at Fiat, Volkswagen, the vast majority of their capacity is in low-cost regions of the country," he said. "Estimated cost penalty associated with that is $300 million to $400 million a year just from a footprint standpoint."
A total of 900 workers in Brazil accepted buyouts last year, GM said in a regulatory filing.
The company also has an opportunity to cut as much as $100 million a year in selling, general and administrative costs in South America, primarily in Brazil, Stevens said.
At Azar's dealership, he walked through the service department where customer Luis Fernando, 50, was having his Corsa sedan repaired.
"I feel good in this car," Fernando said. "People here in Brazil think Chevrolet is a good brand."
His wife owns a Chevy as well, he said, and he hopes one day to own a more-expensive Chevrolet sport-utility vehicle for its roominess.
"I don't know if it will be possible, but I will work for this," he said.Contact Automotive News