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Brazil's auto industry is experiencing record growth rates and comanies like Vanzin, makers of exhaust systems, are finding increasing opportunities to supply parts for the big manufacturers. Christopher Van Buren takes a look at Brazil's growing auto market.

In 1919 Henry Ford decided to set up a factory in Brazil, to serve what at the time was a small but promising market. In 1925 General Motors and Chevrolet followed suit. Since then, the market in Brazil has grown slowly but steadily and by 1960, Brazil had produced over 300,000 automobiles for its population of 65 million. Today, the auto industry in Brazil is at an all-time high. Overall growth in 2006 was 4.5 percent over 2005 and is increasing in 2007. Last year, Brazil produced over 12 million cars and at least that many trucks, buses and commercial vehicles. The great majority of these are made for the domestic market. All of them need exhaust systems.
“The auto market here is growing a lot,” begins Claudemir Antônio Tosatti, General Director at Vanzin. “Here, one person in 13 has a car. In the states, it’s more like one person out of two. There is a great ability to grow here and our companies are all setting records.” Indeed, growth indicators for 2007 indicate between 12 and 15 percent growth for the industry, while Brazil’s overall growth is around 4 percent. “Many auto manufacturers are installing themselves in Brazil. We have 12 or 13 functioning in this market now.”

Ironically, the American manufacturers first to arrive on the scene are no longer leading the pack in Latin America. Instead, manufacturers who have been able to deliver quality, economical models have come out on top.

“Economy cars are 70 percent of the market here; we have about 30 percent in mid-sized cars. Volks and Fiat are the big players here. Chevrolet and Ford follow with their economy models.” According to leading Brazilian indexes, Fiat increased its total units sold by nearly 47 percent from 2005 to 2006, with a monthly yield of around 39,000 cars. Volkswagen registered at slightly over 31,000 units per month.

Vanzin has been making exhaust systems for all of Brazil’s auto manufacturers since 1975. “We were originally a family company with high, professional standards. We always had good growth and after 33 years, we are a leader in the market.” Vanzin’s recipe for success includes quality products, flawless delivery and excellent client relationships. The majority of Vanzin’s business has always been focused on the replacement market, but now Claudemir sees OEM contracts with auto makers as the future for his business. “We distribute our products across 5,000 kilometers of the country, from here to Fortaleza. Everybody has our products. Now we want to focus on the manufacturers.” Currently, around 15 percent of Vanzin’s business comes from OEM contracts. Claudemir plans to increase that to 30 percent.

“We have to be flexible to increase our participation with auto makers,” explains Claudemir. “We have to develop the technical part with them. It’s different than the rest of the business. Sales take up to two years to complete, plus we have to make prototypes and so on…the projects take a long time.” But Claudemir is committed to investing the time and technology needed to increase his work with the big auto makers and cites new demos his company is producing for tractor manufacturers as examples of this trend.

Exhaustive Manufacturing
Vanzin produces nearly 800,000 pieces each month over all product lines, which include mufflers, exhaust systems, and protective plates. Claudemir points out some important differences between the U.S. and Brazilian markets: “In the United States, you work with stainless steel for exhaust systems. Ours are made from galvanized steel. The gas here has more alcohol in it and consequently the mufflers and exhaust systems erode faster.” This makes replacement systems the biggest part of Vanzin’s business. “Steel is the most important of our materials,” he continues. “We sell a lot of it to China. They have been known to buy it all and leave us with nothing, but today there is plenty of material.”

Vanzin has over 1,200 items in production and over 500 different types of exhaust systems, evidence of an increasing variety of car models available in Brazil. “Each month we have new cars and innovations here. We have a lot of different models and we can deliver systems for all of them.” Vanzin works directly with parts stores and auto shops throughout the country and has a team of 70 representatives working the channels. “We have a wide variety of cars and models and stores do not carry everything in stock, so we deliver within 24 hours. Sometimes they need parts even faster, so we’re growing our network of distribution in Brazil.”

Where parts distributors are national in the United States, they are regional in Brazil. “We have three major distributors in Minas Gerais, a few others in São Paulo; they are small and regional. In the United States if one falls through, then entire market feels it. Here any distributor represents only 3-5 percent of the market. São Paulo and Rio are the most important markets.”

Outside Brazil
In terms of units sold, Brazilian auto exports dropped in recent years, mostly due to exchange rates. The falling value of the dollar makes Brazil’s prices less competitive on the world market. Between 2005 and 2006, exports dropped nearly 5 percent in volume. However, in terms of receipts from exports, numbers have never been higher. Sales from exports in 2006 were over $10 billion, an increase of 8.5 percent over the previous year. Figures for 2007 are keeping pace with nearly $1 billion sold each month. Together with the exploding domestic market, production in Brazil is at an all-time high.

Long Road Ahead
Although Ford believed in the Brazilian market back in 1919, the country has, in many ways, only just begun its long journey in the automobile industry. “Our country was discovered 500 years ago, but only opened up in 1989,” Claudemir exclaims. “Before President Collor opened up our auto industry, many of our cars came from Russia. We are a new country in many ways and we are only just now starting to globalize.” Claudemir lists a number of obstacles still facing manufacturers in Brazil: high interest rates, abusive taxes on manufacturing and horrible road conditions. “There are many investments that need to be made here, but our technologies are growing and we are beginning to make important partnerships with foreign companies.” For a country just taking its first steps in a global auto market, Brazil has a great future ahead of it and companies like Vanzin will continue to contribute the parts.

Volume:
11
Issue:
1
Year:
2008


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