Local car producers looking to Brazil for growth

Domestic auto Haima attracts visitors at the 27th St Paul International Auto Show in Brazil. South America will become a new growth market for China's domestic brands in the near future, analysts say. [Yang Limin / Xinhua]

As competition in the domestic automobile market intensifies, China's local brands are shifting their focus overseas.

Rapidly developing markets in South America, led by Brazil, are shaping up to be the new focus of investment in the future.

Most recently, Chery Automobile launched a research and development project to support local production in Brazil, the world's fourth-largest auto market.

As a follow-up to the engine plant it completed in November, the automaker from Anhui province is considering housing an R&D center there, said Luis Curi, CEO of Chery Brazil.

The center will help Chery localize its products assembled in the new $400 million plant in Brazil, which will begin operation this year.

Curi said the plant has a planned production capacity of 100,000 to 150,000 units a year. In the initial stage, it will manufacture three models, including the Chery A1 and the Fulwin 2.

Zhejiang Geely Holding Group also plans to form a joint venture in Brazil, aiming to grab a greater share in the country through locally produced vehicles.

Geely, parent of the Swedish luxury carmaker Volvo, will begin to sell its Emgrand EC7 and Gleagle GC2 models in Brazil starting this January to test the waters before going ahead with localized production, according to Grupo Gandini, the authorized dealer for Volvo in Brazil.

At present, Geely vehicles sold in Brazil are assembled at its plant in Uruguay using parts and components shipped from China.

Geely's only manufacturing facility in South America, the plant produces 20,000 vehicles a year to meet demand in its home country as well as Brazil and Argentina.

Grupo Gandini Chairman Jose Luiz Gandini said that Geely will join hands with the Brazilian auto group in a 60-40 joint venture in the near future. The models produced by and production capacity of the venture will be decided later according to the reception received by the Emgrand EC7 and Gleagle GC2.

Brazilian media reported in 2012 that Geely plans to locate the plant in the state of Santa Catarina, with an estimated investment of about 650 million reais ($276 million) and an annual output of 100,000 units.

Strict tariff system

According to Geely management, it is still waiting to see the effects of strict tariffs set by the Brazilian government aimed at protecting and encouraging local vehicle production.

"Chinese automakers want to gain volume sales in Brazil," said Namrita Chow, a senior analyst with consulting firm IHS Automotive.

"The high tariff on imported vehicles has led to the erosion of the low-price advantage that China-built vehicles had."