New rules make expensive cars the new normal in Brazil

The popular car that used to cost R$ 45 thousand in 2020 is currently sold for R$ 70 thousand, and automaker presidents announce the repositioning of the brands. The national automotive market changed with the pandemic,
and there are several reasons for this.

The first reason is already known: the global scarcity — and the increase in prices — of parts, with the consequent lack of stocks. No one has escaped this Covid-19 disruption, and even the US sees car inflation hovering around 20% from early 2020 so far. However, the situation is more complicated in Brazil.

The country is undergoing changes in environmental rules. Starting in January, new national cars will have to meet the seventh stage of the Proconve (Vehicular Emission Control Program), with reductions in noise and emission levels.

In addition, they are expected to bring stability control as a standard item over the next two years, as well as other requirements to increase occupant protection. These are investments that are already underway.

There is still the third element: the devaluation of the real, as a result of economic and political issues.

“The high dollar has raised the price of vehicles too much. The low production scenario and the relatively higher demand contribute to this increase”, says Milad Kalume, business development manager at Jato Dynamics Brasil.

The result appears in the ads made by the automakers. On Friday (3), Fiat launched the 2022 line of van Fiorino, which reached R$ 100 thousand. When the 2021 model was presented a year and a half ago, the price started at R$ 68.3 thousand.

Paulo Cardamone, a partner at consulting firm Bright, says that the values ​​charged for new cars should continue to rise over the next year, which will still be impacted by today’s problems. But it will not be possible to resume large-scale production without more affordable vehicles on the market.

“I don’t know how we will manage to occupy the factories, which have the capacity to produce 4 million cars a year, without having cars that cost between R$ 60 thousand and R$ 80 thousand”, says Cardamone.

According to calculations by Bright, the current average ticket of new vehicles sold in Brazil is R$ 110 thousand. The consultancy raised that the average increase accumulated in the last 12 months is already around 30%.

When repositioning more affordable models or stopping producing less equipped compacts, the automotive market runs the risk of losing volume. The reflex already appears in the sales ranking: models that cost more than R$100 thousand are among the ten best sellers. Given the population’s loss of income, there are indications that we are facing a consumer bubble.

Only 9.5% of wage negotiations carried out in September ended with a real gain for workers, with readjustments higher than the accumulated inflation.

Another 23.5% had only the INPC (National Consumer Price Index), of 10.4% in 12 months. The data comes from the Salariometer, a bulletin from Fipe (Institute for Economic Research) on agreements registered with the Ministry of Labor and Social Security.

“The loss of the consumer’s economic capacity, the decrease in confidence and the increase in prices will be an obstacle to the return of sales in the Brazilian market to pre-crisis levels”, says Kalume.

“We will still have the effect of the lack of semiconductors until the second half of 2022, which will make sales close to 2.1 million [veículos leves], not maximum “, complete or specialist.

“Added to this is the issue of elections, which traditionally have effects on the national automotive market.”

So today’s waiting lines are due to pent-up demand. These are consumers who, for example, postponed changing their car due to the economic crisis that escalated in 2014 and then waited longer in the face of the pandemic. Now they want a new car, and the automakers don’t have stocks.

Some brands even benefited from the current scenario, such as Peugeot. The brand started the renewal of products and conquered 2% market share in October, the best result since August 2012.

“The market is at a time of rising prices, and we will have an industry that, next year, may even recover a little, but it won’t be a great takeoff. For us, it’s a favorable moment for correcting the route. Inside After the chaos, we managed to stop our factories less”, says Felipe Daemon, responsible for the Peugeot brand in South America.

The example of the French brand shows the potential of the Brazilian market, which justifies the industry’s hopeful look beyond 2023.

It is this vision of the future that makes new automakers invest in Brazil, either through local production —such as the Chinese company Great Wall, which acquired the Mercedes-Benz plant in Iracemápolis (SP)—, or as an importer. This is also the case of the Chinese company BYD, which will bet on hybrid and electric vehicles.

“We have some products at an unrealistic price escalation. Values ​​should not return to lower levels, but their demands should be compromised”, says Henrique Antunes, sales and after-sales director at BYD. “In a second moment in the market, automakers will invest to fill this gap in the market that is empty.”

After entering the domestic market with its electric bus chassis assembled in Campinas (interior of São Paulo), in addition to offering vehicles for fleets, the Chinese company reaches retail.

The first car is the BYD Tan electric sports utility vehicle, which debuts in the first half of 2022 at an estimated price of R$ 400 thousand. More affordable options will come later, with the possibility of nationalization

For Antunes, the electrification will quickly attract consumers of more expensive models. In his assessment, in five or six years, plug-in models (including plug-in hybrids) will represent about 70% of the luxury market.

In the entry-level models, the bill is not closed yet: while a compact flex costs R$ 70 thousand, the cheaper electric one is sold for R$ 150 thousand in the Brazilian market — it is the Chinese JAC EJS-1.

“The cars will be electric, there is no further discussion about that. However, there are several ways to electrify, we will have different alternatives”, says Paulo Cardamone, from Bright.

But the consultant explains that markets go through different times. “The Europe that electrifies is Western, not Eastern, for example.”

Generating hydrogen from ethanol is an option for the future

When it comes to electric cars, Brazil is in the same group of countries as India and African nations, whose massification of these vehicles is expected in 20 years, or more.

There is, however, concern about the future: although alternatives such as ethanol are more sustainable than fossil fuels, what will happen to the national industry when the automakers end investments in combustion engines?

For Cardamone, the solution is already on the horizon: the hydrogen cell powered by biofuel, like the one developed by Nissan.

It works like this: instead of the driver filling a pressurized hydrogen tank —which would also require a complex infrastructure—, the vehicle is fueled with ethanol or another renewable fuel.

A reformer does the chemical reaction necessary to extract hydrogen from the liquid fuel. It is this substance that will go through a SOFC (English acronym for solid oxide fuel cell) module and, finally, converted into energy that will feed the batteries. The car works like an electric, releases H₂O through the exhaust and does not need to be plugged into an outlet for charging.

But back to the beginning of the conversation: if combustion cars are expensive, expect even higher values ​​when new technologies are implemented. Toyota’s flex hybrid, for example, does not cost less than R$ 170 thousand.

Volkswagen has already confirmed that it will have compact cars capable of reconciling electricity, gasoline and ethanol, but there is still no idea how much they will cost.

For the consumer, advantages such as low consumption and tax reductions available today are attractive, but it will be necessary to offer alternatives for the general public, which today consumes models below R$ 100,000.

As the future remains open and prices continue to rise, dealers are looking for ways to attract customers without immediate delivery cars.

“There are marketing campaigns to acquire the used car that is with the consumer, it reminds me of the situation of times past, when there were no cars in stock”, says Almir Nogueira, executive director of DMA, an automotive marketing company. “If possible, the dealership sells a promise, a role that is the future acquisition of a new model.”