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China's Chery foresees 10 years before profit in Brazil
Source: Bloomberg News |
August 22, 2011, Monday
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Print Edition
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CHERY Automobile Co, China's biggest auto exporter, may see "insignificant" profit margins for the next decade in Brazil, where the company is attempting to triple market share by 2015, according to Luis Curi, the chief executive officer for the Brazilian unit.
Chery wants to attain 3 percent of sales in the South American nation after production begins at a US$400 million factory the company is building in Jacarei, in Sao Paulo state, Curi said on August 18.
Brazil is the biggest market for Chery outside China. The company's rate of purchase from its Chinese parent hovers around 4,000 vehicles a month, with practically no stock in the country, Curi said.
The Wuhu, China-based company expects to sell about 30,000 vehicles in Brazil this year. The new plant, scheduled to start production in the second half of 2013, would add capacity to make 150,000 to 170,000 cars annually, Curi said.
"The Chinese market already guarantees Chery its profitability, so here in Brazil we're in the stage of buying market, working with insignificant profit margins," he said. "For the next 10 years we don't see, we don't expect, a financial return. These will be 10 years of investment. The profit margins come only after that."
Chery has to have profit margins that let it work at break-even, while avoiding the need to work at a loss in Brazil, he said.
Chinese automakers' market share in Brazil expanded to 3.29 percent this month, from virtually zero in April 2010, according to the national car dealers association known as Fenabrave. Chery was the first of the new wave of Chinese carmakers to arrive in Brazil, in May 2010, and was followed by Chongqing Lifan Auto Co in December and Anhui Jianghuai Automobile Co's JAC Motors in March.
Chery has 82 dealers in Brazil, Curi said, and expects to boost the number to 150 next year. The company foresees sales of 30,000 and 35,000 cars in 2012. Chery increased market share to 1.1 percent in mid-August from 0.15 percent in May 2010, said Fenabrave.
In 10 years, there will be significant changes in the top ranking of automakers in Brazil, Curi said. By then, Chery expects to have enough production momentum to scale down costs and improve margins, and be among the top five automobile companies in the country.
"There's already a clear loss of share among the four leading manufacturers," said Curi in reference to Fiat SpA, Volkswagen AG, General Motors Co and Ford Motor Co. "It has been a gradual, but consistent, process and this is clearly a trend."
"Traditional" automakers, which will increase their sales, will cede market share as new companies such as Chery enter the nation and boost investment and production," Curi said. JAC Motors said on August 1 that it will build a US$600 million factory in the country. Asian automakers Nissan Motor Co, Mitsubishi Motors Corp and Hyundai Motor Co also announced broader investments, while Germany's Bayerische Motoren Werke AG said it is considering a production line in Brazil.
The potential of a weaker second half for the Brazilian economy has yet to be felt by Chery, where consumer demand remains unchanged. "There's still plenty of credit," said Curi.
"As for the worsening crisis expected for the second semester, we still haven't felt the effects in a stronger manner in our network. Orders for China remain at the same level."
Chery wants to attain 3 percent of sales in the South American nation after production begins at a US$400 million factory the company is building in Jacarei, in Sao Paulo state, Curi said on August 18.
Brazil is the biggest market for Chery outside China. The company's rate of purchase from its Chinese parent hovers around 4,000 vehicles a month, with practically no stock in the country, Curi said.
The Wuhu, China-based company expects to sell about 30,000 vehicles in Brazil this year. The new plant, scheduled to start production in the second half of 2013, would add capacity to make 150,000 to 170,000 cars annually, Curi said.
"The Chinese market already guarantees Chery its profitability, so here in Brazil we're in the stage of buying market, working with insignificant profit margins," he said. "For the next 10 years we don't see, we don't expect, a financial return. These will be 10 years of investment. The profit margins come only after that."
Chery has to have profit margins that let it work at break-even, while avoiding the need to work at a loss in Brazil, he said.
Chinese automakers' market share in Brazil expanded to 3.29 percent this month, from virtually zero in April 2010, according to the national car dealers association known as Fenabrave. Chery was the first of the new wave of Chinese carmakers to arrive in Brazil, in May 2010, and was followed by Chongqing Lifan Auto Co in December and Anhui Jianghuai Automobile Co's JAC Motors in March.
Chery has 82 dealers in Brazil, Curi said, and expects to boost the number to 150 next year. The company foresees sales of 30,000 and 35,000 cars in 2012. Chery increased market share to 1.1 percent in mid-August from 0.15 percent in May 2010, said Fenabrave.
In 10 years, there will be significant changes in the top ranking of automakers in Brazil, Curi said. By then, Chery expects to have enough production momentum to scale down costs and improve margins, and be among the top five automobile companies in the country.
"There's already a clear loss of share among the four leading manufacturers," said Curi in reference to Fiat SpA, Volkswagen AG, General Motors Co and Ford Motor Co. "It has been a gradual, but consistent, process and this is clearly a trend."
"Traditional" automakers, which will increase their sales, will cede market share as new companies such as Chery enter the nation and boost investment and production," Curi said. JAC Motors said on August 1 that it will build a US$600 million factory in the country. Asian automakers Nissan Motor Co, Mitsubishi Motors Corp and Hyundai Motor Co also announced broader investments, while Germany's Bayerische Motoren Werke AG said it is considering a production line in Brazil.
The potential of a weaker second half for the Brazilian economy has yet to be felt by Chery, where consumer demand remains unchanged. "There's still plenty of credit," said Curi.
"As for the worsening crisis expected for the second semester, we still haven't felt the effects in a stronger manner in our network. Orders for China remain at the same level."
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