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Another BRIC in the Wall
Auto-Makers Bet on BRICS and Lose

Auto manufacturers looking to the developing world as a growth engine may need to come up with some new plans. After decades of growth, car sales are beginning to slow down in the BRICS, with India, Russia and Brazil all posting lower numbers than they’ve seen in the past boom years. The economic slowdown that hit the BRICS this year has led to a saturation in the market—the ranks of the middle class aren’t growing as fast as expected, and many of those already in the middle class have the cars they need. This is bad news for the many companies that have invested heavily in building factories in these countries, and particularly bad for European carmakers, many of whom aggressively made moves into BRICs to make up for low demand at home, as the FT reports:

For Fiat, which entered Brazil in the 1960s, the slump in the country’s car market has come at a bad time. Over-reliant on the shrinking European market, the Italian company had been leaning on its South American business to offset chronic losses closer to home.

But its Brazilian sales fell 21 per cent in the third quarter as operating profit from the region nearly halved, contributing to a reduction in full-year profit estimates.

The significance of the BRICs has always been somewhat overstated—the four countries (five if South Africa is included) have little in common, and there have always been reasons to doubt whether their economic growth could continue as rapidly as it did in the past decade. Back then, it looked to many like steady, rapid growth in the BRICS would drive the global economy for the foreseeable future. But over the past year or so, that growth has hit a wall and it’s now unclear whether these countries will ever live up to their potential. For industries like automobile manufacturing, where existing markets are unlikely to grow much for a while and where global overcapacity is a real concern, this is deeply troubling.

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  • Andrew Allison

    Wouldn’t “European auto-makers made losing bets on BRICS” have been more accurate?

  • lukelea

    “The significance of the BRICs has always been somewhat overstated. . .”

    True, but you did some of the over-rating yourself I recall. Not that there is anything wrong about being wrong. I particularly can’t see Brazil or India (let alone South Africa) going very far in the near to medium term. China, on the other hand — I worry about China. Why are we doing business with them?

    • Andrew Allison

      Our desire for cheap goods, and their willingness to hold a very large amount of our debt. The former tide may be turning as costs of doing business in China increase, the latter as they realize that its value is rapidly declining.
      (I’ve only ever been wrong once — the time I thought I was wrong! LOL)

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