JAC Motors, one of China’s most prominent automobile manufacturers, has made significant inroads to utilise the Brazilian market
Announcements that JAC Motors are building a manufacturing plant in Brazil should come as no surprise to anyone who has been monitoring the rapid growth that is taking place in the Brazilian car-manufacturing sector. In fact the country has the fourth largest automobile market in the world, so it makes sense that there would be interest from a manufacturer such as JAC, commented Sergio Habib, the president of JAC’s Brazilian operations. Taking into account the country’s strong economy, along with the increasing demand for high quality, but affordable, automobiles, the potential for JAC to reap substantial rewards for their investment is easy to appreciate.
JAC Motors was one of the top ten vehicle producers in China during 2010. With plans to produce in excess of 500,000 vehicles annually, a considerable percentage of them at the new Brazilian plant, the company is poised for significant growth. Over 10,000 advance orders are already pending in Brazil alone and once up and running, the plant is expected to account for the production of 100,000 cars and trucks annually.
Construction of the plant, which is located in Bahia State, does not constitute the first time that Habib has been involved in the introduction of a major international motor manufacturer into Brazil. During the 1990s, he was instrumental in bringing Citroen to the country, a move that ultimately proved profitable for everyone concerned.
Having a plant in Brazil should also help reduce the tax burden of doing business in the country. According to Sergio Habib, president for JAC Motors in Brazil, the hope is that the company will be exempted from paying the 30 percent import tax that is currently in place. Assuming that the plant produces at least 65 percent of JAC models sold in the country, it will be in a position to avoid the 30 percent import duty on any manufacturer that builds cars outside what is known as the Common Market for the South, which includes Argentina, Paraguay and Uruguay, along with Brazil. The tax savings alone could justify the opening of the plant, placing JAC in a position to compete in this potentially lucrative trading area.
The decision to build a plant in Brazil comes at a time when the previously robust automotive sales in the country are slowing down. According to figures published by Anfavea, the National Motor Vehicle Association in Brazil, “September registered sales of 311,648 vehicles, down 4.9 percent from August and up only 1.5 percet from September of 2010. September production was 261,184 vehicles, plunging 19.7 percent from August and 6.2 percent from September a year ago”.
Habib has invested $124m in the venture, a move that is already bearing fruit, with over a thousand JAC models being sold since the launch of an aggressive media campaign. Sales are anticipated to soar as manufacturing gets fully underway and the ad campaign begins to build momentum, especially if the price of the vehicles is set at a level that is competitive with other models currently being sold. While some analysts speculate that the Brazilian economy may slow slightly between now and when the plant is completed in 2014, the chances of carving out a niche in the market remain very positive.