RIO DE JANEIRO, BRAZIL – On Monday, March 1st, Renault announced that it will invest R$1.1 billion (US$197 million) in Brazil this year and in 2022. Unlike past years, when the programs were set for five-year terms, this time the company decided for the short-term and will continue to negotiate with the parent company contributions for the following years. However, the company says that a new investment cycle will depend on the improvement of the country’s competitiveness.
Factors such as the high and complex tax burden, logistics, manufacturing and labor costs have put Brazil on hold for major automakers. “Within the global context, these issues compromise the feasibility and competitiveness to manufacture in Brazil,” says Ricardo Gondo, president of Renault in the country.
According to the executive, “this contribution for 2021 and 2022 is an important step to enable new projects,” but when assessing new projects the parent company considers the global context as well as of countries where it intends to invest. “The size of the market is also taken into consideration, if it will continue to grow, in what way, at what pace, and based on what, economic and macroeconomic studies, for instance.”
The new capital contribution, announced by the company’s management to the governor of the State of Paraná, Ratinho Jr. (PSD), will be invested in projects that were already underway, such as the renewal of 5 models of the current line, the introduction of the 1.3 turbo engine that will be imported from Spain (probably for the Duster SUV) and the introduction of two electric cars, one of them the new Zoe.
More profitable products
This caution by the French manufacturer, which is part of the Renault/Nissan/Mitsubishi alliance, is in line with the global plan announced by the company at the start of the year to focus its operations on more profitable products, abandoning more basic cars, and not worry about a potential drop in market share.
Gondo says the company followed this direction last year, which caused it to drop from a 9% share of the Brazilian market in 2019, after 10 years of steady growth, to 6.7%. The company also dropped its operations in less profitable channels, such as direct sales to people with physical disabilities (PCD), which sets a R$70,000 vehicle tax exemption limit. By adjusting models to this price, the product’s profitability is reduced, says Gondo.
In 2020, the brand sold 132,000 vehicles, coming 7th in the national brand ranking. In the previous year, it ranked 4th, with 239,000 units sold.
According to the executive, another measure that helped cut costs was the collective agreement with the Metalworkers Union of Greater Curitiba, effective for 4 years, which allowed the termination of a work shift and the opening of a voluntary dismissal program (PDV).
The goal was to terminate 747 workers, but part of them are still on lay-off (suspended contracts) and the company is still negotiating a solution with the union. The group’s complex in São José dos Pinhais (PR), which houses automobile and engine plants, has 6.400 direct employees operating in two shifts and, for the moment, does not need the labor force on layoff.
Semiconductor shortage
Gondo reports that the plant in Paraná halted production for a few days last month because of logistics issues in the delivery of components. According to him, there have been ship delays and, once they reach the port they have lost their docking spot and wait days to unload.
The shortage of semiconductors is global and the world president of Renault, Luca De Meo, believes that the issue should be solved in the second half of the year, but he stated that 100,000 Renault vehicles may not be produced in all countries where the company has plants.
In Brazil, the plant continues to operate smoothly, says Gondo, “but clearly there will be problems at some point”, without mentioning deadlines. Steel is another commodity that worries the sector.
He projects a 2.3 million vehicle total Brazilian market, 15% more than last year. Due to the increase in raw material costs and the dollar, Renault model’s prices increased on average 16.5% last year, a little above the total market average, which ranged from 16% to 16.2%. This year, readjustments of 4% have already been made.
Source: Infomoney