According to Brazil’s Globo, Brazil’s baby darling, the new Uno, is outgrowing its baby shoes. Fiat must expand to keep up with the demand. The likely winner will be the northeastern state of Pernambuco. Fiat announced that it is in negotiations with that state’s government. Though the Italians denied that a factory was in the offing, what else should an automaker discuss with a state government? Police cars? It is a well known fact that Fiat needs more capacity. It is also well-known that Fiat and various state governments have been doing the habitual mating dance whenever a maker says it’s looking for a new place to call home. Next year will witness the beginning of operations at three new sites as Hyundai, Toyota and even Chinese Chery are busy building their new factories. The Big 4 (Fiat, VW, GM and Ford) in Brazil all have two factories, except for Fiat. Fiat only has one. Market conditions are now forcing the Italians to commit: Double-up or fold?
The new Uno was launched with the expectation of taking the first place in sales from VW’s Gol. No cigar so far. VW has been very aggressive counter-striking. Their secret weapon: Lower prices, something of high appeal to low income Brazilians. Fiat has been charging full price for the Uno.
So is it filthy lucre that protects the top spot of the Gol? Not according to the previously hyperlinked article. Globo reports that there is a waiting line for 20 000, yes 20 thousand Unos, which Fiat can’t deliver just now. 20,000 Brazilians have paid a deposit and are now waiting at home for the one and Uno to arrive.
Brazilians are mostly emotional when it comes to buying cars, so such an exercise (not to mention show) of patience is almost unheard of in this country. It shows how much Brazilians are willing to bear to get their hands on Fiat’s little bugger. This waiting line is what has prompted Fiat to delay introduction of the Uno two-door until next year. Traditionally, small two-doors are usually priced R$2,000 under the four-door. While the market is still hungry for the car, better to sell the most expensive version, right? Another reason would be that there simply isn’t enough capacity or time to adjust the line to produce the cheaper version.
Fiat’s main and only factory in Brazil is in the city of Betim, Minas Gerais state. Since the launch of the new Uno, Fiat has been able to expand production from 12 thousand cars per month to 15 thousand. Now there’s simply no more space. At 800,000 cars per year, the factory is redlining. Fiat recently announced that it would be pouring 7 billion dollars into its operations in Brazil. How many of those will be headed to Pernambuco?
Those familiar with Brazil will no doubt scratch their heads as to Fiat’s (apparently final) decision. I mean, to commit to putting so much money into a state so far away from Fiat’s base in Brazil (2,000km or 1,250 miles). Not to mention the vast distances between Recife (capital of Pernambuco) and São Paulo (2,650km or about 1,600 miles) and Rio de Janeiro (2,300km or 1,400 miles), where most consumers live and buy. Remember that in Brazil almost all production is moved on the back of trucks. So it’ll be pretty expensive to reach those customers in São Paulo, let’s not forget those in Porto Alegre (just 3,700 km or 2,300 miles away). Don’t forget that most suppliers are in São Paulo, Rio de Janeiro and Minas Gerais states. Figure in the fact that the Northeastern region of Brazil is famous for being Brazil’s backwater, where the populace is poor and badly-educated. So, no doubt, they’ll have to pay extra to train the workers. Well, though Pernambuco has not said what its offering, it must be mighty juicy. Also, if you allow me to speculate for a minute…
Pernambuco is home to the port of Suape. It is one of Brazil’s most modern and the federal government has poured money into it. From what I’ve heard until now it hasn’t shown much (i.e. profit) for all the investment. So the federal government must also be sweetening the pot.
Now, let’s speculate further: Port, northeast of Brazil, Fiat in America via Chrysler. Humm, now it starts to make sense. How do some Brazilian-built-Fiat-re-badged-as-Chryslers in America sound? Sounds like an idea to me.
Building a factory in a low wage area with good access to a state of the art port makes all kinds of sense.
But its so far from Fiat main markets (the Southeast and South of Brazil, that I’ll bet buy ate least 70% of the cars built in Brazil). Plus the local lack of top-notch administrative power and know-how.
Sounds like a good moment to send your CV to Fiat.
And a bad moment for leaving the continent.
intentelo hombre! Quien sabe es Usted con su experiencia de fábrica alguien que Fiat necesita. De Recife a Caracas no puede ser más que unas 4 o 5 horas de vuelo…
Marcelo, no entendiste. Creeme, sería muy chevere ir alla (con lo comelon que soy la feijoada y la parrila bastan para convencerme).
Sin embargo, voy a tomar tu consejo. Otro de los hijos de Marcchione busca unos 1000 ingenieros.
Saludos :)
Sometimes not. Remember Alfa’s Pomigliano d’Arco factor built near Naples under government incentive. Decades of labor problems and poor quality.
That being said, Pernambuco is probably the most industrious, hard working state in NE Brazil and a lovely place to live.
Hi djn!
Sounds like you know something of Brazil. If everything works out, this will be the building block of the new Pernambuco. I mean, when Fiat came to my home state over 30 years ago, the adventure was much like they’re undertaking now. At that time there was barely any auto related industry outside of São Paulo state.
Fast forward 30 years. Fiat is the market leader. Suppliers have sprung up in Minas Gerais state like meshrooms. A number of friends and family work in such companies. Wonder what would be of them had Fiat not set up shop 30 years ago…
At that time the State of Minas Gerais actually had to be a 49% partner in order for the endeavor to work. It worked so well Fiat bought out the State before due time (kind of like what’s going on in NA). But the distances between Pernambuco and the main consumer regions, the Southeast and Aouth of Brazil are just staggering. Not to mention the quality of management. I already have friends working there. It’ll be a boom for people in my state. Lots will be moving to the beach in Pernambuco (sounds nice!). It’ll surely be a boom for that state.
Better to grow your business where the markets are less saturated than back home where an over capacity situation is today’s norm.
You are sure right. 2010 wll be the record in Brazil Fiat will sell exactly the 800 000 cars it can produce now. But the market is growing. Depending on who you talk to it’ll grow from 3 million today to 5 or 6 million in just 3 or 5 years. So if Fiat keeps its 23% share of the market at 3million, imagine how much more they’ll need to produce if the market nmakes it to 5 million!
That means they’ll have to get production up from 800 yhosand to 1.120 million. In just 3 or 4 or 5 years. Crazy!
I’m not that optimistismic. Based just on the numbers, the money necessary to make it happen..as markets abroad retrench…But even so they need at leat 20% more production capacity now!
Hey guys,
To complement this article, I thought you may want to have a look at the exact sales ranking in Brazil where the Uno is indeed a strong number 2:
http://bestsellingcars.wordpress.com/category/brazil/
cheers!
Matt
Thanks Matt!
I hadn’t used this resource before. Will be in teresting to check it out against local sources.
Anyway, I’ll have yearly numbers as soon as I can get them. I used to do it monthly, but have been rela´se the last couple of months. Two reasons: The numbers almost don’t change month-to-month, and I got little feedback. Don’t won’t to occupy bandwith with no one reading.
Again, anyway, if you do a quicksearch of the site you’ll find monthly articles onsales up until (I believe) 2 months ago.
Hey Marcelo,
Sorry I’m only new on this site so wasn’t aware you had published Brazilian sales numbers already…
The good thing with Fenavabre is that they publish complete models figures twice a month so you can see how the sales are going mid-way through the month…
cheers
Matt
No need for sorry man!
Thanks for the heads up!
Also, thanks for the interest!
Hola Marcelo. Maybe the cars can be shipped via ship to the lower states. Correct me if I’m wrong but Sao Paolo and Rio both have ports.
They can also export not only to US, but Mexico, Latin America, EU, and other countries.
I guess the government also is sweetening the deal to allow a better distribution of development/industry around.
Sure both cities have ports. And a more “modern”. but heavily unionized labor force. That’s whay they built Suape. To avoid the need for all of Pernambuco”s “theoritical production” from going down south.
You, as well as me know that when there’s a big government check there’s always a way. That’s the gist of my article.
Now, during the 2nd World War, the US maintained a base in the NE of Brazil. That just goes to show how near and how dear this location can be to control North-South Atlantic commerce.
If they ever do get that up and running, not to mention a healthy supply network (not dependent on the South of Brazil), that could really be a base for extension (via Miami, where else???) into NA.
Hi Marcelo/everyone,
I though you guys might be interested to know that during the first half of December 2010 in Brazil, the Uno was only 62 units below the Gol, reaching its best ever market share in the country at 8.4%!
Numbers are from Fenavabre, and the whole ranking and details can be seen here:
http://bestsellingcars.wordpress.com/
Enjoy!
cheers
Matt