Brazil’s Auto Industry is Booming! (BRXX, GM, F)

Martin is on his way back from Brazil this morning. So he has asked me to open the New Year with this special report, which, by the way is ALSO about Brazil!

Brazil is the world’s fifth largest car producer, and according to its national automakers’ association:

• Auto sales are soaring and should total 3.5 million units for 2010, a 9.8 percent increase over the prior year.

• New cars are coming off assembly lines at an even faster pace. Automobile production in Brazil is forecast to grow 13.1 percent this year, more than the 6.5 percent expansion previously predicted.

• But the supply is not keeping up. Brazil still needs to import 20 percent of its demand for autos.

Next, take a closer look at this auto production picture from a regional viewpoint …

Brazil is Argentina’s biggest trade partner. And Brazil’s auto demand is leading to a parts shortage in Argentina.

Brazil's factories can't keep up with demand.
Brazil’s factories can’t keep up with demand.

Integration has become a focus for the regional auto makers who have plants in both countries. Any moves toward this should help the producers. In this case, the two large American companies, General Motors Corp (NYSE:GM) and Ford Motor Co (NYSE:F), have significant operations in Brazil and Argentina.

Fortunately, through the MERCOSUR agreements, Brazil and Argentina have virtually eliminated tariff and non-tariff barriers on most trade between them, creating a strong economic bond and spirit of cooperation.

The key solution now has to do with direct investment. In response, the Brazilian Development Bank and Argentina’s Banco de La Nacion, are creating a debt-backed $200 million fund that will be available for the auto sector of both nations.

However, accommodating all the new vehicles creates another problem …

It Will Take Billions to Get the Roads Back In Shape

According to President Rousseff,

“Brazil has gone for more than 30 years without investing in infrastructure in a sufficient amount. President Lula’s administration started to change that. I have to solve the road issues in Brazil, the railroads, the highways, the ports, and the airports.”

Brazil's highways need massive updating to accommodate all the new cars.
Brazil’s highways need massive updating to accommodate all the new cars.

Consequently, the Brazilian government announced plans to spend more than $500 billion on infrastructure over the next four years, which should benefit the whole economy.

Sectors, such as utilities, telecommunications and industrial materials should see strong growth. An exchange traded fund (ETF), like EGShares Brazil Infrastructure (NYSE:BRXX), is one way to get in on the action.

Let me leave you with this …

Brazil is in great shape. It has amassed a robust currency reserve of $287 billion, the eighth largest in the world, and is experiencing an economic boom never seen before. What’s more, Brazil has one of the lowest debt-to-GDP ratios in the world. Its budget deficit is only three percent of GDP, compared to over 10 percent in the U.S.

And the next wave of growth is creating winners in Brazil right now!

Written By Rudy Martin From Money And Markets

Money and Markets (MaM)is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaMare based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

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