Flex-Fuel Cars Drive Brazil's Auto Industry to Success

Brazil's car manufacturers have seen a significant resurgence in popularity of flex-fuel vehicles, which can run on either petrol or ethanol, since the introduction of this technology in 2003. With flex-fuel cars representing 73 percent of new car sales in January, up from 27 percent in the same month last year, the industry is thriving. Analysts attribute this success to the flexibility and responsiveness of the vehicles, as well as the growing demand for ethanol. However, there are concerns that the rise in demand for ethanol may affect sales of flex-fuel cars, but experts deny this will be the case.

Key Takeaways:

• Flex-fuel vehicles have become increasingly popular in Brazil, with sales representing 73 percent of new car sales in January.
• The technology allows motorists to switch between petrol and ethanol, making it more appealing to consumers.
• The rise in demand for ethanol has pushed up demand for the fuel, but analysts do not expect this to affect sales of flex-fuel cars.
• Manufacturers such as Ford, Fiat, Volkswagen, and General Motors have sold over 91,500 flex-fuel cars in January, a 237 percent increase from January 2005.
• The introduction of low-end models with 1.0 liter engines has tapped into the demand of Brazil's cost-conscious lower middle classes.
• Domestic car sales have seen an 8.6 percent increase in 2005 compared to 2004, but remain below record levels set in 1997.
• Anfavea projects a 7 percent growth in car sales for 2006, citing the flex-fuel sales as one of the contributing factors.
• Increased exports have also contributed to record production, with car exports totaling $1.4 billion in 2005, a 700 percent increase from 2000.
• However, the recent strengthening of the Brazilian real has forced manufacturers to raise prices, making their cars less competitive in the global market.

Statistics:

• 73 percent of new car sales in January were flex-fuel vehicles.
• 237 percent increase in sales of flex-fuel cars from January 2005 to January 2006.
• 1.715 million vehicles sold domestically in 2005, an 8.6 percent increase from 2004.
• $1.4 billion total exports in 2005, a 700 percent increase from 2000.
• Dollar 200 premium on the single-fuel model of the Fiat Mille Uno compared to its flex-fuel counterpart.
• 2.15 the exchange rate of the Brazilian real to the US dollar as of late.

Sources:

• Barry Engle, president of Ford in Brazil.
• Eduardo Pereira de Carvalho, head of the Sao Paulo Cane Industry Association, or Unica.
• Rogelio Golfarb, president of Brazil's motor manufacturers' association, Anfavea.
• Brazilian newspaper article from March 2003 on the introduction of flex-fuel automobiles.
• Brazilian newspaper article from January 2006 on the sales figures and industry trends.