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Gas-Guzzling SUVs Are Cherished Commodities In Brazil

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By ALEXANDRE MARINIS Bloomberg News

The Tampa Tribune

Published: September 4, 2008

Here's a fantasy for Detroit: Keep the factories that make all those monstrous, once-wonderfully profitable sport utility vehicles open and running. Then forget about packing up those SUVs and shipping them to U.S. auto dealers, where the few customers to be found spend more time comparing gas-mileage ratings than towing power.

No, send them south, way south, to Brazil, where consumers are embarking on a love affair reminiscent of the one U.S. buyers began with SUVs in the early 1990s.

The shift is there to be seen on TV every night. While U.S. car advertisements now pitch vehicles that sip gas and might even help trees grow, car ads in Brazil push heft and the virtue of go-anywhere capability.

I won't get too deep into what this signals about the national mood of the two countries, but it's hard not to notice this divergence.

Maybe it's just a reaction in a country where years of automotive privation have left most people thinking that a Honda Civic rates as a full-size family sedan.

As much as anything, it reflects Brazil's surging economy. Gross-domestic-product growth is running at almost 6 percent. The United States, meanwhile, is mired in slow growth brought on by the housing bust and distress in the financial industry.

The result is that many lower-income Brazilians who never owned a car are finally able to afford one. Brazil's burgeoning middle class is switching from fuel-efficient compact cars to more luxurious vehicles. And wealthier families are migrating from sedans and station wagons to SUVs.

Sales Surge

Sales of SUVs rose 55 percent in the first eight months of 2008 from a year earlier in Brazil. That's twice the growth rate of small and medium-sized vehicles, according to the national federation of auto retailers, Fenabrave.

Compare that with the United States, where sales in this category, which includes pickup trucks and minivans, declined 19 percent in the first eight months of the year, according to Wardsauto.com, an auto industry data and news site.

Brazil's case of SUV fever isn't quite as intense as that of the United States' in the late 1990s, when Ford Motor Co. launched the Excursion, a 19-foot-long battleship that got 8 miles to the gallon in city driving. Ford has since discontinued the model.

By comparison, Brazil's best-selling SUV is a domestically produced Ford, the Ecosport. The second-best-selling SUV in Brazil is the Tucson, which is made in South Korea by Hyundai Motor Co.

Although these vehicles are a step down in size from such full-size SUVs as the Ford Explorer, they carry price tags that might make you think otherwise. Imported vehicles pay a hefty duty of 35 percent in Brazil. That's on top of the average tax of 30 percent levied on every car sold in the country.

So thanks to brutal taxes, the Tucson is three times more expensive in Brazil than in the United States, where the average tax on automobiles is about 6 percent.

SUV Mania

Even so, Hyundai's sales of the Tucson are up 144 percent in Brazil this year compared with the same period in 2007.

Part of what's fueling Brazil's SUV mania is the strengthening of the nation's currency, the real, which has gained 57 percent against the U.S. dollar since 2002. So even though imported-car prices are an outrage, these vehicles now make up 13 percent of new registrations compared with only 3.9 percent in 2004, according to Anfavea, the national association of auto manufacturers.

Nor do Brazilians seem as concerned as Americans with the cost of filling the tanks of their SUVs. Gasoline costs about $6 a gallon in Brazil, against almost $4 in the United States.

My guess is that two things are going on here:

First, Brazilians are inured to robbery at the gas pump.

The second might be that someone who decided to pay $75,000 for a gas-guzzler isn't going to scrimp on paying $90 to fill up.

Now for all you smart operators out there, don't bother thinking about making a nice little arbitrage play, buying an SUV on the cheap in the United States and taking it to Brazil to sell. Unfortunately, the government is a step ahead of you, and legislation prohibits the sale of used imported cars unless they are at least 30 years old.

As for Detroit, sorry guys, it really was just a dream.

Alexandre Marinis is a Bloomberg News columnist.

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