Brazil Auto Sales Drops In May By the Fifth Consecutive Month

Brazil Auto Sales Drops In May By the Fifth Consecutive Month

Brazil Auto Sales Drops In May By the Fifth Consecutive Month

The FINANCIAL -- New-vehicle sales in Brazil dropped in May, by the fifth consecutive month, as the country's struggling economy continued to hurt consumer confidence, according to Nasdaq.

Sales of cars and light vehicles, trucks and buses plummeted 27.5% in May from a year earlier to 212,713 units, the national auto dealers association, Fenabrave, said late on June 1. In the first five months of this year, sales dropped 21% to 1.1 million units.

The combination of weak economic activity and high inflation and interest rates is discouraging buyers, especially with regard to big-ticket purchases, according to economists.

The drop in vehicles sales is likely to contribute to further shrinkage of auto loan portfolios among the country's banks, according to Fitch Ratings.

"The magnitude of the new drop [of vehicle sales] suggests that auto lenders and commercial banks with relatively higher exposure to auto loans could become increasingly affected by the slowdown," the rating agency said. "Auto loans make up a low share (6.6%) of the Brazilian banking systems' total loan exposure, thus limiting the scope of the impact to lenders with large market shares in auto loans."

Falling sales have pushed some auto makers in Brazil to lay off employees, implement voluntary severance programs and force mandatory vacations. Brazil's economy is expected to contract 1.27% this year, according to economists surveyed by the central bank.

Meanwhile, with official inflation at 8.24%, well above the 6.5% ceiling of the central bank's target range, the monetary authority is expected to raise interest rates even more. The benchmark rate, known as the Selic, is currently at 13.25%, and economists forecast at least one more increase before the bank stops tightening.

The largest auto makers in Brazil by sales are Fiat Chrysler Automobiles NV (FCA.MI), Volkswagen AG (VLKAY), General Motors Co. (GM), and Ford Motor Co. (F).

The complete figures for vehicle sales, production and exports for May and for the first five months of the year will be released in the next few days by auto maker association Anfavea.