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Brazil. Opportunity Study, Market Analysis and Conceptual Plan For OCCASION This publication has been made available to the public on the occasion of the 50th anniversary of the United Nations Industrial Development Organisation. DISCLAIMER This document has been produced without formal United Nations editing. The designations employed and the presentation of the material in this document do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations Industrial Development Organization (UNIDO) concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries, or its economic system or degree of development. Designations such as “developed”, “industrialized” and “developing” are intended for statistical convenience and do not necessarily express a judgment about the stage reached by a particular country or area in the development process. Mention of firm names or commercial products does not constitute an endorsement by UNIDO. FAIR USE POLICY Any part of this publication may be quoted and referenced for educational and research purposes without additional permission from UNIDO. However, those who make use of quoting and referencing this publication are requested to follow the Fair Use Policy of giving due credit to UNIDO. CONTACT Please contact [email protected] for further information concerning UNIDO publications. For more information about UNIDO, please visit us at www.unido.org UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION Vienna International Centre, P.O. Box 300, 1400 Vienna, Austria Tel: (+43-1) 26026-0 · www.unido.org · [email protected] BOP· ~? 'if""-J"("o:> cll~'"''"'v.,Vi.,, "1'1"'1'·~ International _,;:ff,,-w, OPPORTUNITY STUDY, MARKET ANALYSIS AND CONCEPTUAL PLAN FOR THE ESTABLISHMENT OF AN AUTOMOBILE PRODUCTION PLANT IN THE STATE OF BAHIA Illlll lllllll llll lllll lllll lllll lllll lllll lllll llll llll XD9700170 FINAL REPORT UNI DO Project Number SF I BRA I 94 I 002 Contract Number 95 I 097 I AV For the attention of The OIC, Contracts Unit Presented by P-E International Private and Confidential June 1996 CONTENTS PAGE I EXECUTIVE SUMMARY 6 1.1 Project Background 1.2 Objectives 1.3 Outline Summary of Key Issues II PROJECT BACKGROUND 22 2.1 Project History 2.2 Objectives 2.3 Project Promoters III MARKET ANALYSIS 25 3.1 Introduction 3.2 Global Trends in the Automotive Industry 3.3 The Automotive Industry in Latin American Countries 3.4 Structure and Characteristics of the Brazilian Market 3.5 Motor Vehicle Production in Brazil 3.6 Domestic Sales of Vehicles by Brazilian Manufacturers 3.7 Total Vehicle Sales to the Brazilian Market 3.8 Trade 3.9 Market Forecast 3.10 The Components Sector IV INVESTMENT CRITERIA, MARKET CONCEPTS AND SALES SCENARIOS 70 4.1 Introduction 4.2 Investment Criteria and Market Concepts 4.3 Alternative Sales Scenarios v PROJECT ENGINEERING 80 5.1 Introduction 5.2 Overview of Proposed Facility 5.3 Land and Building 5.4 Location and Sites 5.5 Equipment 5.6 Raw and Process Materials Resource UNIDO - OPPORTUNITY STUDY SF I BRA/ 94 / 002 Page2 FINAL REPORT VI PLANT ORGANI SA TION 96 6.1 Organisation 6.2 Manufacturing Support VII MANPOWER 100 7.1 Workforce Selection and Training 7.2 Manpower Requirements VIII IMPLEMENTATION SCHEDULING 102 8.1 Site and Building Development and Commission 8.2 Estimate of Capital Costs 8.3 Pre Investment Costs 8.4 Plant Operating Costs 8.5 Inventory Levels 8.6 Alternative Scenario IX FINANCIAL EVALUATION 111 9. 1 Introduction 9.2 Basic Conditions of the Financial Analysis 9.3 Alternative Cases Studied 9 .4 Capital Required 9.5 Operating Plan 9.6 Sales Plan 9.7 Financial Projections 9.8 A Financial Comparative Evaluation 9.9 Project Impacts APPENDICES I World Production of Automobiles II Brazilian Automobile Production 1992-1994 III Costs (Utilities, Personnel, Maritime) IV Possible Site Locations V Study Mission Briefing Report UNIDO - OPPORTUNITY STUDY SF I BRA I 94 I 002 Page 3 FINAL REPORT AREA MAP OF BRAZIL ARGENTINA UNIDO - OPPORTUNITY STUDY SF I BRA I 94 I 002 Page./ Fill/AL REPORT AREA MAP OF PROJECT SITE ATLANTIC OCEAN UNJDO - OPPORTUNITY STUDY SF I BRA I 94 I 002 Page5 FINAL REPORT I EXECUTIVE SUMMARY 1.1 Project Background The automotive industry is one of the main factors contributing to the economy in this century. Its contribution to society is not limited simply to the production of vehicles and to employment of a large number of people as it is directly or indirectly involved in all sectors of the economy. The automotive sector represents a complex sequence of activities which begin well upstream with the suppliers of raw material (iron and steel, mechanical parts) then moves on the major manufacturers (glass, tyres), the makers of equipment (parts or component kits) while also involving related sectors which are also very important and diversified (machines, oil industry). This sequence continues on down stream as far as the customer through marketing networks of which the objective is not simply that of making sales (including their financing) but also takes in assisting customers in the maintenance and upkeep of, as well as repairs to, their vehicles. The automotive industry is of utmost importance: • for other industrial and tertiary sectors • because of its investment requirements • because of the size of its work force • because of the international trade-flows which it generates. For any country an indigenous automotive industry is a means of having a solid industrial base and a strong economy. With a range of goods sought after by consumers, a country with an ability to produce its own vehicles has a definitive advantage in world trade. Until recent years, western countries were used to fairly regular growth in the automotive industry together with purchases from newly motorised consumers. This trend is coming to an end, as has already been seen in the United States and Sweden, and is being transformed into that of a replacement market. Constructors are adapting to these types of constraints by offering vehicles with improved characteristics. In Brazil these two types of demand coexist, but the potential is enormous concerning non-motorised consumers who will one day become purchasers. Delays in adaptation due to the human, industrial and technical constraints are in effect necessary in order to allow the automotive industry to change to suit new conditions resulting from the natural evolution of society and the economy, or from a desire for political change. UNIDO - OPPORTUNITY STUDY SF I BRA I 94 I 002 Page 6 FINAL REPORT Encouraged by the success of industries already present, particularly in petrochemicals, and by good prospects for the development of the automotive industry, the government of Brazil and the State of Bahia has requested to UNIDO to undertake an opportunity study on the setting up of an automobile factory in the State of Bahia. At the same time the government is aware of the complexity of many factors which have to be considered in this context. 1.2 Objectives The underlying purpose of this opportunity study - including market analysis and alternative market concepts - is to assess whether any realistic potential exists for the State of Bahia to enter automobile production in an economically viable way. This is to enable an informed decision regarding the development of the automotive industry in Bahia. Thus the purpose of the study is to provide a market analysis, and draw up a conceptual plan for the establishment of an automobile plan in the State of Bahia. This study will provide the basic elements for the decision maker concerning the Brazilian automobile market and the Bahian State as a possible automotive production location. Based on desk research, and information collected during the study mission we will try to answer one of the basic points of the project: - Which segments or branches of the automobile industry have the greatest chances of installing a production plant in the State of Bahia with success? The objective of this exercise is to get a view of the past, present and future trends of the industry by main groups of products, and to give some political, financial, geographical and social considerations in order to help the Secretariat of Industry, Trade and Tourism of the State of Bahia and relevant Federal Ministries to make a decision regarding the development of the automobile industry in that State. Finally our research is orientated towards finding potential investors by providing a financial evaluation setting out the current and short-term requirements in the context of the overall development potential of the country. 1.3 Outline Summary of Key Issues On the basis of the above approach, this report begins by presenting various conditions put forward for the establishment of an automobile production plant, with the aim of assessing whether any realistic potential exists for the State of Bahia to enter vehicle manufacturing in an economically viable way. The points and conclusions raised in the study are set out in the following pages. UNIDO - OPPORTUNITY STUDY SF I BRA I 94 I 002 Page 7 FINAL REPORT The Market for a New Automotive Plant The Brazilian market • The Brazilian market is substantial, vehicle sales are expected to approach $15,000 million in 1995, a rise of almost 50% on the levels of the early 1990s. This represents 1.3 million vehicles of which just over one million are passenger cars. • A middle interpretation of the current growth trend, if sustained, would result in vehicle sales in the region of $20 billion or more by the year 2000. This corresponds to just over two million vehicles, a figure based on both a recent independent forecast and on the local manufacturers' current opinions; the two are in close agreement.
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