Friday, 30 September 2016

Micro Level Trends – Brazil's Automotive Sector – “Brazil 66”...Sixty Six Years of Economic Power Lifting (Part 4.2)

This portion of this weblog features the chronology of the veritable "home-grown", and so charts Brazil's domestic efforts at vehicles by Brazil for Brazil, with recognition of the increasing importance of foreign export for national earnings. 

3. Indigenous Development – Corporate (Mass)

Herein the previous reference to very obvious first-phase 'foreign adoption for indigenous adaption 'has been much superseded by much internal learning.

By the late 1960s and early 1970s a new crop of young Brasilian-born managers and engineers, overseen by foreign seniors, were starting to gain more autonomy from headquarters in Detroit, Wolfsburg, Turin and Milan. Increasingly pertinant and nuanced local market knowledge was gained, allowing for better aligned andimproved product. Decision-making had become better and faster.

Furthermore, stronger relations with a a communicative Brazilian government and so greater in-market confidence to develop long-term plans and ambitions.

This progressive mutually beneficial atmosphere was of specific aid to Volkswagen.
Having already put much of Brazil on wheels with the Type 1 'Fusca' and Type 2 'Microbus' sought to entrench itself further within the Brazilian consumer's mindset, since as new competition started to arrive in the form of FIAT (small car and low-cost leaders) and GM and Ford (both having to create a new series of small cars to fend-off their own small car invasion by the Germans and Japanese),. With indeed the Japanese seeking to convince Brazil to eradicate the 'ISI' import ban (Import Substitution Industry) so as to gain a lucrative export market.

Volkswagen do Brasil reacted by providing what could be termed as “proprietary cars” - born in and of Brazil, yet still very much in the hybridised mould of proven simple German mechanicals overlaid with a Brazilian body. These were the Brasilia, SP2 and Gol and would provide VW with market leadership for over the next two decades.

That said the 1970s would begin with Ford's attempt to sway the outcome of that decade.

The following provides a chronological 'role-call' of the car models that transformed Brazil's auto-sector' from backwater to eventual global instigator.

Ford Corsel:

Though VW would make the 1970s its own, Ford had gained a very useful foothold in 1968 when, having purchased the Brazilian interests of Willys-Overland with its Renault alliance, it started production of a small car model named the Corsel.

It was born alongside its Renault 12 sibling, with which it would share much of the BIW (body in white) understructure and so packaging, and initial engine, but would appear 18 months earlier than the French model.

Shown at the Sao Paulo show it became an instant sensation, with strong initial sales. However quality issues meant recalls and though handled well by dealers dented the cars and Ford's reputation amongst those seeking mid priced quality. The fact that the car gained an increasing premium price in its sector meant that sales numbers would always be capped. The pricing policy itself was designed to differentiate itself against more humble (VW) offerings, and was underpinned by the aspirational success of regional motorsport events.

But the fact was that it was designed in the guise of popular (and more comfortable) transport for the French who sought and could now afford a slightly more sophisticated higher priced vehicle, with its concomitant development costs.

But the majority of Brazilians still needed proven reliability at relative low cost, thus whilst the Corsel's bodystyle was progressed (with a 2-door sports-wagon like the same era Toyota Corolla) and became better engineered, because of it's own design brief origins, price-wise it was pitched quite high; so premium to the basic wants of many Brazilians.

VW Karmann TC :

The Karmann Ghia Coupe had been created from a JV agreement between the client Volkswagen, the specialist contract builder Karmann and the renowned styling house Carozzeria Ghia. Thus in 1955 the Type 14 was launched based on Type 1 mechanicals and thereafter went through generational change.

The first Karmann Ghia Coupe used butt-welding construction methods required greater labour content given its had-crafted processes and necessary panel fettling, thus it was rational that Brazil's lower manpower costs made it a natural 'additional capacity' production base beyond the Karmann facility in Germany, and a Brazilian contract manufacture facility was built to match the German set-up and likewise built the Type 14 for local demand and for additional export capacity.

Its successor, the 1961 Type 34 was designed upon the then new Type 3 base so as to better integrate with standard spot weld factory plant so VW could produce a greater proportion of the car in-house (both in Germany and Brazil) to gain economies of scale – especially regards overall CapEx spend - and likewise reduce the level of more costly tailored content in the car; now centred around secondary mechanical fit and dedicated trimming.

Type 34 then inadvertantly caused a problem for VW do Brasil and Karmann do Brasil, since it was based on a higher cost new platform and did not require as much labour content.

In answer the Brazilian division undertook what was then a daring venture by way of the Karmann TC project. Again born from Ghia styling and again in collaboration with Karmann;s local operation, the TC was to be based upon the cheaper Type 1 (Beetle) base and be primarily for Brazil and Latin America, with the potential for export sales to the USA, Europe and elsewhere.

It was decided that stylistically the car should match the latest leading European trends, and that meant the all new 'Touring' style body (akin to the BMW 2002 Touring hatchback) and continuation of the 2+2 seating package.

On paper the project looked good, but it had its failings.

Whilst the new hatchback configuration was indeed more practical, launch timing was unfortunate, affected by the USA's recession quickly impacting the wealthier Brazilian customer, and the fact that the car suffered from poor aesthetic cohesion, especially between front and rear, meant that it was not a successful seller in Brazil or indeed elsewhere.

Ultimately it sought to be perceived as more of a 'Jack of all Trades' instead of the Master of One, as the original Karmann Ghia had been stylistically. Thus failed in regards to its planning assumptions, insight into target customers, packaging proportions, thus inevitably its stylistic execution and launch timing.

VW Brasilia :

To many Latin and Central Americans, and to foreign tourists in Brazil, the VW Brasilia became the physical symbol of the growing and successful country and an expanding middle class. Introduced in 1973 it was named after the capital city, retaining Fusca reliability and yet styled as a contemporary VW product, the car became a populist icon.

It was based on the platform of the Type 1 so as to retain the lowest cost of production possible, yet heavily influenced in body-style and front 'face' by the later Type 3 and Type 4 vehicles, typically known in the guises of high selling 'Variant' (wagon/estate). Given the all too problematic internal space limitations of the Fusca, severely limiting its practicality, the new car was designed as internally large as possible, thus a wagon.

But to save costs and add appeal it, even though launched in 5-door guise, it would be primarily produced, marketed and sold as a 3-door vehicle so matching a coupe-like door arrangement to voluminous rear. And though it is believed that the launch marketing as a commercial utility vehicle hampered initial sales, it again was very probably done to highlight practicality and low price to all.

Vitally it was introduced at the same time as the 1973/4 Oil Crisis whilst imported American and European popular culture was embued with new era Futurism, and so a character of Fusca frugality and 'clean' modernist (read 'advanced') design was perfect. The visual of 'sporty practicality' had already been proven on the Type 3 Variant (its predecessor) but also seen on variants of far more performance orientated cars such as the Volvo P1800ES, the Jensen-Healey GT and the slightly later Lancia Beta HPE, marketed as 'sports-wagons' (and sometimes termed latter day 'shooting breaks').

The Brasilia then was designed as, and received as, the perfect hybridisation of old and trusted, new and exciting and critically the very practical. Resulting in over 1 million produced and sold.

VW SP2 :

The great success of the motor industry through the 1960s, the gain of increased local independence from corporation headquarters and swelling of headcount (planners, engineers, marketeers and administrators) meant that by the early 1970s the big auto-players had ever expanding plans to answer the apparent needs of a quickly maturing marketplace.

One such arena was sports-cars and so called 'personal cars', with the obvious influence being the array of European brands and vehicles and the massive North American impact of Corvette and Mustang.

As will be seen later in more detail, previously the licensed production of France's original Alpine (by Willys Overland) gave Brazil its notional first sports-car. This new segment creator was thereafter followed by the truly home-grown Puma, using simple production techniques and based on a VW Type 1 Beetle/Fusca rolling chassis and rear engine.

With the market success of the niche independent Puma, Volkswagen believed it had spotted a high potential segment, for both brand enhancement and if it got the business model correct, to make strong per unit margins. After all, Puma had to buy-in the chassis and engine at “cost-plus” pricing, bare the cost of transportation and absorb the large time and cost of labour-intensive fibre-glass body-building, itself ultimately poor in quality compared to a steel body.

VW could obviously produce “at cost” and deploy its substantial in-house capabilities.

The outcome was the SP1 and SP2 models, based on the Type 3 'Variant' with initially an enlarged capacity 1600cc engine in the former and 1700cc in the latter. The show-car was seen in 1971, well received, and launched proper in 1972. The SP1 was received as under-powered and so short-lived, thus soon replaced by the SP2 upgraded version.

The general quality of the car was (by typical affordable sportscar standards) excellent, and the styling, interior fit-out and features likewise above Puma. Stylistically it was 'on cue', with a more slanted dynamic corporate face and Porsche-like rear end providing overt sporting aesthetic overtones.

However the weight of the steel body, compared to lighter fibreglass, robbed the car of performance and so it was decisively beaten dynamically by the “lesser, garage-built” Puma. As such it became Brazil's version of a sporty (not sporting) personal car, promoting its quality, refinement and features. Production running from 1972 to 1976 and about 10,500 units made.

Even with the protection of the vehicle import ban from European and American competition, after the initial strong sales in years 1 and 2, sales numbers soon dropped, so perhaps only reached financial break-even regards project costs, primarily thanks to the already much already amortised Type 3 chassis.

Thus it appears that with full knowledge of the SP's lesser performance capabilities, the project was undertaken for strategic reasons to bolster the overall VW brand within Brazil. Adding excitement to the already engrained virtue of reliability.

Today given their relative rarity and cultural importance of a specific 'last of the good times' era, the SP1 and SP2 have become collectors cars.

VW Gol / Pareti :
Description of this very important Brazilian model Gol was previously provided.

However, the Pareti wagon/estate variant deserves attention.

In essence, with an expanding marketplace, VW's local product planning team decided that to broaden the product range the two critical USP features of Brasilia could now be split into two distinct vehicles: the Gol for entry level affordability (with comparatively reduced load-space), and the later higher positioned and priced Parati (with sizeable wagon bodystyle) with the introduction of the B2 platform based 'Gol family' line-up (the Mk2 Gol onwards)
Available in 5 and 3 door variants, the cheaper to produce and lower priced 3 door became most popular with continued (Brasilia) echoes of sporty functionality. The 3 door version allowed for the simultaneous engineering of a small pick-up truck version (or 'Ute') named Saveiro which itself became associated with the rise of the sole-trader merchant and trades-person, central figures in the the rise of society's 'lower middle'.

FIAT 147 :
During the 1950s and 1960s the geographic ambitions of the Agnelli dynasty were widespread, but primarily with the provision of licensing agreements to Soviet Bloc countries. As seen, Brazil had favoured Alfa Romeo for the national champion FNM in trucks and cars, thus FIAT first entered Brazil with tractors.

With so many early entrant auto-players, FIAT sensibly waited until 1973 to begin building its first plant further in Betim, Belo Horizonte, Minas Gerais. The first vehicle produced was the small 127 model – known locally as the 147, with a nine year lifespan between 1976 and 1985.

Initially only the standard (European) 3 door hatchback, the car was viewed as overtly small for Brazil, and not as robustly built as the more technically archaic VW range. Nonetheless as a modern small car (FWD and water cooled) it sold to the likes of teachers and clerks or, for those higher up, as a household's second car for wife and mother.

To overcome the product's size limitations and reach new target customers, four variants were introduce: the 'Panarama' 3-door wagon/estate in 1980 along with the 'City' pick-up and 'Fiorino' van, and the 'Oggi' 3-door sedan in 1982. Thus the 147 now represented a broad array of choice, the 'Oggi' specifically designed with a very large rear truck/boot to provide maximum functionality in a 3-box car.

Over the nine year span the model sold around 170k units, and was a pragmatic and cautious market entry approach by FIAT, with what appears the intention for FIAT Automoveis to be as self reliant as possible after start-up. FIAT Brazil was able to enjoy the cost-savings of a part amortized platform, yet with that gain and to seemingly self fund (and so delay) the locally apt Panarama, Oggi and City members of the model family.

FIAT Uno :
Launched in Europe in 1983, the vehicle started manufacture in Brazil in 1984 and would have a remarkable 30 year lifespan in Mk1 and Mk 2 guises.

It was penned by ItalDesign's Giugiaro with an even more extreme 'Euro-box' style (after the 1974 VW Golf and 1980 FIAT Panda), effectively miniaturising a previous larger (unproduced) MPV concept.

It was seen as both Euro-chic and offering strong practicality with generous load space within the wheelbase. As the new entry-level car FIAT recognised the similar buyer needs of S.European, E.European and S.American base-level buyers who wanted economy and space.

Vitally a broad net of inter-continental sales meant that the platform became much amortised in its Mk1 and Mk 2 guises. When production ceased in Italy in 1995, it continued it Poland for a few more years.

However, vitally for the financial strength of FIAT's LatAm cost-centres, the vehicle continued production into the 21st century. The per unit profitability enjoyed from 1995 onward allowed for a corporate front-end face-lift in 2004 which carried the car through until end of manufacture in 2013. The changes made were very pragmatic, such as retained but re-worked front fenders, and cosmetically unsympathetic to the purity of ItalDesign's original and even Mk 2, but helped to maintain buyer interest and so good margins; especially in the run-out Mille (economy) and Way (pseudo-urban-SUV) guises.

The near 30 year lifespan of Uno helped FIAT do Brasil substantially to underpin itself financially.

FIAT Premio :
Premio was based upon the new European Uno. Thus again FIAT Brazil would replay the 147 business model, of lower cost platform requiring higher cost local re-engineering for model proliferation.

In addition to the Europan hatchback 3 and 5 door Uno, that model expansion consisted of a 3-door sedan, 5-door sedan, and 3-door wagon. Thus the hatchback body or the 147 was not directly replaced so as to distance itself from the less popular old car and to raise the positional standing of the new model to enable greater
pricing power.

A van version was also built in Brazil, but not not sold domestically because the more profitable low production cost 147 variants had been stockpiled for ongoing sale by FIAT Automoveis.

Between 1985 and 1996 the Premio did much to re-strengthen FIAT's Brazilian (and Argentine) reputation, with various local engineering adaptations to ensure improved product robustness and so resale value – especially important during what were harsh economic times. It was the car that began FIAT's slow path to market leadership some 30 years later.

FIAT Palio / Siena :
The ambition of a 'world car' had been sought by the major auto-players since the mid 1960s, whereby a certain model (or models) could be sold internationally, primarily in the very different main markets of the North America, Europe (possibly Japan and Australia) and elsewhere.

The idea to designed an all-round engineering packaging (size, hardware, features) that would have broad appeal.

However the very different market mindsets of very differently evolved advanced regions (NA vs UK vs N. Europe vs S. Europe) – and the self-interests of a corporation's local engineering function - meant that even creating an acceptable all-round product for these 1st world regions, let alone further afield, would be far harder than initially imagined.

Ford was successful in integrating Ford of Britain and Ford of Germany, GM likewise, to harmonise previously different body-styles. It then later tried to merge Europe and USA with the Capri (alternatively badged Mercury), the FWD Mk3 Escort and Sierra, with the later European Mondeo enjoying a modicum of American success as Contour as some people sought a short-lived down-sizing trend from Taurus, whilst others were upsizing into SUVs. But these attempts were hardly overtly successful, and more tactical than truly globally strategic.

[NB Ironically the global popularity of premium German brands since the mid 1980s, from Wall St Yuppies to 3rd World 'Big Men', meant that these were the first to have gained the title, even though hardly relating to global mass-mobility].

Instead it was believed that a lower cost entry-level vehicle in the 1st world could be marketed in 2nd world regions as the mainstream car. However, segmented market dynamics by the mid 1970s meant that ant European entry-level car was typically small, and 2nd world regions required cheap but comparatively spacious passenger cars for utility.

Thus for the most part, up until the early 1990s, perhaps only the Model T, VW Beetle, 2CV(3CV), Renault 4 and FIAT 124 had been true 'world cars', their basic and cheap to produce engineering allowing for sale initially as cheap mass-mobility vehicles in the then quickly advancing 1st world, and thereafter their roles replayed again as standard robust transport in slower developing 2nd world countries, often via local licensed-production deals. Similarly, the title could be said to equate to certain larger vehicles which had their lifespans much extended, such as those 're-released' in the Middle East and North Africa: the Peugeot 404/504, the Rootes-Hillman Avenger and Peugeot 405.

However, because of the variety of vastly different market requirements even within the 1st and 2ns worlds, between the late 1970s through to the mid 1990s, the idea was deemed an unsolvable problem; and so advanced countries received constantly progressive vehicle technologies whilst developing countries used reliable old and vitally affordable solutions.

It took a new era of EM regional development from the early 1990s onward, and a re-definition of the term, for the 'world car' to be born.

FIAT was the first to succeed with the Palio and 'the world' would consist not of trying to mainstream-match 1st and 2nd world markets, but in the provision of overlap needs amongst the the much economically expanded 2nd world and a plethora of ambitious “newly emergent” nations. The BRICS and many others (economically BRICS interconnected) providing massive new potential.

The previously largely unsuccessful commercial effort of trying to force a small 'Euro-box' archetype into an emergent nation could be reversed, and now a new low-cost 2nd world car with good economies of scale could be selectively introduced into advanced regions.

Thus Palio was not designed from a European base platform but created from the ground-up as a dedicated EM-suited platform, modules (major sub-assemblies) and systems. However, to save costs elements of the previous Uno were selectively used and adapted.

The worldwide EM production sites would (in phased introduction) be: Brazil, Argentina, Turkey, Poland, China, India, Morocco, S. Africa, Venezuela, USSR.

Launched at the same time as the European Brava and Bravo, it carried the similar corporate styling but with less overall curvaceousness, so as to provide slightly more internal space and to still appear functional and capable. In Brazil it re-introduced the hatchback variant (itself back in vogue with positive Euro-style overtones), along with 5-door sedan (Albea), 5-door wagon (Weekend) and pick-up 'Ute' (Strada). The model went through 4 so called generations (actually low change facelifts) to maintain popularity, Crucially the 2nd and 3rd generations expanded the market attractiveness enormously, moving variants both up and down the pricing spectrum.

The 2nd cycle saw the introduction of the 'Adventure' sub-brand in 2001 on high-line versions of wagon (Weekend) and pick-up 'Ute' (Strada), with an SUV look (raised ride heights, LSD (limited slip differential) and off-road/SUV inspired 'bolt-on' visual enhancements.

The 3rd cycle gave the simpler, fuel efficient small engined 'Mille Fire' so as to compete more effectively with the entry level VW Gol, doing so very effectively. And the 'Adventure' wagon was provided with fully fledged (tho usefully part-time) 4WD to live up to its image.

If the previous Premio model had laid strong foundations for FIAT in Brazil, then the Palio built strong defensive walls for the brand.

The Brazilian business model was replicated by FIAT around the globe in then emerging EM nations, and thus capturing the hearts and minds of many.

FIAT Novo Uno :
Introduced in 2010 the new car would have much to live up to regards space and economy.given the 27 year lifespan of the previous Uno. The prime difference was that unlike Uno, the Novo Uno would be a truly nationalistic vehicle, designed by Brazilians for Brazilians, assisted by the central styling studio in Turin, Italy.

FIAT well recognised that to become a distinctive market-leader in a prime EM region set for continued future long-term growth, it would have to create an icon product. This became even more apparent after the 2008 financial crisis which hit FIAT's olde-world European markets so hard.

The Novo (new) Uno is based on the proven and much amortised Palio platform and has the expanded basic boxy proportions of the smaller European current Panda.

However, a more rounded yet bluff nose (originally with 3 nostrils), a high hood line, deep body-sides, a visually stronger rear 'C' pillar (excluding glass), defined wheel arches and relatively high suspension settings makes the car appear very chunky and so in basic form tends to overtones of SUV and Cross-Over.

Thus necessarily FIAT followed the formula for spaciousness, economy and robustness, with the necessary need to have a wide span of well entrenched character types, fuel-sipping to adventuristic to sporting; the golden triangle of Brazilian needs and desires.

That triangle now expanded to a diamond with the increasing inclusion of 'City' (ie urban) orientated assist devices and so character; such as the on-demand assisted-steering for tight parking included on all 2017 models. The diamond pattern also used on the gear selection interface on some variants, so as to provide a modern touch-type selection regime over the conventional lever, so freeing-up internal packaging and adding more space.

Volkswagen Fox:
A description of this much exported city car (and 'world car') already previously provided.

The Brazilian 'Utes'...

As previously mentioned, Australia had been the renowned home of the 'Ute' for 80 years. However with the growth in popularity of 2WD and 4WD double-cab pick-up trucks and the plummeting of large car (Ford Falcon and Holden Commodore) sales over the last decade (upon which the home-grown Utes are based) has come the inevitable decision to end Ute manufacture.

Brazil has been manufacturing compact car derived Utes since the mid 1980s and whilst smaller than Australian counterparts and so less load capable have nonetheless demonstrated themselves as an automotive cultural icon across Brazil, South and Central America and other EM regions.

Thus Brazil has now by default become the cultural homeland of this vehicle.

Interestingly, this vehicle genre has expanded in functionality and cosmetics, as the once bare-bones Ute (still the prime seller) now also has siblings with SUV stance and styling accoutrements, and now available as a four-door double cab.

[NB However, it should be recognised that the small FWD layout and large RWD layout have variously different traction advantages and disadvantages depending upon load amount and road surface conditions, hence the small Ute – destined for “light commercial” - cannot compete directly with the larger pick-up truck].

Nonetheless, as with strong profit margins gained from vans, these car-based variants typically offer good per unit profitability.

Volkswagen Saveiro:
Whilst the FIAT 147 was the first little ute proper, with the Fiorino City as sucessor, both sales numbers were comparatively low. Hence the early arrival and long life-span of the VW Saveiro has deemed it popularity Brazil's first domestic Ute.

It was initially derived from the Perati wagon/estate in the mid 1980s, thereafter a standard body offering on each Gol generation ever since. To add, indeed re-aprropriate, local identity, VW dealers also offered an extended cab version which included a large rear quarter window – the 'Brazilian window' - that had become fashionable by versions of the bigger Ford F-100/150 pick-up.

As with its Gol parent, it has been the best selling Ute in Brazil because of its segment origination and ongoing leadership.

Today the Mk1 Saveiro has become a sub-culture classic, with young men and women creating their own tribalistic traits by re-inventing a merged following of 'beach-truck' trends via the Latino USA West Coast trends for customised and 'dropped' (suspension lowered) mini-trucks, the German 'Nurbergring' influence regards performance and the vibrant decals and stickers of the Australian 1970s Holden Sandman espousing beach culture.

[NB As regards Brazilian auto-culture, the vehicle crash rehabilitation story of a young man named Vinicius Sudan – himself for a period wheelchair-bound – illustrates the strength of Brazilian family and friendship. London, England salutes you all. To all in this tribe, please remember the old 1930s racing phrase “to win you have to finish...and...dead (wo)men don't win races”. So drive like Juan Manuel Fangio who died an old man, and Ayrton Senna who never took overt risks, and remember that you cannot 'drive around' unsafe mechanicals, so know your car inside-out].

FIAT Strada
This light ute first appeared in tandem with the Palio in 1996, itself a direct derivative (the Strada nameplate previously used on the European Ritmo).

Given the much improved strength of the FIAT brand by the mid '90s with much improved robustness and reliability, and the previous existence of 147 and Fiorino City, it proved an immediate hit as a new alternative to the VW Saveiro.

Importantly, like Palio, it was well publicised as Brazilian designed for Brazil.

The GVW payload was much improved over its predecessor models and its generally strengthened platform allowed for greater torsional stresses as experienced on pot-holed suburban and rural dirt tracks, so reduced probability of 'body-twist' and subsequent on-road 'crabbing' which would undermine resale values.

The 2001 Mk 2 made an extended cab version available and in 2002 the Strada Adventure series (parallel to the Weekend passenger wagon) to provide a trendy off-road aesthetic. That ute version was given the many of the same features as the car in 2004, so creating a parallel between the two variants and so prompting the idea of a leisure truck for the private, non-commercial, market.

Made in Brazil and South Africa for regional markets, the ute was also exported for some years from 2004 to selective Eastern European countries with Euro4 standards.

The 2014 model year saw major facelift with for the first time the introduction of a double-cab using the novel 'clap-hand' door arrangement - last seen in the late 1950s on the Brazilian only Ford F-100 special - with FIAT using this to provide functionality and to recapture the spirit of the yesteryear Brazilian own spirit.

Presently the ute is available in four body styles and three trim packages.

FIAT Toro:
A recent introduction has been the larger Ute-cum-Truck the Toro. Trying to creating a domestic and export niche of its own against the Japanese (Toyota HiLux etc) and the ever impending Chinese imports).

[NB though China-made trucks and cars themselves now being undermined by new government policy on required higher product standards...information to be relayed in later web instalments].

Based on FIAT's 'Small-Wide' platform (itself designed to bridge US and RoW packaging needs), the vehicle is seen as an off-shoot of the Jeep Renegade, and is obviously smaller than the mid-size US pick-up truck class (eg Ford Ranger). Offering car-like ride, comfort and features, the intention is to carve out a large profitable slice of the market for itself as the sole offering as a 'Premium Ute', with useful features such as extendible rear bed space via open 'barn' doors with cargo net and additional rear lighting.

[NB it appears likely that this model will be badge-engineered as a Jeep to assist Marchionne's global Jeep ambition across AM and EM markets, as increasing global product harmonisation (thanks to eco-down-sizing) comes into greater existence].

Summary -
Previously in 4.1 we saw how Brazil during the 1950s and 1960s had sought to make foreign adopted vehicles its own through body-style adaption, as with the Ford F-100 and the stillborn VW Fusca/Beetle wagon. Thereafter into the 1970s the greater hybridised efforts which mated drivetrain to body type, best exemplified with the first generation Gol and Parati. Whilst the 1990s and 2000s saw Brazilian industry instigate a policy of longer lived product lifecycles, such as GM's Celta, using the eponymous corporate facelift to refresh, and create something unique to the idiosyncratic local marketplace.

Here in 4.2 examples of corporate dedication to Brazil (and the broader LatAm region) demonstrated how the auto-industry was able to operate as a positive economic feedback loop into broader society, becoming a central part of Brazilian culture as home-grown capabilities allowed for important sector enrichment across the value chain. This especially important from the mid 1970s onward when once again Brazil became politically and so socio-economically 'inward'.

The cars that resulted from that increasingly independent industrial adolescence were the Ford Corsel, the Karmann TC, the iconic VW Brasilia, the SP2, the first VW Gol, the FIAT 147, FIAT Uno and FIAT Premio.

Industrial adulthood was represented by the later generations of VW Gol, itself far more strategically integrated with the component sets of VW's global manufacturing footprint and the globally ambitious FIAT Palio introduced in the mid 1990s which through revision realised the ideology of the 'world-car' by condensing global EM demand. If Palio was for the world, then Novo Uno was envisioned as (at least in Mk 1 form) uniquely Brazilian; showcasing the strength of capabilities across the nation's auto-sector, from initial design concept to engineering development to manufacturing improvement to retailing to (in facelift) increasing user convenience through electronic interfaces and aids.

And as seen, though previously over-shadowed in cultural terms by Australia, Brazil has become the new national homeland of the car-derived utility pick-up, the 'Ute'. A vital vehicle to inter-personal and small business trade within villages, towns and cities and so across regions and for overall national economic development.

Just as the Palio became a prime force as a global EM car amongst a new middle-class, it begs the question as to whether similarly the Brazilian designed Saveiro and Strada utes will serve the remote trading poor of upcoming “Pioneer Nations” both when new and used, just as Datsun-Nissan, Toyota, Mitsubishi and Hyundai have.

Part of that answer will lay in governmental policy-making as Brazil seeks to expand its own influence amongst the plethora of remaining EM nations.

The following section of this weblog looks to see how, along with local entrepreneurs, past policy sought to orchestrate and build its own distinctly nationalistic portion of the indigenous auto-sector.

Friday, 16 September 2016

Micro Level Trends – Brazil's Automotive Sector – “Brazil 66”...Sixty Six Years of Economic Power Lifting (Part 4.1)

Previously a (hopefully sensitive and deft) allusion was made to the freedom that new 'wheels' provide to those who are all too typically socially marginalised: those with varying degrees of reduced physical autonomy (the term 'disabled' now almost as insulting as 'handicapped') , and the many at the bottom of the income scale, predominantly in EM regions, invariably financially confined to immediate surroundings.

'Wheels' – in chair and vehicular forms – of course the common denominator to much improving the quality of such lives.

And since technological cross-fertilisation has created the intermediate 'electrified urban' realm (eg pavement buggies, gyroscopic platform devices and road buggies) the role of 'autos' in its broadest sense has multiplied. Today an economic multiplier in its own right as previously confined people have become more socially integrated and subsequently more important economic agents.

As shown, add that mobility idealism to the spectrum of cyber-linked possibilities, from impulsive 'pop-up' consumer experiences to the re-planning of whole regions (cities to new towns) and the world of digital mobility / 'cyber-auto', if well planned and presented and allowing diverse business models, promises much to nearly all of humanity.

Some years ago investment-auto-motives highlighted the need for industry to better utilise the inherent knowledge and nurture the technical skills of those with 'disabilities', after all who better to innovate and adapt than the end user. Aligned to real-world initiatives and commercially led, the idea that (the Formula One supremo) Frank Williams become a leading figure of such a campaign.

Also, the world has now (at last) come to learn of the ex Formula One driver and Paralympian Alex Zanardi, from race-car track to athletics track. Surely a natural ambassador for promoting this new milieu of overlapping mobility solutions for all people. Whilst the mix of 'disabled' and able-bodied technicians behind the scenes of the Paralympics, repairing all kinds of mobility devices, fuel the 'Dyson-like' spirit and professional ambitions of tomorrow's (bio-electro-mechanical) design-engineers.

At a time when the broad-base of socio-economic integrity and inclusion is seen to be failing, with the advent of 'my kind' tribalism, renewed xenophobic nationalism and new signs of subtle trade protectionism, a strong counterpoint by way of a new highly progressive mentality is required. Hi-tech personal mobility for all engenders such a focus.

Quite frankly, although devout competitors, the humility, mutual respect, drive and unity between Paralympians put the broader, supposedly more capable, 'able' world to shame. Before the Games close, the innate optimism of Rio and the traits of the sports-people and their own supporting cast – the very embodiment of the Torch - ought to be the “new light” for the world.

In this regard, Brazil has made a mark upon the world at large, and so should continue in this thread and consider how it may continue to play a major part in leading and transforming the world through progressive long-term visions, toward the realm of digital mobility and all that is 'cyber-auto'.

That path requires exacting construction, from the legacies of yesteryear to the competitive advantages of today.

For now investment-auto-motives delves deeper into the country's automotive past to better appreciate exactly how the present industrial 'sweet-spot' (encompassing a wealth of expertise, ambition and potential) was reached.

For easier literary digestion, this relatively detailed history of important brands, models and technologies will be split over successive weeks.

It starts with:

1. 'Foreign Adoption for Indigenous Adaption'
2. 'State-Led Licensed Technology Transfer'

And is followed by

3. Indigenous Development – Corporate (Mass)
4. Indigenous Development – Independent (Niche)
5. Indigenous Development – Technologies
6. Multi-National Companies, Regionalisation and Globalisation
7. Indigenous Development - Strategic and Value-Added
8. Indigenous Sector Promotion
9. Indigenous Technological Research

Thereafter examining the question as to 'where next' for Brazilian Autos as it balances the question of present ongoing VM led global integration and the need for future local differentiation to ensure the continued future vitality of this critically important, highly inter-disciplinary, domestic industry.

The Steps to Sector Transformation -

A very distinct set of domestic and broader Latin American challenges means that the development of national vehicle production has undergone distinct phases.

As seen, these have been primarily led by the political will of the an ear, Brazil seemingly historically reactionary between trade liberalism and protectionism, though pragmatically (to different degrees) always in dialogue with strong foreign firms from whom Brazil can imbibe, learn and self-develop, typically in a hybridised manner between foreign technologies and homeland resources and capabilities.

Obviously when previously 'closed' far more self-reliance upon relatively basic “national technology strategies” regards engines, fuel and accordant experimentation in lightweight body construction methods; with the added design problems of very variable operating environments regards road types, altitude and micro-climates.

And obviously when “open”, the ability to enjoy foreign modern advancements and so the provision of world class product quality, the ability for this itself to be re-engineered as needed to tackle the harsh demands of the Brazilian, Latin American and broader EM vehicle environs, and the end user able to enjoy the fruits of vibrant free-market capitalism through economies of scale, reduced comparative pricing, greater model and variant choice and so vitally improved overall consumer experience.

The road to reaching that present level of diversity, across both high volumes for global reach and low volumes for specific target impact has been long and somewhat tortuous, but ultimately very beneficial for the span and depth of the Brazilian auto industry.

[NB The accompanying graphic illustrating time-line examples of the vehicle types described hereafter].

1. Foreign Adoption for Indigenous Adaption :

As previously explained, the first vehicles that were notionally produced as 'Brazilian Made' were the end assembly and 'finishing' of American trucks and cars by Ford and General Motors, whilst Chrysler (Dodge) continued to ship ex-factory US made vehicles.

Given the importance, indeed reliance upon that initial US shipping, and the need for stable electricity supply, the only rational sites for such operations were in the Sao Paulo region.

As production line capabilities and efficiency grew so a higher number of 'modules' and individual parts were assembled, variously made in the USA or Brazil.

However, the purchasing and shipment problems caused by WW2 prompted Brazil to become more adept at the self-manufacture of an increasingly complex array of individual components.

By the 1950s with the Vargas 'Estada Novo' (New State) era and the 'ISI' (Import Substitution Industry) policy under-way and Kubitschek's “50 years in 5” vision the next step, it was time to firmly set the foundations of the notionally indigeneous auto-industry proper.

The in-situ American companies were encouraged to expand plant investment and production and new additional foreign inward investment sought. To this end, Ford expanded its operation at Sao Bernado do Campo in 1957, whilst in 1958 GM added a second site at Sao Jose dos Campos (the first established in 1930 at Sao Caetano do Sul, having rented premises since 1925 in Ipiranga). To support the national growth ambitions, with infrastructure a key pillar of that agenda, Ford and GM would focus upon the production of (the then) large and standard sizes of 2WD and 4WD large heavy duty trucks and pick-up trucks.

In addition for more general demands a smaller and cheaper type of 4WD utility vehicle was required in various bodystyles, as was a lighter and yet cheaper 2WD adaptable van type vehicle. Thus Japan's Toyota and Germany's Volkswagen were both approached with the prospect of initially small volumes of the original LandCruiser and Type 2 via CKD hand assembly from an imported kit of parts.
Thus the fundamentally required vehicle types which would transport the good and people that would literally build the country were in place by the early1950s, and moreover gave new foundations to the auto sector.

However of all the models it was perhaps the Ford F-series that was most prosaic and pertinent.

The Ford F-100 :

Original 1957 production was that of the standard 'US issue' model, but so as to build basic internal engineering competency it was deemed that the standard model be altered to produce a Brazil-only vehicle. This saw greater emphasis on the passenger cabin, and so a unique “extended cab” was designed and so too was a 'double cab' version comprising of two ''clap-hand' side doors with thin B-pillar.

[NB This was innovative since historically double cabs typically use two front hinged doors and a strong central B-pillar to retain structural body strength].

However, this arrangement was used to add a more upmarket car-like appearance and functionality (as seen by the contemporary Lancia Aurelia and Lincoln Continental). This was deemed appropriate because these vehicles would indeed have triple roles: a) functional hauler, b) business transport (for clients etc) and c) weekend family leisure transport. Beyond the unique door arrangement they often had 'upmarket' two-colour paint schemes and greater use of chrome, again to seem car-like, and to be serious 'all-rounder'. Not for another 45 years would similar hi-style pick-ups be created by Detroit's Big Three with 'luxury pick-ups', but these critically without the seriousness of intent behind those Brazilian originals.

As more types of cheaper locally made cars and luxury imported cars became available so the unique double-cab was discontinued. However, instead the 'extended cab' pick-up variant took on a uniquely Brazilian flavour. This done again to maintain and build local engineering capabilities.

As the F-series went through its own generational aesthetic changes the Brazilian variant saw the rear side window grow in size to become a unique feature. The loss of the rear door for passenger convenience had been essentially substituted by a large vertical 'panoramic' rear quarter-light window, taken deep into the vehicle's 'belt-line', so as to provide a unique experience for the rear passengers. This type of window had become fashionable on after-market built custom leisure vans in the USA, so was seen to be fashionable. Heavier than sheet steel, the glass added weight but the product USP allowed Ford to maintain Brazilian national loyalty.

The Volkswagen Fusca :

The VW Fusca (Beetle) was the vehicle that gave mass mobility, initially with the middle classes of the 1950s and 60s. In its own right it was an admirable vehicle, robust and capable on both tarmac and unpaved roads in very variable conditions. But its overall 'packaging' with rear mounted engine and limited front luggage space presented load carrying challenges.

In an attempt to at least be seen to try and overcome this, a seemingly unique prototype of the Fuscia Wagon was created by the Volkswagen do Brasil. The vehicle's wheelbase was extended slightly to provide additional length and a new rear end was made in harmony with the rear of the Type 2 micro-bus to retain a family appearance. Though promoted to the Brasilian government as a domestically generated car for the Brazilian masses, infact the bones of the project had been actually initiated back in Wolfsburg. The German Post Office had sought a capable delivery vehicle that was smaller that the Type 2 van, and so VW created a limited run of Beetle panel vans to fulfil the new opportunity. During the vehicle's redesign phase the obvious question at headquarters about applicability elsewhere prompted the idea of the Brazilian Fuscia Wagon.

However, whilst the rear-engined Wagon variant was indeed very applicable for a single postman with often a single driver's seat, the concept was unable to serve the true functional needs of Brazilian small business or families, and so was rightly not taken beyond the drawing boarrd. Ultimately, and critically knowingly, it was more of an opportunistic PR tool for the government in new Brasilia, which would set the tone for a legendary and very successful spiritual successor - the VW Brasilia (to follow).

Whilst the more space efficient Brasilia (itself still rear engined) would replace the Fusca in the early 1970s, it was not until 1980 that the right formula of packaging, space efficiency, fuel efficiency and affordability would emerge, doing so as n archetype hybridised ideal.

The Mk1 Volkswagen Gol :

The first generation VW Gol was born in Brazil, for Brazilian needs, from a corporate 'parts-bin' philosophy to ensure low cost and durability. The Gol's body structure was taken from the Audi division which had already been partly amortised from previous sales in Europe as Audi 80. Thus much of the tooling was 'lifted and shifted' from Germany to Brasil, itself bought cheaply by one cos-centre from another. However to aid manufacturing costs, contain product sales price and to provide rationality to the end user, and ensure in service durability, the air-cooled engine from the Fusca/Beetle was used and was for the first time mounted in the front.

The first VW Gol then was conceived in the true hybrid manner, and so could be said to have been even more spiritually accordant to the country's spirit of 'mix and match' than even the legendary seemingly home-developed VW Brasilia. The Mk1 Gol was the crystallisation of 'Adopt and Adapt'.

Though less unique, the 1983 VW Parati followed in a similar vein. This 3-door wagon/estate used a VW family water-cooled engine, but was importantly able to offer utility, comfort and affordability thanks to VW's strategic deployment of low cost transfer pricing between Germany and Brazil.

The Chevrolet Celta Mk1 :

The Celta was introduced in 2000 and was a very pragmatic solution for General Motors regards the more aspirant, more demanding and quickly expanding Brazilian car market.

The Celta utilised the body structure of the very successful European derived Opel/Vauxhall Corsa B (1993-2000). The Corsa had already been well established in Brazil, Argentina and other countries in Latin America so was very well known, and indeed was so popular that it took on a pick-up variant and was exported in CKD form to South Africa.

However, to maximise use of the much amortised Corsa B platform so as to maximise per unit profits, the Car was face-lifted and provided with more features to match the contemporary Astra and Vectra in higher C and D segment classes.

Thus, not sold elsewhere, and to differentiate itself from a burgeoning B-class crowd, the Chevrolet Celta became perhaps Brazil's first aspirational B segment, able to maintain its pricing power – and vitally profitability - in the competitive city-car climate.

Summary :

Given its initial early commitment to Brazil, VW was the first to establish a true EM Technical Strategy from the 1959 outset, able to plan and deliver adopted and adapted vehicles using the cost efficiency levers of scale, design and production engineering flexibility, amortisation, and phase-introductions between AM and EM geographical markets.

This would be replicated by most other global automakers, FIAT the next proponent with Brazilian-centric focus and thereafter GM, with Renault's Dacia the most recently EM prolific elsewhere.

However, with the advent of true globalisation and so necessary AM-EM 'product harmonisation' by the mid 2000s the corporate use of 'market trickle-down' of products and technologies in a stepped or phased manner has now been superceded by proper global platforms and associated products.

As will be seen late, today more than ever there is core product 'equality' in body styles and basic drive-trains, the 'advanced' versus 'emerging' difference

Yet it had been Ford and the unique F-100 variants at the very beginning of the mass motorisation process that allowed Brazil to develop its own industry competencies; first in body structures and the necessary close tolerances of 'closures' (the hand-clap doors) and thereafter regards engine production and power-train modification.

Those early lessons with Ford and Volkswagen would were the first step for a new auto-sector. The next obvious step up the economic value creation ladder was to learn more via creation of a broad-spanned national automotive organisation.

2. State Led Licensed Technology Transfer
(eg FNM – Fabrica Nacional de Motores)

As part of the mid-century ambition that was “50 Years Progress in Five Years” the government recognised a need to deploy modern technologies, especially so in the showcase auto-industry.

This idea to replicate the advanced 'state of the art' was in stark contrast to other developing nations, such as the newly independent India whose own truck and car brands would be for decades to come simply the 'recycled' in-market use of advanced foreign vehicle platforms and powertrains.

Moreover unlike India which relied upon entrenched business families / conglomerates, any new Brazilian national champion would be a SOE (state-owned enterprise), seen to be owned by the people and so as to provide enough political, financial strength and independence to start the industrial ball rolling and maintain its momentum over some time.

Such a new national champion would critically also need to be seen to philosophically and aesthetically mirror with the newly build and futuristic showcase that was the capital city of Brasilia. To have anything less than contemporary and modern technology and appearance would be to undermine the central goal of joining the ranks of the world's leading nations. The formation of this auto-champion would be underpinned by other major state investments in a second steel company and hydro-electric power generation. What was seen as the “golden trinity”.

Inevitably then the strategy would have to be that of licensing such foreign technology, and after a delegation was sent out to assess German, British, Italian. French and Soviet possibilities, the general recommendation was for that of Italian vehicles, undoubtedly also swayed by endemic Latin cultural links.

The Brazilian government named the new national champion 'Fabrica Nacional de Motores', abbreviated to “FNM”, and it was to be effectively a backward integration into an SOE firm started in 1942 by two military officers which produced amunition, aircraft parts, engines, wheel components and refrigerators.

The automotive firm was established in 1949 and initially undertook a heavy truck licensing agreement with renowned Italian firm Isotta Fraschini, recognised for its ideal match of advanced engineering and increasingly fragile financial circumstances. However Isotta Fraschini itself fell into bankruptcy by 1951 and so a replacement partner was sought to fill the capacity of the 3.3 million square metre FNM facility in the state of Rio de Janeiro.

The new partner as of 1952 was Italy's Alfa Romeo, the decision outcome of Brazilian and Italian state-led policy-making. It was an obvious candidate given its mix of trucks and cars that populated Southern Europe, its trucks outselling its cars at the time by a ratio of 3:1.

Alfa Romeo had previously been rescued by the Italian government in the 1930s and was likewise an SOE at the time. Thus the two were viewed as naturally synergistic across separate geographies. Critically it offered world-class engineering and a diverse stable of vehicles. Though Alfa's roots had been solely in sports, GT and luxury sectors, as a result of Italy's post-WW2 reconstruction programme it had diversified into small cars, vans and trucks; prompted by cheap expansion loans and (initially) guaranteed customers.

However the inescapable might of its then private homeland competitor FIAT (and the increasing strength of other large European automakers) undermined the expansive, arguably over-stretched, vehicle portfolio and costly business model.

Thus overseas expansion was sought, FNM seen as an ideal alliance. This eagerness seen by the creation of a new FNM logo designed to obviously mimic (with a cultural slant) that of Alfa Romeo. That badge was a crystallisation of the long-term mutual intent.

Given the infrastructure building needs of Brazil, primary focus was on heavy trucks, the chassis of which (known as chassis-cabs) would allow for the construction of independently made bodies by start-up Brazilian enterprises, so providing employment and industrial learning, with over 15,000 mixed units produced.

With heavy trucks accomplished – providing a degree of Brazilian independence from America (GM and Ford) and the mainstream passenger car plan underway with Volkswagen and other supporting firms, a private firm named FABRAL was created to investigate and produce an executive/luxury model.

'Fabrica Brasileira de Automoveis Alfa' (“the Brazilian Alfa Auto Factory”) was born from a private Brazilian interest, seeking to create a partnership with Alfa Romeo and so gain a new market entry and supply for one of Alfa's large cars. After investigation the privateers ultimately viewed the prospective venture as too risk-laden and so stopped progress on the matter. However to President Kubitschek the idea of a high-class Brazilian car was alluring; no doubt to ferry the seniors of new Brasilian about, and the de facto car for Brasilian business people. Thus the project was handed to FNM – itself part-owned by Alfa Romeo – and from 1960 the FNM 2000 was produced: a FIAT 2000 Berlina with FNM badge, and nicknamed the 'JK' after the President. Hardly a successfully profitable project, effectively subsidised by government procurement throughout its life, it was also supported by Alfa Romeo given its own strategic intent for overseas expansion.

In 1966 FNM, with much Alfa input, heavily adapted that base platform to create the sporty 'Onca' ('Jaguar') coupe; seen as a personal luxury car for wealthy Brazilians. This was intentionally styled by “Rino” Malzoni (designer of the Malzoni GT/ Puma) to replicate the Ford Mustang but with an Alfa 'face' presumably so as to mimic the sales success seen by Ford in the USA. This was presumably done with the intention of also seeking to attract Ford's attention to create a new technical and contract manufacture arrangement with Detroit. Its name had obvious associations with Britain's Jaguar Cars, the successful sports-car and race-car producer. Thus the project was itself strategically a wholly manufactured venture, created for major impact but in which ultimately less than ten examples were actually built; illustrating the misreading of the market or mistiming of the project by FNM seniors.

Thus the apparent FNM strategy - at least by the Brazilian members of the Board - was the intention to create a network of international VM partners, drawing on foreign expertise and the lower-cost advantage of semi-amortised vehicles and platforms. That multi-firm interest would then allow the government to eventually recoup its FNM spending through the effective auction sale of the company to a major foreign vehicle producer.

This implicit intent created a fracture between the Brazilian and Italian representatives on FNM's Board, leading to Alfa Romeo taking a controlling stake in 1968 for $36m, so as to fend-off any other foreign interests and retain the goodwill of the Brazilian government.

The 'Berlina 2000' (sedan) was steadily improved in powertrain and features, and remained the bread and butter of car production as the 2150 and 'old' 2300; though FNM capacity was still heavily biased to trucks.

The most striking outcome of Alfa's new ownership was the (effectively stillborn) “all Brazilian” Furia GT coupe f 1971 . It used the Berlina-Onca platform but offered the trend for simple, angular European “wedge inspired” sportcar styling; but only a few prototypes and initial builds produced. It is assumed that Alfa undertook this project within Brazil with a “skunkworks” mindset away from Milan to deploy a low-cost development project for South American sales and possible Brazilian export into the USA, Italy and across Europe, itself as a mid-priced 4-seater 'exec coupe' to enter a market position between the lower 2-seat Duetto/Spyder and higher 2+2 Montreal GT However, this did not come to pass for various reasons (primarily macro-economic and technical competitiveness).

Either way for a time the Furia programme bolstered the formative learning of Brazilian engineers regards niche build platform spin-offs and the engineering demands of more sporting vehicles; both these elements coming more greatly into play in Brazil's small but burgeoning independent sportcar realm..

The beginning of FNM's decline came with the Alfa Romeo's divestment of the trucks division to FIAT 1973, replicating its previous similar divestment in Italy some years earlier, with focus now on the cars division. That meant that the central core of FNM had gone.

Car production was maintained, albeit in relatively low numbers, and the originally based updated 2300 'JK' model replacement by the 'new' 2300 in 1974. However, the financial squeeze on the Cars division was self-evident in the technical choice for the 'new' big sedan / saloon.

Whilst its aesthetic was similar to the all-new Italian Alfetta, it was infact a comparatively larger car based upon old mechanicals from the previous 1900 (itself from 1950). Thus it can be seen that Alfa well recognised the need to create its seemingly new 'all-Brazilian' car on a low-cost proven base, using 'lift and shift' tooling from Italy so as to improve per unit (and so the project's overall) margins.

The 1974 new 2300 was then in the prime spirit of the sector's early-phase of indigenous industrial 'Adoption and Adaption', and infact because of import bans, lasted until 1985 as the de facto exec and large car.

Thus the lifespan of the state established, majority state owned and partially state funded, FNM automotive company lasted from 1949 until 1974. It's central remit was to both to allow government planners a central role in steering the direction and shape of a major indigenous producer and to also critically to provide a third leg under the stool that was foreign inward investment (USA vs Germany vs Italy) so as to better balance Brazil's reliance on external foreign firms and their own fortunes.

As such, whilst the effective subsidisation of the 'JK' model was against the grain of any true free-market attitude, and many of the truck sales went to state-owned, or state-linked enterprises, FNM could at least be said to have been a successful venture within what was actually an archetype mixed-market economy of the period; this stance necessary to economically propel Brazil through the 1950s, 1960s and early 1970s.

Summary -

EM countries have long recognised the importance of an indigenous automotive sector, yet many have failed to provide the right strategy to both compel and new industry into being with the right balance of short-term and long-term viability.

(As illustrated with Malaysia), the temptation for speedy market progress and technical sophistication is to typically taking sole responsibility and produce a monolothic, monopolistic national champion, from a single foreign source (Mitsubishi) itself followed by likewise domestically sponsored apparent competitor again using another foreign source (Diahatsu). All the while retaining heavy import protectionism to provide a guaranteed homeland market for its champion.

Brazil however rightly chose to invite a mixture of foreign interests with attractive inward investment policies to industrialise the regions, so creating a long-term strategic template whilst also ensuring short-medium term tactical support by creating a national champion which itself was closely aligned, indeed heavily interwoven, with the infrastructure based national growth agenda.

Crucially the Brazilian government knew exactly when to dis-invest itself from its created champion and to allow the dynamic of free-enterprise, and so continued FDI to prevail.

Having shown great lucidity in the 1950s and 1960s, for the long-term future, Brasilia should also consider possible future paths which would avoid the failings of past western governments having to handle the 'flip-side' of economic decline (eg the UK's inevitably poor BMC/BL consolidation, and the USA's Chapter 11 'bail-out' of General Motors after the financial crisis).

Friday, 2 September 2016

Micro Level Trends – Brazil's Automotive Sector – “Brazil 66”...Sixty Six Years of Economic Power Lifting (Part 3)

As many worldwide await the Paralympic Games, Brazil continues to be humanity's geographic focal point.

Pertinent is the fact that many Paralympians experience the world itself “upon wheels”, doing so  with astounding ability. Whilst great swathes of Latin America hope to escape their own socio-economic confines via eventual car ownership and so their own set of wheels.

Here in Europe the standard issue of summertime 'Eurotrash' songs have been superceded by Brazilian signature tunes: feel-good and party inspiration provided by the musical descendants of Sergio Mendes and 'Brasil 66', with Latin themed girl trios of 'Nossa' and 'Bellini', whilst the men of 'Mojito' provide modern rendition of the Mariachi.

Interestingly in the spirit of CSR (corporate social responsibility) the organisation 'OI Brazil' provides what might be described as updated Brazilian traditionalism, targeting the cash rich realm of corporate events so as to provide economic trickle-down to those far less secure in the Fevellas.

The United Nations may have recognised a plethora of distinct national and regional musical genres, but for the rest of the world beyond Latin American borders the music represents pure summer escapism.

A snapshot of the Brazilian national ambition toward betterment for all can be heard in lyrics of The Black Eyed Peas' version of “Mas Que Nada” when raps:

“Try hard, hard, be my daily operation,
Got to put in work in this crazy occupation,
Got ta keep it movin' (that's the motivation)
Got to ride the waves and keep a tight relation...
With my team, keep it movin' and doing it right
I bring it loud everyday 'till daylight,
Just to make things move in this monkey business,
(We took an old samba song and remixed it).

Back in 2006 it was used for a Nike TV advert featuring the Brazilian football team, and almost became the de facto national team theme tune for a while.

As will be shown, those words could equally describe Brazil's attitude and efforts toward its own auto-industry, seeking continual progress over the decades since 1950 and through a myriad of constraints and opportunities.

The necessary economic 're-mixing' of industrial policy-setting and industrial dynamics within the sector continues, but within this obvious commercial planning must be allied with a new sense of culturally inspired 'visioneering' for the future.

For the present, the following provides a general description of “Brazil 66” : the sixty-six years of auto-sector economic power-lifting.

Achievements that have done so much for people spanning all social spheres.

A Brief History of Brazil's Auto Industry -

In the Beginning...

The globalisation effect of European colonisation over centuries, together with the combine of European and American industry and high finance, meant that Brazil's “open door” policy under-pinning trade of primary goods (agricultural and extracted commodities) was by the beginning of the 20th century enjoying its own export super-cycle.

Brazil's scale and diverse terrain meant that inland infrastructure and associated transportation methods and links had always been a major issue. Where feasible rail routes allowed for deep inland penetration, but the load limitations of equine hauled carts and wagons meant that there was a fundamental disjuncture between the capacities and logistics flow of 'mule-trains' versus steam-trains.

The appearance of the internal combustion engine in heavy load trucks solved that dichotomy and so revolutionised and continued to powerfully propel Brazil's own economic engine.

By the 1920s and 1930s Ford, GM, and Chrysler trucks, buses and cars became the transportation staple, mostly directly imported but also part assembled to appear “all Brazilian”.

So good were the trade relations (underpinned by the need for advanced American military equipment) that Henry Ford invested millions of dollars into 'Fordlandia' deep in the Amazonian river basin, to obtain, process and ship raw materials back to his Baton Rouge plant in the USA.

However, claims of “American Imperialism” and industrial slavery led to social unrest within 'Fordlandia', this anger spreading elsewhere, toward the “foreign imperialists” and Brazilian (ie European rooted) elite. America's capitalists and their “national co-conspirators” were viewed as reaping profits at the cost of the health, happiness and dignity of ordinary Brazilians.

To help counter this, new trade links grew with Germany in the mid 1930s. As a neutral country Brazil (along with other similar Latin American countries) was able throughout WW2 to trade exported raw materials in direct exchange for imported German finished goods; all done on a barter-system basis for use across the social spectrum.

However, the legacy effect of previously imported items and the innate technological strength of American capital goods and consumer goods meant that it would have been very foolish to have severed such trade ties, so they were retained.

The Mid-Century Modernisation Drive...

The American connections to Ford, GM and Chrysler made in the 1920s were logically retained , but as as ostensibly non-partisan throughout WW2 until the very end, Brazil could begin to maximise its retained relations with Germany, Italy and Japan.

That impetus came in the early 1950s, in reaction to the UN's ECLA recommendation regards necessary domestic industrial expansion, so beyond narrow focus and reliance upon the 'primary industries' (agriculture, forestry, mining), and toward greater economic self-development of 'higher-value' secondary and tertiary industries (steel, automotive, engineering design etc).

So as to diversify the national economic base, modernise quickly (“50 years progress in 5 years”), raise livings standards, gain international respect, and critically extract itself from near total the reliance upon the vageries of the worldwide commodities market - which experiences sharp downturns and slow upturns. Vitally so as to create a worthy export base of higher value manufactured goods across and broad spectrum to both its South American neighbours and worldwide.

The ECLA recommendations for future economic prosperity highlighted that much of Brazil's own 20th century modernisation agenda would need to be supported by the pragmatic creation of an indigenous automotive industry.

The start point to that ambition would of course the attraction of additional foreign parties beyond Detroit's Big Three.

Initial steps were made after 1953 with the imposition of a vehicle import ban so as to kick-start homeland efforts.

Four small scale ventures were agreed. Firstly the CKD based production license of the 3-wheeled Iso-Isetta to a domestic machine tool manufacturer, renamed the Romi-Isetta. Second, the comparitively large CKD of Willys-Overland vehicles, notably the iconic Jeep. Thirdly, CKD assembly of the first Toyota LandCruiser. Thereafter the initial tentative CKD start of the Volkswagen Type 1 “Fusca”.

Interestingly, though the government promised to financially support the Romi-Isetta venture as the first step in its national plan, in fact it failed to do so.

Instead, 1957 saw the creation of ANFAVEA, set up as the country's central auto-sector association with initially very close ties to government and important role in sector development.

So whilst the first notionally Brazilian car was of Italian origin, it was Germany through VW that became the first foreign vehicle producer to invest heavily and build a full capacity semi-automated plant in 1957. Initially for the Type 2 Kombi van in 1959 for industry and commercial buyers, with two years later the Type 1 “Beetle” or “Fusca” for scaled-up private mobility. Even a 'long back' estate version of the Fusca was created as a prototype to improve interior space, but did not warrant the cost of production for additional small internal space gain.

VW's own factory investment prompted a wave of additional FDI in the 1960s from Ford and GM. Much of the Brazilian population, the youth especially, altering its previous Anti-US stance given the outcome of WW2, the size of the American market for export goods, and the promise of economic expansion; with which new life-improving American-made household goods could be bought, such as GM's Frigidaire refrigerators.

Since Brazilian cars would obviously be in the small, light and efficient European mould, with their own cars effectively defunct, the American firms instead utilised low labour rates to produce engines, heavy trucks and pick-ups for burgeoning haulage and general commercial demand. As will be seen later, most interesting was the Brazilian-unique Ford F-100 pick-up.

Recognising the advancement made by the Americans and Germans, and as part of their own  internationalist agendas, France and Italy were enticed in during the 1960s.

Renault created an alliance with Willys-Overland for sale of their Dauphin small car.FIAT providing greater commitment with the building of a new plant in Betim (Belo Horizonte) in Minas Geras.

Thus for over a decade the government pledged support to foreign vehicle makers, even if such assistance was spasmodic to its own entrepreneurs. Volkswagen, Ford, GM, Willy's and FIAT all received cheap land, grants and loans equivalent to typically 50% of the start-up costs, with additional key provision of the required infrastructure of roads, sewerage and electricity.

After start-up the instigated of a low taxation regime, controlled-labour legislation to surpress overhead costs and allowance for foreign investor firms to repatriate profits back to the home country.

Thus it was largely Ford, GM, VW and FIAT, who provided the cornerstones for Brazilian national ambition, through both democratic and autocratic forms of rule.

This provided the ability to create pseudo-indigenous vehicles often through adaptive hybridisation of adopted foreign vehicles to allow for Brazil's own self-build products.

Critically, beyond the tailored Brazilian packaging and aesthetic of the vehicles produced, was the necessary ability to retain and utilise relatively basic power-train technologies. VW's small air-cooled boxer-4 engine simple to run and maintain across very varied geographies, altitudes, climates and temperatures where professional assistance could be hundreds of miles away. Ford's big lazy, low compression V8s able to breath deeply and so provide torque at mid and even high altitudes. Both the 'boxer' and 'big V' able to run on poor low-octane fuel, or indeed old stale fuel often found in remote locations.

Thus, little surprise that such basic engine technologies were so long entrenched in such a highly variable transport conditions from the mid 1950s through to the mid 1980s and beyond.

Another critical cause being the economic stagnation of the country, and lost decade and a half from the mid 1970s through to the late 1980s, caused by initial social unrest and reactionary monolithic political rule for that period.

The 1990s / 2000s Boom...

Over the last twenty years or so Brazil has demonstrate itself as an increasingly competent and highly vertically integrated champion of the global auto industry.

The 're-opening' of the country to international investment and a vital world mindset in the early 1990s prompted a fresh (and long awaited) injection of FDI and vitally foreign commercial belief in both domestic and export potential.

The resource rich land proffered much by way of raw materials and lower cost input costs, as did likewise somewhat policy tempered energy costs regards running heavy industry. But critically business and government leaders recognised the to encourage and nurture expanded and new sector competences to improve of those critical core functional capabilities that underpin substantive vehicle design, production and distribution.

Much of this learning was inevitably 'imported in' from the personnel and processes of those long established Multi-National Companies already present, but vitally a renewed complimentary effort was made within academia and smaller indigenous auto firms.


As of 2015, even whilst in the midst of a severe domestic recession and global fragility, it is reported that Brazil had still risen to become the 9th largest producer of vehicles. Countries such as China, USA, Japan and Germany may have been well ahead in terms of production volumes, but tellingly Brazil was far in advance of France, UK and Italy.

Today Brazil produces a myriad of vehicle types is destined for a range of distinctly targeted markets. These span cars, trucks, bus and coach, general utility, military (light green) and agricultural vehicles.

Within (the prime focus of) passenger cars an increasingly diverse range is being produced, from increasingly affordable city cars thanks to a previous credit expansion for the less wealthy (tho' generating concerns about accordant fail rates of sub-prime loans within this recessionary period) to the more recent introduction of premium marque executive sedans.

In the former category the likes of the compact but voluminous FIAT Novo Uno distinctly designed for Brazilian and LatAm demands, to the smaller VW Fox city-car destined for both homeland and European and Japanese export, production units specified with varying levels of technology content befitting target market to suit a wide range of income levels and tastes.

The expansionist mindset now includes the legendary VW Gol (the Brazilian archetype after the Brasilia), long since matured beyond its 'grass roots' technical origins and licensed to Iran Khodro company for 'satellite' plant production in the Middle East, this business model set to be replicated elsewhere .

Renault-Nissan has set out its EM strategy likewise, after the massive success of Dacia in Eastern Europe and far beyond (Western Europe, MENA, India etc), it seeks to replicate that achievement with new models. Once such is the Nissan Kicks, a compact SUV initially produced in Mexico, to be manufactured in Brazil imminently and supposedly set for 80 local manufacture and export destinations.

Whilst, in a nicely paradoxical and serendipitous manner that illustrates the end of one important era and the new beginnings of another for Brazil, the last of the locally produced iconic Type2 vans (with water cooled modern engines) were themselves exported as 'fashionista' products to various export locales (eg Danbury in the UK) to satiate the post-modern demand for 'authentic retro' by cash-flush middle aged hipsters keen to differentiate themselves from the neo-retro mainstream crowd.

In the Global Manufacturing Sweet-Spot...

Brazil today then is a much advanced auto-player, with the advantage of enjoying near world class production standards thanks to the quality measures of global manufactures, yet still offering a relatively lower cost of labour.

Thus foreign and domestic manufacturing firms are able to adroitly 'mix and match' the levels of (fixed overhead) capital spend on plant, tooling and associated equipment, against the requisite (variable) spend on labour; whether on a project by project basis, or indeed for complete long term business cases.

Brazil then could be said to have at last reached its production zenith, its regions able to offer keenly sought business model flexibility.

Little wonder that since the mid 1990s all the major global auto-players have re-invested heavily (FIAT, VW, GM, Ford, Renault, Toyota) or undertaken varying degrees of new millennium investment as either sole production owners (PSA, Nissan, Daimler, BMW, Mahindra, TATA Jaguar Land-Rover) or via joint venture importers (Coao-Hyundai-Suburu).

For very good reason, sixty-six years after the dream of a substantive and convincing indigenous automotive industry, Brazil has begun a phase which positions it very favourably “front and centre” of the world's automotive stage.

Into the Future -

Given the economic contraction and fiscal budget woes of today that induces austerity led policy-making, together with the headlines of political corruption, when the present socio-economic mire is contrasted with the (albeit erratic) leaps and bounds of the past sixty-six years, many of Brazil's reputable leaders within the political and business elite will be frustrated by the late impact of the global recession; a recession which various economic theorists thought would pass-by given Brazil's strong all-round economic platform.

Indeed, compared to the devastating impact upon North America, Europe and elsewhere Brazil's 'real-world' recession beyond statistical data-sets and hard-leftist generated demonstrations has indeed been comparatively shallow. The continued broad export success of the auto-sector, and maintained strength of sub-prime loan repayments just two interconnected illustrations of the reality for many in “Main Street” Rio de Janeiro or Sao Paulo.

The fact is that unlike the truly poor in the West facing high existence costs (food, winter heating, etc) various lower-level ('D' category) urban Brazilians with a comparative higher disposable income (given low existence costs) are able to enjoy relatively high priced brand-named FMCG and consumer electronics goods (for status-seeking) whilst bemoaning the raised cost of public transport.

[NB this is not to overlook the many who are simply  existing at a subsistence level].

Nonetheless, Brazil's economic stewards - typically drawn from the elite and with a sense of national responsibility – well recognise the need to continue to build upon the achievements made to date.

Today industry and services account for a greater proportion of national GDP than the primary sectors of mining and agriculture, even if Brazil is externally seen by narrow minded foreign investors as a “commodities play” awaiting a return.

As seen and recognised by senior national planners - who themselves directly experienced the transformative effect of VW Fuscas, Brasilias and little FIATs - the ever broadening automotive industry is core to future betterment. However, what they may not (but must) appreciate is the extend to which 'Brazi Autos LTDA' presently sits in a remarkably unique position relative to the rest of the world.

The 'Social Headwind' and the 'Industrial Tailwind' must now be coalesced to provide ongoing national metamorphosis.

The time then is right to re-undertake a brave new era of national economic planning and thus regional re-planning. Planning in which the automotive sector can continue to act as a socio-economic transformer.

New Visions for Rio de Janiero and Sao Paulo as cyber inter-connected 21st century cities have been seen to provide fundamental advantage within pre-existing organically generated central urban spaces.

But a much bigger planning mindset is now required relative to the life-limiting constraints of the favelas both in city centres and in sprawling suburbs versus the newer and very understandable trend for middle-class life to be kept within the safe-zones of remote gated communities, upscale shopping malls, business districts and leisure areas.

Europe and North America went through broadly the same archetypical development pattern in the late 19th and 20th centuries, and it was a combination of garden cities (with planned industries), the aspirational suburbs (with good transport links) and vitally the car itself that allowed a powerful new phase in societal evolution.

When an increasing numbers of new cars are parked in the narrow streets of poorer districts and yet basic infrastructure services may still not be available, it illustrates much about a fundamental disjuncture between social planning and social consumption.

Like the planning and execution of Brasilia, the massive achievement that is the completed Trans-Oceanic Highway linking Atlantic and Pacific coastlines highlights Brazil's ability to complete monumental infrastructure projects.

Just as this provides the raison d'etre and suitable logistical context for trucks and road-trains, so the lower stratas of society, themselves obviously and naturally intent upon car ownership, must be provided with the appropriate physical environment.

Since the state presently has its hands financially tied, it should look to all kinds of public-private partnerships models, far beyond the 'IPP's' conventional goals for SOE privatisation, and toward more novel schemes within this new age of global corporate social responsibility.

Brasilia itself created the transformative conditions for the indigenous auto sector, time now to do the same in terms of regional re-planning commercially, industrially and residentially; for an ever-more inter-connected populace whose own world presently is, or soon hopes to be, on wheels.

To Follow -

1. Detailed account of the transformative phases within Brazil's auto-industry to date.
2. Broad account regards the “cultural visioneering” of Brazilian autos.
3. Broad account of the necessary socio-economic vision required by Brasilia of the “intra-global template” (serendipitously following in the footsteps of the Brazilian-made 'World Car' ideology).