Economic Crisis in Latin America Triggered by Pink Tide... Hyundai Motor's Brazil Plant Operating Rate Plummets

Reduced Consumer Purchasing Power Due to Latin American Economic Crisis
Car Installment Interest Rates Soar...Demand Plummets Starting with Small Car Market
Hyundai Motor's Brazil Plant Operating Rate at 81%...March Shutdown Impact
Rising Minimum Wages Make Mexico Plant Operations Difficult

Our companies entering the local markets in Latin America are facing difficulties due to the economic crisis. Consumer purchasing power has decreased because of inflation, rising household debt, and high financial service interest rates. Additionally, the 'Pink Tide' phenomenon (the successive election of moderate socialist governments) has led to a rapid increase in minimum wages, further complicating local factory operations.

According to a comprehensive report from our coverage on the 17th, Hyundai Motor's Brazil plant operated at 81.4% capacity in the first quarter of this year, the lowest since the COVID-19 pandemic. Even in 2021, when semiconductor supply shortages were at their peak, the plant's operating rate was close to 90%. In 2022, it rose to 99.5%.

However, in March this year, Hyundai Motor implemented a two-week shutdown of its Brazil plant, causing the operating rate to drop sharply. This was due to a significant decline in local demand for its main product, the B-segment (compact cars), necessitating inventory adjustments. The Brazilian government maintains a high benchmark interest rate of 13.75%, which has also driven up auto installment loan rates. As a result, demand for compact cars, primarily purchased by lower-income consumers, has decreased.

In the first quarter of this year, Hyundai Motor's market share in Brazil was 8.4%, ranking fifth in the industry. While there are currently no plans for additional shutdowns, market conditions remain challenging. Total sales of passenger and light commercial vehicles in Brazil for the first quarter were 436,802 units, compared to about 580,000 units in the first quarter of 2019, before the COVID-19 pandemic.

Marcio Leite, president of the Brazilian Automotive Industry Association (Anfavea), stated, "Last year's plant shutdowns were due to semiconductor shortages, but now the cause is a sharp drop in market demand itself. Unless financial conditions improve to support a strong increase in retail sales, it will be difficult to accumulate inventory."

Meanwhile, companies operating in Mexico are struggling with local factory operations due to a minimum wage increase of over 20% this year. Since left-leaning President Andres Manuel Obrador took office in 2018, the Mexican government has continuously raised the minimum wage. In the northern border region adjacent to the United States, the daily minimum wage increased from 260.34 pesos (about 19,900 KRW) to 312.42 pesos (about 23,900 KRW) starting this year. An automotive industry official said, "With left-leaning governments consecutively coming to power in Latin America, the labor cost burden for parts suppliers operating locally has increased."

Kia's Mexico plant operated at 70.8% capacity in the first quarter of this year. Although this is higher than the 54.9% in 2021 and 66.3% in 2022, which were affected by the COVID-19 pandemic and semiconductor shortages, it remains the lowest among Kia's five global plants. Currently, the Kia Mexico plant produces two internal combustion engine models: the Rio (Pride) and the K3.

Therefore, there are opinions that electric vehicles should be introduced at the Mexico plant to increase operating rates. From the perspective of responding to the U.S. Inflation Reduction Act (IRA), producing electric vehicles at Kia's Mexico plant is also persuasive. The U.S. government provides subsidies of up to $7,500 (about 10 million KRW) for electric vehicles that are finally assembled in the U.S., Mexico, or Canada and meet requirements related to critical minerals and batteries. A Kia official stated, "We are considering introducing electric vehicles at the Mexico plant from a mid- to long-term perspective, but nothing has been decided yet."

This content was produced with the assistance of AI translation services.