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Crossing the desert

Manufacturers of heavy equipment do not see reasons for desperation in the industry, even projecting a drop of 15 percent in sales volume for this year

The first months of this year showed a lower level of activity in several areas of the economy. For the heavy equipment industry, it is already known that the beginning of 2015 was more retracted than the previous period. But this was already expected, as pointed by the last edition of the Sobratema Study of the Brazilian Market of Construction Equipment. The volume of retraction, however, was still a figure to be known when this article was written.

But certainly the market felt the impact. In retail sales, the operations carried out through Finame—already approved with interest rates of 4.5 percent—could still be invoiced this year, what helped to relieve a little the situation. For the main manufacturers, this was practically the general behavior, supported by operations carried out during the last year. In other words, sales were significantly below but not in a so dramatic way. “The worst situation occurred with wholesales for dealers, supplied with stocks still enough to attend the market”, says Gino Raniero Cucchiari, commercial director for Latin America of CNH Industrial, which controls the brands Case, New Holland, Iveco and FPT. “In other words, the market of clients was better than that of dealers since the buyer analyzed the convenience of taking advantage of financial conditions and bought probably what it did not need.”

The scenario went worse in February. The flow of buying orders was very low, even considering the fact that this was historically the worst month for business in this industry. This was enough to open the warning lights. Although it was foreseen, such situation was fed by distinct factors, leaded by the uncertainty of BNDES’ financing policies, what broke the market momentum in closing business deals in the first quarter. The drop had also as main components the rising trend of inflation, the devalued exchange rate—that brought instability and unpredictability to the operations—and the thorough reconfiguration of the market, that is adjusting itself to the new economic scenario. Considering all these variables, the conjuncture issues bring concern to the players. “If we consider the effects of the MDA—that will not repeat the acquisitions of last years—we will have a natural drop of 5 to 6 percent in the market”, points out Afrânio Chueire, president of Volvo CE. “Therefore everyone has to be prepared to this situation in their planning.”

This point of view is due to the projection for next months of the year, that also follow the same pace, materializing a mood of apprehension in the industry. This is clearly shown in the projections of the manufacturers, which believe that there are no conditions for a strong recovery that could ensure volumes above those of last year. In a general way, some of the main equipment manufacturers in the country point to a drop between 5 and 15 percent in the sales of heavy machines (above 12 ton), what will impact the production and the supply chain, creating a “desert” to be crossed amongst sandstorms.

“The main problem is the constant increase in prices, what the market does not accept and also does not admit”, insists Cucchiari. “Till this moment there is no feasible solution, profit margins do not exist and—with the exchange devaluation—the production cost is increased. That is why efficiency is the challenge.”

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However, this context did not weaken the belief of people that—due to its position in the organizations—have to establish long-term scenarios for huge multinational companies that continue to put their energy in Brazil, at least for now.

If this comforts, most problems that are occurring in the industry happened at once, in a synchrony of dissonances that may open perspectives of improvement even in the second half. In addition—it is important to say—many of the current blockages have components that are more politic than economic, what brings a reasonable perspective of solution, soon or later. “This is not a question that puts in risk all fundaments of Brazilian economy, but a period of vagueness in solving political problems and allowing us to take again the right way”, says the president of Volvo CE. “Therefore, the solution of these political questions will be important to unlock the problems of concessions and PPPs, allowing them to come out of the paper and allowing that investments in infrastructure could be carried out as we are waiting.”