Predicting Car Sales in Brazil in 2015

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Executive Summary
Brazil is the 5th largest country in the world, with an area of 8.515 km2, and a population of over 200 million. Brazil is a country with large natural resources and a large labor pool. It has managed to exploit these to become South America's leading economic power and regional leader, and one of the first in the area to begin an economic recovery. Highly unequal income distribution and crime remain pressing problems. Over 25% of population is still below the poverty limit. Brazil has its work cut out for itself where it has to be all set to host both the 2014 World Soccer Cup and the 2016 Olympic Games (Focus2move website). We begin this report by providing a summary of the economic activities taking place in Brazil that are likely to affect the future. Then, the report is divided into three parts; the first highlighting the macroeconomic factors that will help forecast the future demand for passenger automobiles in the local market, the second highlighting the macro-economic factors that will help forecast the future demand for import of passenger automobiles and the final part highlighting the macro-economic factors that will help forecast the future demand for export of passenger automobiles. Brazil was not immune to the global financial crisis of 2008-2009, as its real GDP decreased slightly by 0.3% in 2009. However, the economy quickly recovered in 2010 and 2011, with real GDP growing by 7.5% and 2.7%, respectively. This performance was driven by high commodity prices, which boosted food and mineral exports, and a stable exchange rate of the domestic currency.

GDP Growth Rate (%) Brazil
GDP Growth Rate (%) 8 6 4 2 0

Year

*2013 till Feb 2013 Data Source: International Monetary Fund

Brazil has a large and well developed agricultural, mining, manufacturing, and service sector. This helps Brazil's economy outweigh that of all other South American countries, and Brazil is expanding its presence in world markets. However, the real economic activity of Brazil relies on Wholesale and Retail Trade; Repair of Motor Vehicles, Motorcycles and Personal and Household Goods, as the Gross Value Added (GVA) of this sector represented 18.6% of the total or R$655 billion (US$392 billion) in 2011. The huge Brazilian domestic market is the driver of these activities. Corruption, inequality, lack of human rights and a high poverty rate are Brazil’s main problems. In 2011, Brazil’s unemployment rate was at its lowest levels and stood at 6.0%, down from 10.0% in 2006. Despite this, unemployment remained high especially in the case of young people (12.7%) and women (8.1%) (Euromonitor International, 2013).

Unemployment Rate (%) Brazil
14 12 10 8 6 4 2 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Year

Data Source: Euromonitor International, 2013 Over the last decade, Brazil has substantially improved its production of energy, particularly, ethanol and oil. Recent discoveries of large offshore, pre-salt oil deposits can potentially transform Brazil into one of the largest oil producers in the world. The government is also firmly supporting the development of renewable sources (Euromonitor International, 2013).

Unemployment rate (%)

Domestic Demand for Passenger Vehicles
Factors that would influence demand would include GDP, GNI per capita, growth rate, Industrial Production, One of the prerequisites to predict demand of passenger vehicles in Brazil by using quantitative techniques such as regression is to find out if there is statistical significance, i.e. health of the statistics.

Linear Regression
GDP & Demand for Cars
We ran regression analysis to find out if there is a relation between GDP and Sales and if we can use these numbers to forecast future sales. With R-square of over 92% and at over 99% confidence level (i.e. < 1% p-value) we came to a conclusion that GDP does statistically impact sales (demand). The Scattered diagram below plots Sales on the Y-axis and GDP on the X...
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