SAO PAULO, BRAZIL — Auto sales may be slumping in the U.S., but in Brazil these days, everyone seems to have a new set of otimo -- cool -- wheels.
Bank employee Rafael Hanzava bought not one but two new cars in recent months: a Peugeot and a Fiat. He loved the styling and gas mileage of both of them, but what really sealed the deals, he said, were the five-year loan on the Peugeot and a six-year loan on the Fiat that dealers offered.
As recently as five years ago, a two-year loan was all he could have hoped for, which would have made his monthly payments too high.
Easy credit, a booming economy and growing consumer confidence have unleashed a torrent of pent-up demand for new cars in Latin America's most populous country, pushing the number of autos sold up a staggering 31% so far this year, on top of 28% growth last year.
The rise is one more sign of what many economists describe as a flowering of Brazil's economy, primed by the global demand for its commodities, job and income growth and the country's more stable fiscal condition.
U.S. and other international manufacturers are taking notice. They have announced plans to invest $4.9 billion this year to expand Brazilian plants now running at or near full capacity.
* Ford, which saw sales rise 17% in Brazil last year but experienced a 12% decline in the United States, says it plans $1 billion worth of improvements to its factories here.
* Fiat says it will expand its Betim plant in Minas Gerais state to double its capacity to 800,000 vehicles a year, making it the Italian automaker's largest factory.
* Chrysler has announced that it is teaming with Nissan to distribute Nissan's Versa subcompact in Brazil. The cars will be made mostly at Nissan's factory in Aguascalientes, Mexico, then shipped to Brazil, taking advantage of the two countries' free-trade agreement.
Car sales are rising fast across Latin America, fed by the continent's wealth windfall from sales of commodities it produces, such as oil, iron, cattle, coffee and sugar. Car markets in Colombia, Argentina and Venezuela, where sales grew 46% in 2007, all are on fire.
But automakers see Brazil as the star. For example, Brazil is Chevrolet's largest market outside the U.S. -- it sold 498,800 vehicles there in 2007. It is also GM's third-largest vehicle sales market in the world, behind the U.S. and China.
Not all of Brazil is thrilled about the increase in car ownership. Some government officials are concerned about consumers' rising levels of indebtedness. Outstanding car loans rose 30% last year to nearly $45 billion.
Officials here in Sao Paulo, plagued with monumental traffic tie-ups and averaging 800 more car registrations a day, say the government isn't building highways fast enough. The city lacks a ring road, and rising numbers of trucks -- another sign of economic good times -- are plowing through town as well.
But analysts doubt that anything in the short term will reverse the flow of Brazilians to showroom floors.
Volkswagen spokeswoman Junia Noguiera said the company's lending arm now offers car loans of up to seven years, up from a maximum of 24 payments in 2002.
"People buy cars according to how well the payments fit their monthly budgets," Noguiera said.
Leticia Costa, president of Booz Allen Hamilton management consultants in Sao Paulo, said the Brazilian car boom could still have a long way to run because outstanding credit -- figured by taking total loans as a percentage of Brazil's annual economic output -- is still relatively low at 34%. By contrast, outstanding credit in the United States equals 160% of gross national product.
Why is credit more available?
PricewaterhouseCoopers auto analyst Marcelo Cioffi said banks are more willing to lend now because government spending is more disciplined, leaving less chance of a financial meltdown. Laws passed recently give banks greater powers to repossess loan collateral than before.
Moreover, interest rates have gone down as the government has lowered its domestic and foreign debt, he added.
There is also the perception that Brazil's economy is stable and on track for long-term growth, said Dario Gaspar, vice president of A.T. Kearney market consultants here. "I see three things: the increase of wealth, reduced unemployment and optimism about the future" in addition to easy credit as reasons for the sales boom, Gaspar said.
Exploding domestic sales have more than compensated for the drop-off in car exports caused by the recent strengthening of the Brazilian currency, the real, which has made Brazilian-built vehicles such as the Ford Eccosport (a popular mini-SUV) and the Volkswagen Gol sedan more expensive in foreign markets.
Brazil's car industry has been here before, skeptics say. Last year's sales of 2.5 million finally broke the record set in 1997 when consumers went wild buying cars -- many imported -- with an overvalued currency. Then came several years of hard times after the Brazilian financial crisis and devaluation of the late 1990s.
But Brazil's auto manufacturers' association, known by its Portuguese initials AMFAVEA, believes annual sales can rise much higher. "We're not at equilibrium yet. The United States, with 16 million units sold a year, probably is," said association President Jackson Schneider.
A.T. Kearney's Gaspar said Brazil is in the process of "confirming its relevance in the international auto market. . . . This is an important moment for the Brazilian car industry."
Times staff writer Ken Bensinger in Los Angeles and special correspondent Marcelo Soares in Sao Paulo contributed to this report.