Ford sees Brazil overcapacity pinching margins

DETROIT Wed Nov 14, 2012 6:26pm EST

The Ford Motor Company Inc. logo is seen on a wall at the New York International Auto Show in New York City, April 20, 2011. REUTERS/Mike Segar

The Ford Motor Company Inc. logo is seen on a wall at the New York International Auto Show in New York City, April 20, 2011.

Credit: Reuters/Mike Segar

DETROIT (Reuters) - Automotive production capacity in Brazil is expected to outpace demand until 2016, a trend that will pinch margins on small cars - the country's largest vehicle segment - a Ford Motor Co (F.N) top executive said on Wednesday.

"Excess capacity is going to put more pressure on pricing and margins, particularly in the B segment, or small car segment, which is the largest segment in Brazil," Mark Fields, Ford's head of the Americas, said during an investor conference.

This year, Brazil's auto sales are expected to be around 3.8 million cars. But capacity is more than 20 percent higher at 4.7 million vehicles. The gap between demand and installed capacity is expected to grow every year until 2016.

Ford will production in the region to expand its vehicle offerings in Brazil, but Fields said the increase would not be significant.

"We plan on accomplishing this within the same manufacturing footprint," he said. "We do expect to participate in the growth in the region, without adding significant capacity."

From 2008 to 2011, the top four automakers in Brazil, including Fiat SpA and Ford, have lost market share despite a nearly 30 percent jump in sales. Meanwhile, companies like Renault (RENA.PA) and Hyundai Motor Co (005380.KS) have gained.

Newer entrants have started building factories in Brazil in response to steep tax incentives and high penalties for imported vehicles. Last month, Kia Motors Corp (000270.KS), hurt by a tax hike on foreign-made cars of 30 percentage points, said it would study building a factory in Brazil

"While the industry volumes are growing in Brazil, which is fantastic, capacity is growing at a faster rate," Fields said.

The second-largest U.S. automaker holds 9.5 percent market share in Brazil. Ford has four factories there, two assembly plants, an engine plant and a transmission plant.

Ford builds its Fiesta subcompact and EcoSport small crossover, two vehicles built on the automaker's global small car platform, at its Camacari Plant. The company also makes the Ford Ka car, Ford Courier pickup truck and cargo trucks at its Sao Bernardo Assembly Plant.

(Reporting by Deepa Seetharaman; Editing by Dan Grebler)

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