Scania will export from Brazil to Europe

With infrastructure deficiencies, heavy tax burden and older technology, the Brazilian auto industry is meant to supply only the domestic market or, at most, countries in Latin America, right? Not for Scania, whose plant in São Bernardo do Campo, in the industrial cluster of the São Paulo metro area known as ABC, was called upon to relieve the Swedish group’s operations that are at full capacity in Europe.

From the middle of next year, the brand will start producing in Brazil engines that comply with the European emissions legislation (Euro 6) and will thus start shipping trucks to the old continent, destination now only of components such as transmissions and engine parts.

Facing a 62.5% drop this year in deliveries of trucks and buses in Brazil, in the past the largest market for Scania in the world, exporting has become an alternative for the company to absorb fixed costs of a factory that has been operating at less than half its capacity.

Since domestic sales plunged and exports are recovering, the São Bernardo plant is today more of a platform for exports, which ships products to 20 countries, than an operation dedicated to domestic consumption.

International markets already absorb 60% of what Scania produces in São Bernardo. Among trucks and buses, this compares with 34% last year and 26% in 2013, when the company had its best sales year in Brazil, with nearly 21,000 registered vehicles.

Starting next year, when Scania doesn’t expect a big recovery of the Brazilian market, two of every three vehicles assembled in the ABC factory will be exported, according to the company’s forecasts. “The strategy we have here is to export from this plant in order to absorb fixed costs,” said Per Hallberg, CEO of Scania, in an interview with Valor at the company’s office in the ABC.

The company only has flexibility to ship abroad products that are not sold in Brazil because it invested in recent years to have a portfolio of global vehicles also in Brazil. That is, the product made in the country is the same produced in Sweden.

Together with the development of new models, Scania has aligned the technological standard of the São Bernardo plant to the group’s most advanced lines in the world.

Having spent R$96 million in a new painting line, opened in January, capable of chroming trucks in 140 different paint colors, the company started in July construction of a new cabin assembly sector. Other R$32 million are being invested in an engine-testing laboratory to be opened in March.

Per-Olov Svedlund, president of the company in Latin America, said investments in 2016 are likely to top the annual average of R$100 million in recent years. But he didn’t say the budget that is being prepared for next year, which also includes funds meant to start local production of components, in order to reduce the exposure to dollar and euro swings in part imports.

Adjustments were also necessary to trim costs, such as ending contracts of 1,000 temporary workers in the last two years. Still, the Scania executives boast that the company is keeping the fixed jobs and assure that the strategy based on exports has been preserving the unit’s profitability. “We are not below break-even. Brazil still makes money,” Mr. Hallberg assured, in spite of the severe crisis faced by the national industry of commercial vehicles, whose production is at the lowest level in 12 years, effect of the recession, low confidence of transporting companies to invest in fleet renewal and higher financing costs for capital goods.

“We are happy with our situation here and taking measures to continue happy,” Mr. Hallberg added. Of the 20 countries served by Scania’s industrial facility in the ABC, 8 are in Latin America, with Argentina being the top client. The company is being prompted by the parent to export to the Middle East and India. The main target at the moment is Europe, where Scania’s truck orders grew 39% in the first nine months of this year.

But if things go well in exports, in Brazil sales of the brand’s trucks are down 62%, while those of buses are falling even more, 66%.

Mr. Hallberg, who before taking the helm of the group was already making, since the 1980s, regular trips to Brazil, said that all of this seems like déjà vu. “It has always been like that here. I’ve seen this happen several times. We know the storm always comes after fantastic periods,” he said. Mr. Hallberg took the helm in April and will already step down at the end of this year. The decision, he said, is part of his retirement plan.

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