As a recent article at Brazilian news site Estadao showed, no wonder many experts have been saying lately that the explosive growth in Brazil car sales in recent years has become a financial bubble that can be compared (though to a much lesser extent) to the the U.S. subprime. The result can be seen in the parking lots of professional auctioneers (see photos below).
Only in the auction company Sodre Santoro, the number of cars coming from owners who defaulted rose from 9,000 to 15,000 in the last three months, an increase of 66%. The parking lot is so full that the employees at the auction firm have lost their own parking spots. “We had to use our parking spots for cars that have been repossessed,” said one of the auctioneers, who is parking his car on the street.
The signs of this chaos might be worse than it looks because the financier or bank only takes the car back from the debtor if the situation is really irreversible. “Before that, there is a lot of renegotiation,” said car market analyst Ayrton Fontes.
“The government made credit conditions way too easy last year. Many people who financed their very first car in 70-month installments are not able to honor their debt,” says economist Nelson Barrizzelli. “I think it’s not irrational to talk about a Brazilian subprime in the auto sector.”
In auctions, cars are usually sold at about a 30% discount to the MSRP. “The discounts can also be explained by the difficulty of liquidating these huge inventories,” says Fontes.