EDITOR’S NOTE: This article is reprinted with permission from the publisher AutoData. The article includes substantial information from Priscila Von Zuben Spadine, Data and Forecast Manager at Power Systems Research.

By Natasha Werneck
AutoData

High interest rates, weak demand, and the smaller impact of the Caminho da Escola program are dragging down the pace of Brazil’s bus industry

After posting moderate growth in 2025, although below initial expectations, the Brazilian bus market entered 2026 in contraction, recording a pronounced decline in the first quarter compared with the same period last year. Data presented by Anfavea, the association representing chassis manufacturers, show that, despite a punctual rebound in March, the performance of the last three months reinforces a slowdown scenario.

Registrations rebounded and totaled nearly 2,000 units in March, up 50% from February and 9.3% higher than in the same month of 2025. In the quarter to date, however, the result remains negative: 4,400 buses were licensed, representing a 19.6% decline compared with the same period in 2025.

“For the bus market we had projected a 3% decline in 2026 and, through March, the contraction is already above 19%,” says Anfavea president Igor Calvet. According to him, the scenario “is beginning to become concerning,” especially because of the sector’s structural dependence on public programs: “A large part of the market depends on public policy, especially the Caminho da Escola program, which carries a great deal of weight.”

Calvet points out that the situation of the bus market in Brazil exposes an imbalance in this segment: “Public demand is important, but we also need to develop mechanisms to reduce this dependence.”

The weaker performance of the segment is also showing up in foreign trade. Exports fell 53.4% in March year over year and accumulated a 33.5% decline in the quarter. At the same time, production continued on the opposite path: from January to March, 7,600 chassis were manufactured, up 5.9%, highlighting a supply-and-demand mismatch.

A Stabilization Phase

According to PSR, Power Systems Research, the sector is entering 2026 in a stabilization phase after the post-pandemic growth cycle.

“There is a cycle change more than a structural deterioration,” says Priscila Von Zuben Spadine, Data and Forecast Manager. “The level of activity remains high, but there is a loss of momentum, mainly in the domestic market.”

PSR’s projection indicates production close to 27,000 buses and sales around 22,600 units this year, with a moderate contraction: “It is a decline, but still within a high level of activity,” says the consultant, who estimates a 4% to 6% drop in 2026.

In Priscila Spadine’s view, the current movement is still one of adjustment: “This is not about denying the decline, but about putting it into context within a still-elevated level. The bus market is very cyclical and depends on external factors. There is a loss of pace now, but not a structural break.”

At the same time, the consultant draws attention to the mismatch between production and sales: “Production has been increasing, but it is not being sustained by current demand. The reading is one of inventory build-up, which should be absorbed throughout the year.”

High Interest Rates Hold Back Sales

Within the industry, the tone is cautious. For Walter Barbosa, vice president of Mercedes-Benz do Brasil in charge of the Bus Division, the beginning of this year is unlike the historical pattern: “Normally the first quarter is strong for buses, but this year started differently, with a decline of around 20% in registrations.”

He avoids treating March’s performance as a sign of recovery:

“We still cannot say there has been a turnaround. February had few business days and the pace remains uncertain. We need to monitor the next few months.”

According to Barbosa, the macroeconomic environment has been weighing directly on purchasing decisions: “Global economic and political uncertainties are leading customers to adopt a more cautious short-term stance.”

The main obstacle, however, continues to be expensive credit, which discourages investment: “The base rate of 14.75% translates into a final financing cost of 18% to 20% per year. Who can afford that?” he asks. “At this level of interest rates, only those who are forced to renew or who have taken on a new contract make purchases. This postponement behavior is visible. Customers are delaying investments.”

At Marcopolo, the view is that the cycle has been interrupted, but without a drastic rupture, according to Ricardo Portolan, Marketing and Sales Director: “The market had been growing since 2022, semester after semester, and the second half of 2025 was the first in which there was a decline. That interrupts the cycle, but it indicates stabilization more than a sharp drop.”

For the executive, the first quarter confirms this trend: “In addition to stabilization, we had the effect of seasonality. Without the migration of orders from the end of the previous year, the start of 2026 reflected weaker behavior, which is typical for the period.”

Marcopolo is working with the expectation of a 5% to 10% decline in bus sales this year: “To close the year within this range, the market will need to grow over the next quarters, even if the final result remains below 2025.”

Portolan reinforces the impact of expensive credit on business: “There is no cancellation of already closed orders, but there is a postponement in purchase decisions. Customers are delaying larger volumes because of financing costs.”

For PSR, this picture should persist in the short term: “The macroeconomic scenario does not favor a recovery in private demand. High interest rates and uncertainty tend to delay investments,” says Priscila Spadine. She also warns about pressure on operators: “Margins are increasingly tight, which reduces the incentive for fleet renewal.”

Expectation of Slight Improvement

For Roberto Cortes, president of Volkswagen Caminhões e Ônibus, it is still too early to define a trend for the bus market: “We are at the beginning of the year. January and February were weaker, but March returned to a level closer to last year.”

According to him, the sector depends heavily on fleet renewal cycles: “These movements are not linear. Over the course of the year, the market tends to normalize.” Even so, the expectation is conservative: “Today we are working with a stability scenario compared with 2025.”

Cortes also points to credit as the main brake: “With high interest rates, purchases are restricted to those with immediate needs. The math simply does not work.” He also notes that new technologies depend on incentives: “Electric and gas-powered buses need subsidies. Without that, they do not gain scale.”

At Iveco Bus, as indicated by the division’s director for Latin America, Maurício Yamamoto, the scenario is seen as an adjustment after a positive cycle: “The beginning of 2026 reflects postponed purchases, the pace of bidding processes, and the high cost of credit.” Despite this, he sees fundamentals as preserved: “The market remains demanding, with a need for fleet renewal and transportation modernization.”

According to Yamamoto, the expectation is for improvement throughout the year: “As bidding processes and renewals move forward, we may see a gradual recovery.”

Caminho da Escola

In recent years, the performance of the domestic market has been strongly influenced by federal government tenders for school bus purchases: “Caminho da Escola accounts for around 30% of sales and continues to be a relevant support factor,” Yamamoto agrees.

In this sense, the most recent relief came on April 14: after several delays and uncertainties about the continuity of the program that guarantees revenue for manufacturers, the Ministry of Education carried out the tender for 7,470 school buses. In all, thirteen types of vehicles were tendered, with prices ranging from R$459,000 to just over R$1 million per unit, depending on the configuration.

VWCO will supply most of the buses, since it presented the best prices for 6,590 units, or 88.2% of the total tendered volume. Marcopolo/Volare will supply 620 units and Agrale another 260.

Portolan, Marcopolo’s director, reaffirms the importance of Caminho da Escola but without expecting additional momentum: “The program is essential to maintain the market level, not to expand it.”

Holding Pattern

In the foreign market, expectations are also for weakness among chassis and body manufacturers: “After a strong 2025, the trend is for exports to decline, although less intensely. It should not be a growth driver,” evaluates Priscila Spadine of PSR.

Given this set of factors, the consensus is that 2026 will be a transition year: “If we have lower interest rates and maintenance of public programs, the market may sustain itself at a higher level.” Otherwise, the sector should remain in a holding pattern, as Portolan summarizes: “The growth potential exists, but it depends directly on more affordable credit and more favorable financing conditions.” PSR

The Brazilian federal government reversed the decision to resume the application of taxes affecting school buses acquired under the Caminho da Escola program, administered by the Fundo Nacional de Desenvolvimento da Educação (FNDE). The discussion involved the potential reintroduction of tax charges impacting the cost structure of buses supplied through the public procurement framework, particularly related to federal and state taxation such as IPI and ICMS, as well as uncertainty regarding the treatment of PIS/Cofins.

The clarification of tax exemption conditions allowed the release of a new tender round that had been temporarily delayed due to pricing uncertainty. The Caminho da Escola program represents an important institutional demand channel for domestic bus manufacturers and body builders, particularly for configurations adapted to rural transport conditions. The expected procurement volumes support the renewal of school transportation fleets and help maintain baseline demand levels in a segment that has been affected by constrained financing conditions and slower private sector investment dynamics.

Source: AutoData     Read The Article

PSR Analysis: he release of a new tender round under the Caminho da Escola program reinforces the relevance of institutional procurement as a stabilizing demand mechanism for the Brazilian bus industry. In a context of weaker early-year market performance and still restrictive financing conditions, the program contributes to mitigating cyclical volatility by sustaining baseline production volumes. However, the timing of contract awards and production ramp-up suggests that a significant portion of the impact should materialize in 2027 rather than fully in 2026. From an industry perspective, the program improves short-term visibility for OEMs and bodybuilders while partially offsetting the slowdown in private fleet renewal, although its structural impact remains limited by fiscal constraints and dependence on public budget allocation cycles. PSR

Fabio Ferraresi is Director, Business Development, South America, at Power Systems Research

The investment reflects a strategy to expand the company’s manufacturing footprint in regions with strong demand for agricultural mechanization, particularly in medium-horsepower tractor categories.

Localization is expected to support supply chain development and facilitate access to financing mechanisms tied to local production requirements.

Source: Click Petróleo e Gás     Read The Article

PSR Analysis. The Indian manufacturer is positioning itself to compete in Brazil’s large and structurally important agricultural machinery market, recognizing that local production is a key requirement for competitiveness. Domestic manufacturing improves cost structure, enables access to subsidized financing programs linked to local content, and strengthens brand perception as a committed local player rather than an importer. Beyond pricing advantages, the strategy supports dealer network expansion and increases credibility among farmers, a critical factor in a market characterized by strong brand loyalty and long equipment replacement cycles. PSR

Fabio Ferraresi is Director, Business Development, South America, at Power Systems Research

Automakers and dealers indicate that a more significant recovery in vehicle demand will depend on a sustained downward trajectory in interest rates, improving affordability for both retail customers and fleet buyers. The current macroeconomic environment continues to constrain replacement cycles, particularly in higher-value segments such as heavy-duty vehicles and agricultural machinery, where financing plays a central role in purchase decisions.

Source: AutoData     Read The Article

PSR Analysis. The initial Selic reduction represents an important directional signal, but its isolated effect is insufficient to materially stimulate vehicle demand in the short term. The current environment suggests gradual recovery rather than an immediate rebound, with investment decisions remaining sensitive to credit availability and expectations regarding future rate trajectory. Sustained monetary easing will be required to support stronger fleet renewal dynamics and improve demand visibility across segments. It reinforces our forecast for the year on the on-road segments.  PSR

Fabio Ferraresi is Director, Business Development, South America, at Power Systems Research

The initiative aligns with Brazil’s strong biodiesel production base and leverages the country’s agricultural capacity as a potential pathway for transport decarbonization without requiring immediate large-scale electrification. The evaluation includes technical validation of fuel system components, combustion characteristics and operational reliability under commercial vehicle duty cycles.

Source: Automotive Business     Read The Article

PSR Analysis.B100 testing aligns with the agricultural sector’s push to expand domestic biodiesel consumption and supports energy security by reducing exposure to oil price volatility amid geopolitical tensions. OEMs appear to be revising their historically cautious stance toward biodiesel durability impacts, developing technical solutions to enable higher blend compatibility. However, biodiesel still faces cost competitiveness challenges relative to petroleum diesel, which may limit large-scale adoption without regulatory incentives or pricing parity mechanisms.   PSR

Fabio Ferraresi is Director, Business Development, South America, at Power Systems Research

Source: Autoesporte     Read The Article

PSR Analysis. GAC’s localization is in line with the structural shift in Brazil’s automotive market, with Chinese OEMs targeting the core profitability segments through aggressive pricing, high equipment levels and local CKD production. The company’s ambitious target of 50,000 vehicles per year signals intent to rapidly gain scale and directly pressure the traditional margin pool concentrated in compact and midsize SUVs. As ADAS, connectivity and electrification become baseline features, competition shifts toward cost efficiency and speed of portfolio adaptation. In a low-growth market, incumbents face simultaneous pressure on pricing and higher content requirements, reinforcing structural margin compression.   PSR

Fabio Ferraresi is Director, Business Development, South America, at Power Systems Research

Brazilian vehicle exports showed mixed performance in early 2026, increasing significantly to Mexico while declining sharply to Argentina. Growth in shipments to Mexico reflects stronger demand conditions and efforts by Brazilian OEMs to diversify export destinations, while the drop in Argentina is linked to weaker domestic demand, tighter import controls and foreign exchange constraints.

Overall exports remained supported by regional demand adjustments and production planning by automakers, with light vehicles representing the bulk of volumes. The shift indicates an ongoing reconfiguration of South American automotive trade flows amid macroeconomic instability across key markets.

Source: Automotive Business      Read The Article

PSR Analysis. Diversification supports volume stability but depends on sustained competitiveness against Mexican domestic production and global platforms. Short term performance will remain sensitive to Argentina’s macroeconomic normalization and trade policy conditions. The trend suggests continued adjustments in production allocation, logistics planning and market positioning across the Mercosur automotive value chain.  PSR

Fabio Ferraresi is Director, Business Development, South America, for Power Systems Research

OEMs adjusted output in response to lower order intake, particularly in the heavy duty segment. The result highlights ongoing volatility in Brazil’s commercial vehicle cycle and limited short term impact of policy support measures on production levels.

Source: AutoData      Read The Article

PSR Analysis. The contraction indicates that structural demand drivers such as freight activity and credit conditions remain more decisive than industrial policy incentives in the short term. Market recovery will depend on cargo volume growth, financing availability and operator confidence. The sector remains in a cyclical adjustment phase, with production planning closely tied to order backlog dynamics. Medium term effects of Mover Brazil will likely materialize gradually through efficiency gains and fleet modernization rather than immediate volume expansion.  PSR

Fabio Ferraresi is Director, Business Development, South America, for Power Systems Research

The vehicle is expected to be produced locally and positioned in the compact SUV segment, supporting Volkswagen’s regional electrification roadmap. The launch reinforces the company’s focus on hybridization technologies adapted to Brazilian market conditions and regulatory trends.

Source: Automotive Business     Read The Article

PSR Analysis. The Tukan signals Volkswagen’s strategic alignment with Brazil’s ethanol ecosystem by prioritizing flex hybrid solutions over full BEV adoption in the near term. This pathway offers lower infrastructure risk and faster market scalability but depends on cost competitiveness and consumer acceptance. The project reflects an expansion stage within the brand’s regional electrification strategy, with potential spillovers across Mercosur supply chains. Market impact will depend on pricing strategy, local content levels and policy incentives for hybrid technologies.  PSR

The initiative includes automation systems across assembly processes and aims to strengthen the company’s local manufacturing footprint in response to demand in the construction sector. The move supports domestic supply capability and aligns with broader industry trends toward digitalization and advanced manufacturing in heavy equipment production.

Source: Revista MT     Read The Article

PSR Analysis. The investment in automation reflects the Chinese-German company’s belief in South America Construction Equipment, as it gains productivity and brings cost optimization. Benefits include improved scalability and quality control, though returns depend on sustained construction activity and fleet renewal cycles.

The project is in an expansion stage, with competitiveness linked to localization levels and supply chain resilience. With the investment, capacity should reach 480 units per year.  PSR

Exported from Brazil, Mercedes-Benz Axor Debuts in Argentina
Mercedes-Benz has introduced the Axor heavy duty truck in Argentina, supplied from its Brazilian manufacturing base. The model targets long haul and regional freight applications and expands the brand’s portfolio in the Argentine market, leveraging Mercosur trade integration.

The launch occurs amid a challenging macroeconomic environment in Argentina, with demand shaped by currency volatility and restricted financing conditions. The Axor strengthens Mercedes-Benz’s regional product strategy by aligning Brazilian production with export demand across South America.

Source: Automotive Business    Read The Article

PSR Analysis. The Axor launch highlights continued reliance on Brazil as a regional manufacturing hub for heavy duty trucks within Mercosur. Market penetration will depend on Argentina’s macro stabilization and freight sector recovery, while currency risks remain a structural constraint. The move supports capacity utilization in Brazil and reinforces cross border supply chain integration. Competitive pressure will center on pricing, financing availability and operating cost efficiency in a constrained transportation market.   PSR