By on October 5, 2011

Whenever our man in Brazil, Marcello DeVasconcellos reports on new model introductions in his home country, TTAC’s American audience is consistently blown away by the prices commanded by new cars there. Once, when asked why a new VW Amarok costs the equivalent of about $66,000 US dollars in Brazil, Marcello replied

Besides the very high taxes, there are the very, very healthy margins car makers practice down here.

Perhaps too healthy.

Dow Jones [via Fox Business] reports

Brazilian federal prosecutors said Tuesday they will ask the Finance Ministry to examine whether car makers in the country have been charging exorbitant prices.

There have been claims that high prices in Brazil are the result of “abusive profit” by automakers installed in the country, the federal prosecutor’s office said on its website. The prosecutors will also examine whether legislation such as the so-called Ferrari law–enacted in 1979 and named after auto dealer association president Renato Ferrari–which restricts competition among car dealerships, may also contribute to the high prices.

In retrospect, it’s almost amazing that it took this long for Brazil to look into this issue. After all, a MERCOSUR-built Amarok cost around $66,000 in Brazil, but only about $34,000 in nearby Chile (and many more examples exist). Clearly something fishy has been afoot, and needless to say, we’ll be asking Marcello to follow this investigation and report back on the results.

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25 Comments on “Brazil Investigating High Car Prices...”


  • avatar
    wsn

    If the government believes that the price is too high, why doesn’t it offer similar and better cars at lower price and make money?

  • avatar
    Robert.Walter

    In such a situation, the question should be asked whether there is collusion in terms of price-fixing going on as well.

    • 0 avatar
      wsn

      Price fixing can only be done if:
      1) The government is doing it.
      2) There is a high infrastructure hurdle (i.e. Big oil, gas station), that competition won’t enter easily.

      In the case of selling cars, I don’t see why cars have to cost so much. If it has to be $66k for a Amarok (what’s that?), why not just fly to Germany and import your own Bimmer 535 back? The only block could be a very high tariff, which points the root cause back to the government itself.

      • 0 avatar
        mopar4wd

        That’s not completely true there are gentleman agreements to be made in back rooms that no one has to know about. It’s happened a number of times even here in the US. Here is a story from Germany

        http://www.internationallawoffice.com/newsletters/detail.aspx?g=2874825f-706e-4509-b81c-a922606e82f8

        I used to sell to the fire industry here in the states and heard rumors of this happening here thru the mid nineties. The fire dept would always specify something in the trucks that would limit the town bids to two to three suppliers these suppliers often had agreements to overbid on certain towns thereby giving one dealer that sale guaranteeing they all maintained there margins.

      • 0 avatar
        wsn

        “The fire dept would always specify something in the trucks that would limit the town bids to two to three suppliers”

        mopar4wd, you have just proved me correct. This is clearly “1) The government is doing it.”

  • avatar
    MrWhopee

    It’s amazing then, that even with such high prices, Brazilian car market is as healthy as it is.

  • avatar
    e30driver

    I was in Singapore a few weeks ago where the newspaper was advertising new base model Jettas (with 1.4 liter engine) for SGD$109,000. That’s almost US$84,000. And I believe that is before taxes, which I am told amount to over US$40,000 per YEAR for tags.

    • 0 avatar
      MrWhopee

      Well, Singapore you can understand. It’s a small, but very rich country. Meaning if car prices were normal, there will be a lot of people who can afford cars. Damn near every one in the country. There isn’t space for roads, though, even if they can afford to build them. So car prices has to be made artificially high to curb demand. Plus their public transportation is excellent anyway, if the money is used to maintain that, it’s good policy.

      Of Brazil, though, why do citizens there tolerate the high taxes? From what I heard government there does not really take care of the people the way advanced European socialist country were (which would justify high taxes) so they’re paying a lot and get back little.

      • 0 avatar
        LeoAndrade

        I just don’t know why. Everyday we Brazilians are robbed by corrupt government. Yellow press defends the government just as a fan defends his rock band.

        Some intelectuals treat Brazilian society just as Marx done in 19th century. For this intellectuals we have an dominant elitist class opposed to a poor and opressed class. White rich southern colonials against coloured poor northern slaves. The truth is the politicians and lobbyist are the opressors (as they are the lawmakers) and the free tax payer citizen are opressed (as justice is so slow and literally blind).

        Brazilian yellow press is very sympathetic to that “class struggle” idea. Furthermore the Government is the major advertiser, spending about 1 billion dollars per year in propaganda and advertising (or “propaganda disguised as advertising”).

        The media has the free speech right, but the ownship is regulated by government, so the government being the major advertiser, that speech is not actually “free”.

        I think this may explain why people tolerate all this taxes and corruption. Brazil has more public servants than Mexico, USA and Canada summed all together. They go on strike every year (just like those ones who f*** up british leyland).
        This is so ridiculous that brazilian youth dream of being a public servant!

        Meanwhile, the private investors, the enterpreneurs are punished with heavy taxes for create jobs, producing and push the country forward.

        It’s ridiculous and revolting. We the ones who does’t agree feel forceless against all of this. Better be a workman in Portugal than stay in Brazil waiting for a future in a broken middle class.

    • 0 avatar
      wallstreet

      You forget to mention potential SIngaporean vehicle owner has to own the Certificate of Entitlement (COE) prior to visiting dealership. In another word, a Singaporean car shopper will have to folk over crazy amount of money to bid for a COE just so he or she can purchase a vehicle. Currently, the COE runs about $50k SGD and subject to 549 quota limit in October for engine displacement less than 1.6L.

      The Government controlled quota fluctuate monthly. They will always ensure there are more bids received than quota.

    • 0 avatar
      wsn

      e30driver: “That’s almost US$84,000. And I believe that is before taxes, which I am told amount to over US$40,000 per YEAR for tags.”

      That’s probably before “sales tax”, but definitely not before “tariff tax”.

  • avatar
    LeoAndrade

    Must be said that the Brazilian taxes are ridiculously high. Tag price is taxed in 40%. Raw material is taxed in 40%. Tires are taxed in 40%. Fuel is taxed in more than 50%.

    Brazilian auto journalists don’t know a damn thing about production costs, about business administration. They don’t even consider that even R&D costs are influenced by that 40% taxes.

    Brazilian cars are expensive because the Brazilian State spend lots of money in corruption, in rubbish ministries such “ministry for racial equality”. A young brazilian federal judge in his first year as fed. judge receive the same annual salary as the Attorney General Eric Holder. It’s embarassing. There are more government employees in Brazil that in the all North America. Who pays this?

    Brazilian tax payers are stolen by government. The expensive and corrupt Brazilian State. Privates have the right to gain what the market is willing to pay.

  • avatar
    Dimwit

    Yep. We have something of the same problem up here where the *same* car, not just similar but damn near identical will cost thousands more. Adding insult to injury, some of the models are even made here.

    The biggest culprits are the germans as usual with Porsche being particularily egregious. But even the so called domestics have their problems. One way they avoid too much backlash is adding some option as a standard feature to try and fake out the identical aspect of any model. Ford did that with the Raptor and added $10K to the base price.

    • 0 avatar
      Robert.Walter

      Assume “up-here” means Canada.(?) I’m curious, what was the 10,000 USD on-cost feature added to the Raptor in your market’

    • 0 avatar
      wsn

      I live in Canada too. You always have the option of going to the US or Germany to import your own car and pay very little tariff. That limits your price disadvantage to roughly $3000 at most.

      I would describe the Canadian pricing to be “sticky” rather than “gouging”. It’s flucuating violently with the currency. So car vendors tend not to adjust to the lastest currency change too quickly. Witness the past month, the Canadian dollar dropped 10% to the USD, should all car dealers increase prices by 10%?

      • 0 avatar
        mikey

        @ wsn….For once, I have to agree with you. You have to research American price, vs Canadian and then calculate all of your tariff costs.

        If your buying high end new Euro, it’s worth it.

        I looked real close at bringing a Mustang convertible up. New and, used. For new, with Candian at par, maybe $1200 in savings. With the all the logostics involved, I took a pass.

        As far as used goes, I did better here.

      • 0 avatar
        psarhjinian

        I would describe the Canadian pricing to be “sticky” rather than “gouging”.

        Did you ever look at the Honda S2000 or Nissan 350Z? That’s gouging.

        Canadian wings of the OEMs are quick to raise prices and F+PDI when the Loonie goes down, but don’t touch it when we’re well above par until people are baying for blood.

  • avatar
    Enrico.Penchiari

    The point is..

    The high taxes to produce aren’t the only guilt, here the automakers make money like no other place in the world!

    But why? For a long time had only 4 automakers in Brazil we call they “the biggest four”
    GM,Ford,Volks and FIAT.

    Now imagine only 4 automakers in a country very big with a great future potential. There was no competition, there was was a gentleman’s agreement!! So for a long time they put the price they want for any crap!!

    Only in the 90′ Honda, Toyota and others came offering modern cars but costing a lot too!
    Because it was a new thing that we Brazilians were not used to drive.

    I’m finishing I swear…

    Now, nowadays what’s happening is.. The imported Hyundai, Kia and the Chinese came with very low prices!! These two Coreans now are consolidated on our market so they started to sell for high prices to (are you understanding how things work here now?)But the imported chinese cars are the bigger problem for “The biggest 4″ because the cars still chep and selling a lot!

    • 0 avatar
      LeoAndrade

      They only make money because brazilian buyers are stupid. They think a car lasts only 80.000 km. They want the “NEW” so badly and accept paying more for less.

      I own a second-hand Mercedes A Class, a car wich costs about 12k and is way much better, technologically advanced and safer than that stupid Honda Jazz/Fit wich costs 30k! Why people accept to pay 30k in a car without ABS? Without ESP?

      Because they are concerned in showing off. In telling everybody that their car is brand new, and show off their status quo. It’s ridiculous. We spend more in cars than spend in study. In research and development. In culture.

      That is why cars are so expensive.

      Government must spend less and spend better. That 37 ministries are a huge bullshit. Not even the president knows all the 37 ministries. Is that really necessary? 37 ministries and all these strikes? All this corruption? Public health is broken, public schools are broken. Brazil have 17.000 public schools without BATHROOMS! Why we have to have 37 ministries?

      Entryism! What brazilian govt does is entryism. Since Getulio Vargas, Juscelino, Sarney, Collor, FHC, Lula and Dilma. All of them.

  • avatar
    Magnusmaster

    Nice to see Brazil is finally investigating high car prices. I wish this would happen in Argentina. Although we have lower prices than Brazil, considering the low quality of cars and the lack of most safety features, prices should be much lower here as well. Nevertheless, I think the priority should be forcing car manufacturers to make safer cars. The existing regulations, which will be effective on January 1st, 2014, do not take into account how well the car’s structure performs during a crash. You can’t make a Kombi safer by just tacking on airbags to it.

  • avatar
    carbiz

    Whilst stuck in Guarulhos Airport in Sao Paulo this February in a horrific rainstorm that closed the airport for 4 hours (yay), I had plenty of time to wander around. What did my bloodshot eyes see? A brand new Camaro SS. Fortunately, my other half was with me while I attempted my (awful) Portuguese to ask the long-legged lady about the vehicle. Surprisingly, she knew her stuff, but I nearly fainted when she told me the price: $R120,000. Yikes. Wow. I knew their import duties were stiff, but that was insane. That works out to be about $69,000, horrid even by Canadian standards! Still, I did see 2 of them in Camboriu a few days later. Some status symbol!
    I’ll venture another reason prices are higher in Brazil. I stopped in at a Chevrolet dealer in SP on a trip there in 2005 and had a chat with the salesperson. He was very amiable and spoke better English than I did Portuguese. While snickering at the Chevrolet Omega (Catera here, LOL) they had in the show room, I asked him why there were no prices or stickers on the windshield. He went to a binder and started flipping through it. Holy, 1970s, I thought, what a bonanza for the sales staff! Make up prices on the fly! He tried very hard to spin it, but I laughed and told him that I was in the biz and he was preaching to the choir.
    Despite all that, traffic is awful everywhere, and even in the smaller cities like Jaoa Passoa, shiny new cars are everywhere. Someone is buying them!

    • 0 avatar
      Enrico.Penchiari

      A Chevy Caramo SS costs in Brazil R$185.000,00 and thats is about D$90.000,00!! It’s a shame!

      • 0 avatar
        LeoAndrade

        Shame is the 35% import fee over price tag. Plus the 27% of IPI (tax over industrial product – para os americanos entenderem). Plus ICMS, plus factory profit, dealership profit and dealer profit.

        Then we have the IPVA, wich is an annual tax for OWN a car and it is not destinated to infrastucture maintenance.

        This is a shame.

        Why import fee? Why not spend less and reduce taxes to move economy up? Because of the entryism. The “party friends”.

  • avatar
    vww12

    Brazilians in general think that their incredibly high taxes and horrible regulations guarantee “order e progresso.”

    What these guarantee is that unemployment and poverty will be forever high, whereas politicians will forever be rich.

    • 0 avatar
      carbiz

      Really? Have you seen how big the underground economy in Brazil is? The only thing they can control is their borders. Once a product is in the country, it can disappear and they have no control over it. The markets in SP are joke. The police make token raids, but the vendors of illegal DVDs, T=shirts, whatever know when they`re coming.
      Brazil`s import duties have guaranteed they become a manufacturing powerhouse. SP is the Detroit of South America. Canada had to do the same thing with the AutoPact.
      The emerging markets have two fatal flaws: lack of respect for the rule of law and a burgeoning underground economy. It takes a lot of money to build new highways, hospitals or schools, until people begin paying their fair share, those countries will continue to be also-rans.


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