Brazil detailed their new five-year national auto policy, which is meant to spur investment in new auto factories, locally sourced parts content and reduced vehicle prices.
Bloomberg sheds some light on some of the measures are part of Brazilian President Dilma Rousseff’s plan to help spur growth via the auto industry. The IPI tax, one of Brazil’s main sales taxes, has been reduced for automobiles. Regulations that previously constricted consumer lending has been relaxed, allowing car loans to be acquired more easily. Automakers also get tax breaks in exchange for preventing layoffs at their local plants.
Traditionally, VW, Fiat, Ford and GM have ruled the market with a combined share of 85 percent. But in just two years, their share is expected to drop by 14 percent as new players from Japan, South Korea, China and India enter the market. Part of Rousseff’s plan is to spur more local factories, and true to her former Marxist roots, she’s employed protectionist measures to get them. Tarrifs on imported cars have risen from 25 to 55 percent since she came to power in 2010. The increased tarriffs appear to have paid off; according to a report by Forbes
GM, Ford, VW, Fiat, Toyota, Hyundai, Nissan, Honda, Renault, Peugeot and Chery are among the companies adding or expanding factories at breakneck speed, with plans to invest some $25 billion in Brazil by 2016, adding 1.5 million units a year of production capacity.
Rousseff also imposed quotas on Mexican-built vehicles (which are subject to a free trade agreement), throwing a wrench into Mazda’s plan to crack into the Brazilian market via their new Mexican plant. Instead, Mazda is now entering into a local production deal to build cars somewhere outside Sao Paulo.
Brazil’s size and importance in the automotive world allows them to get away with protectionist policies like Rousseff’s combination of tarriffs and quotas. The Canadian Auto Workers union, which wants a similar policy for Canada, may have a tougher time given that their market is 8 times smaller.