The Brazilian auto industry has been on edge for a week and a half, as the Economic Ministry announced that the mandate for airbags and ABS on all Brazilian cars in 2014 was “under review”. Citing worries over inflation (as car prices make up an infinitesimal part of that complex calculation) and the fact that auto sales were down, the Economic Ministry said that the 2014 adoption of the aforementioned equipment might not be in Brazil’s best interest.
According to industry sources, the government expressed worries that the measure would increase vehicle prices anywhere between 1,000 and 1,500 reais per car. In turn, the OEMs put pressure on their suppliers to lower costs, so that the OEMs could maintain a healthy profit margin while keeping the price increase to around 500 reais, allowing them to adopt a posture that showed them as both safety oriented and caring about the consumer.
Although the safety mandate passed, an exemption was granted for the VW Kombi, which will remain in production.The Kombi is still made by hand in Brazil, and our sources tell us that they are among the highest paid auto workers in Brazil, and highly protected by the auto worker unions. In addition, the Komni’s precarious existence means VW is reluctant to train anyone to build the Kombi – they just keep the old timers around instead.
As late as a month ago, it appeared that the Kombi was finally set to die, and VW launched a final edition that cost 85,000 reais (roughly, $37,000), a sum VW happily pocketed. Now, with this announcement, VW can keep on making the Kombi, at estimated profit margins of around 80 percent.
The end result is more profit for the OEMs, and good PR for both the unions and the government. On the other hand, Brazilian consumers get the raw end of the deal.