By on December 19, 2013

Brazilian_Kombi_pair

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.

 

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21 Comments on “Brazil Imposes New Safety Standards As Consumers Fork Out More, While VW Gets A Pass...”


  • avatar

    VW always gets a pass when this kind of thing happens. Back in the early 90s, when the government lowered taxes and created the 1.0 L engine class with special tax treatment, VW didn’t have anything ready. Instead the resuscitated the Fusca (Beetle) and let that fall into the special tax bracket even though its old, polluting engine was 1.5. The car had been dead for 2 yrs at that point in time, but VW brought it back to life, pocketed the tax incentives and sold the car to older people who grew up on the thing for a higher price than any of the other cars in the special bracket. Being a young 20 yr old at the time, my friends and I didn’t want to touch that thing.

    I wonder why VW always gets this special treatment? Or rather I don’t, but I don’t think I even have to spell it out.

  • avatar
    tedward

    “On the other hand, Brazilian consumers get the raw end of the deal.”

    OR…On the other hand, Brazilian consumers get to keep buying a vehicle which is clearly in demand despite paternal government regulations. I’m the furthest thing from a free market fanatic, but this is an improvement over our system in my book. Look mom, flexibility!

  • avatar
    jacob_coulter

    I don’t like the hypocrisy of how this deal came about, one interest group getting special treatment in order to buy votes from the ruling government. (sound familiar)?

    But I definitely don’t think the fact these “old-school” buses are being made available new are putting Brazilians in danger. With that reasoning, should the government start rounding up older vehicles and crushing them in the name of safety? If the government is going to allow someone to ride a motorcycle, can you really forbid them from driving a vehicle like this? I think people know what they’re getting into here.

    Where the Brazilian consumer got shafted is this deal just reinforces the notion that in order to run a business, you have to be an established company that has payed off the right bureaucrats. That really destroys the entrepreneurial, start-up spirit that leads to more jobs.

    • 0 avatar

      All cars were, are legal at the time of sale. So no one should run out and crush old cars in the name of safety. The question here is that of 2014, Brazilian society had reached an agreement that no new cars would be allowed to be sold without 2 airbags and abs. That was the new standard and everyone should have just bowed to that standard as the policy had been a gradual one that year by year raised the percentage of cars that had to be sold with this equipment. This year it was 60%, last year 40 and so on for five years back.

      So no one was caught with their pants down and had ample time to make the necessary adjustments. Fact is, all cars could come so equipped, manufacturers would not need raise a cent as their margins here would allow them to absorb the extra cost quite easily. As all cars in Brazil come from at least the 90s, there were just two cars that would have trouble adjusting: the VW Kombi and the old Fiat Uno Mille. One survives since the 50s, the other has been around since the 80s. Both cars would need major retro-engineering to make up a place to put said equipment as their original projects didn’t call for them. It’s a known fact that both Fiat and VW studied and studied the situation and, apparently, Fiat found a solution and VW couldn’t. Or rather could but it would cost much money and VW, squeezing every last drop of juice out of this tired car, didn’t want that.

      So, somehow VW got exempt. Again. Not even considering the safety aspect, it’s the posturing that smacks. A company that thinks it’s above the law, and the people who organized to get it through, and the democratic process that pushed it through, and the public hearings etc., etc., etc. It’s a slap in the face of a society that buys VW, is the company’s third largest market. To add to the injury, there’s the special cruelty of the overpriced Last Edition bus (some buyers are already suing VW to get their money back). Of course, there’s also the government or part of it, that allows itself to be influenced in this way, disrespecting the wishes of society.

      It’s hard to tell who’s to blame. Due to our history, I wouldn’t call you crazy if you pointed your finger at the company. If this however was something imagined by the bureaucrats to “fight” inflation, everybody should apologize to VW. It’s not what most think though;

      • 0 avatar
        jacob_coulter

        And Brazilian car safety standards are also far below that of the US. Are they also being cheated on this front as well? I’m sure manufacturers would push back on that as well.

        I understand the point being made, and there’s no doubt the way this deal was structured was corrupt. My point is that I think the Brazilian population is hurt far more by the unholy alliance between all of these big interest groups than a small volume, antique car design still being made available.

        When you start protecting people even when they don’t want to be protected, it starts to become a slippery slope. A customer that wants this design should be allowed to purchase it, they know the risk. For a government to say you can’t buy a VW microbus because it doesn’t have airbags but you can buy a motorcycle that could kill you in a minor fender bender, it becomes absurd.

        I’m not a complete anarchist, but I prefer the pendulum closer to the “liberty” side than the “safety” side. Just like here in the US, there’s all sort of exceptions for small volume, kit car builders. I don’t feel cheated in the least that someone can buy a “new” AC Cobra.

      • 0 avatar
        ZekeToronto

        Those who bought “Final Editions” ought to be compensated, as should Fiat (and any other maker) who invested the money to become compliant without receiving a waiver. The government could have withdrawn the law, or delayed its implementation, but the worst choice of all is the one they made.

        • 0 avatar

          Hey Zeke, the worst was the Minister trying to rationalize it and hearing getting all caught up in his own comments and lack of logic. He first started to rationalize saying the Kombi, “is not a car, it’s not a truck”. Reporters pressed him and he went as far as to say that “it is not a vehicle”. What is it? A flying saucer?

          The way this played out, with at the beginning of last week him saying that they’d delay the law, then the public outcry, seeing him backpedal, proposing 80% of the cars and not 100%, caving to pressure, calling the meeting yesterday after which they broke this news…

          To me it just seems that it was a circus, a game of marked cards, a whole lot of smoke to give VW a waiver. Believe me that hurts.

          I hope to read about the Last Edition buyers lawsuits. Should be embarrassing for VW.

      • 0 avatar
        th009

        Realistically, adding ABS and two airbags to the Kombi wouldn’t make it all that much safer — the 1947 design has simply lived on beyond its best-before date. The venerable Type 2 is simply obsolete.

        Assuming legislation permits, I expect that VW will keep building these until the T6 Transporter is ready, probably sometime in 2015. At that point they should be starting production either in Brazil or Mexico.

        • 0 avatar

          Hey th009! Realistically I agree with you. I also think that VW should strive to build something simpler to the Transporter as VW has made noises that if that van were built here it would sell at double what the Kombi goes for. From time to time, VW has studied the viability of that van and has always come up with a negative answer. And so the Kombi survived.

          I also know that VW will make the “right” business decision and milk the Kombi for all its worth for as long as it can. Thinking out of the box though, and given the very negative reaction here of this news, VW could pull a masterful PR stunt and announce the end of production. It would generate much goodwill. The Kombi nowadays only appeals to very small businesses. Larger companies, with a good public image to keep, mostly avoid the Kombi.

  • avatar
    Synchromesh

    Is the market so awful that for $37K there is no better alternative than this relic of 50 year old technology?

    • 0 avatar

      There are. There’s the Fiat Fiorino, a van based on the Uno, and the Doblo Cargo. The Fiorino is cheaper than the Kombi but smaller, and the Doblo is bigger and more expensive. Neither will seat more than 2, nor will they be as cheap to maintain. The Kombi can be maintained with spit and, a-hem, alternative market parts. So if you want to carry more than 2 people and cargo, Kombi it is. I believe the Fiorino outsells the Kombi, but I could be wrong.

      Oh, there were also some cheap Chinese vans. They started taking the market from the Fiorino and Kombi, so much so that VW started talking about the end of the Kombi. The Fiorino seemed to have held its own. But then, those Chinese vans started needing maintenance, frequently, business owners started to unload them fast. Business people gave them a chance, then killed them. Then the government raised taxes on imports rendering Chinese vans a mute point.

      Guess people who buy the Kombi are sort of like the people who insist on buying the Ford and GM vans in the US. No doubt they have a positive thing or two though its probably undeniable that in terms of car, the Euro vans are better.

      BTW, I believe the first Kombi rolled off a Brazilian assembly line in 57. So its closer to 60 yr tech now.

  • avatar
    Hummer

    Seems pointless to push this regulation.

    Obviously if its still being made then people are still buying it, despite the lack of safety equipment.
    Obviously anyone who buys it is aware if its shortcoming, if they worried about safety then they have other choices.

    To demean this vehicle because of what it lacks, you may as well argue that the model T is dangerous because you can get a splinter from it.

    • 0 avatar

      Sorry, Hummer, I respectfully disagree. When people act like bovines, the government sometimes must wear a cowboy hat and prod them along. Don’t fool yourself though, the day that cars without airbags were unacceptable was drawing close. The government, or at least part of it, when they started this plan 5 yrs ago, were reacting to this popular demand as makers couldn’t be bothered. SOmetimes it is the governments job to intervene in society.

      • 0 avatar
        deanst

        To be logically consistent, you will also have to ban existing cars without these features at some point. Perhaps all cars without these features should be baned from the roads once they reach 15 years?

        • 0 avatar

          Some think like that and some even act like that (though the safety angle is just an excuse as most are more worried with the money side). For example, in Japan, the yearly tax increases as the car ages. A huge incentive to get rid of older cars.

          In Brazil, all cars had to be retrofitted with 3 point seatbelts. In some parts of Europe, cars older than a certain age can’t enter certain urban areas.

          Nah, no ones advocating that (for now). What we’re talking about here is an old tech, that can be had cheaply. Makers now sell this to consumers at anything between 1000 and 1500 reais on cheaper cars. The market is almost 4 million. 60% of them already come with this tech. Next year the other 40% must use the equipment. The price can only fall. Hopefully, the increased competition coming from a market that was stagnant this year, would be makers would be hard pressed to pass on the full cost (and attendant mark-up).

          These are games people are playing. The cheaper cars will now have this. Only the Kombi will not. Small numbers yes, but I think the story here is the hypocrisy of the whole charade.

          The safety of Brazilian cars improved despite the best efforts of some. The cost on an individual level is relatively small. On a society wide basis it’s probably even smaller. The cost will probably be off set by saved hospital bills, more productive and longer lives. I find it very difficult to see too much trouble here.

          Now if such a plan as you imagine does indeed come to pass, be sure I’ll protest as best I can.

      • 0 avatar
        Hummer

        Why do they need to e prodded along?
        The only person who hurts is the person who makes the decision, automakers offered a better option but the buyers of the kombi simply did not care about airbags.

        Why should these people be required to buy what they don’t want?

        I’m guessing at least 75% of your vehicles have airbags? Is that not sufficient enough choice?

        Up until 2006 I could buy a passenger vehicle in America that didnt have any airbags nor designated crumple zones.
        Why is it that it died in 2006? Emissions regulation, not safety concerns.

        To pretend that this regulation is needed is rediculous, people should be responsible for themselves, if not tough luck.
        At over $37k for a 60 year design, the Brazilian government should be more concerned with taxes, regulation, tariffs and the economy.

        • 0 avatar

          “At over $37k for a 60 year design, the Brazilian government should be more concerned with taxes, regulation, tariffs and the economy.”

          Oh, I’m with you totally there! But it’s much simpler to make people bear the extra cost. It also provides good headlines. And a vote or two.

          Now, people must be prodded along because in this case, it’s a small thing, with a by now small cost. Like I said in the answer above, on a whole, the whole cost will probably even be eliminated due to hospital saving, more productive lives etc. Those guys that would’ve been killed in an accident, might be save, and with the better protection, will probably stay in the hospital for a shorter time and at less cost. Remember, most people in BRazil are dependent on government health care, and everybody pays for that.

          There’s also a measure of “social justice”. Many of the people driving these Kombis around are not people in their own business, making their own decisions, but rather employees for whom many employers have no respect.

          • 0 avatar
            Hummer

            You have a good point with the employers using these.
            It irks me however to focus on something that only hurts the economy, when the economy as a whole is hurting.
            And good lord there’s enough of it to go around.

          • 0 avatar

            Agreed and agreed again, Hummer. The pain here is only starting. Hopefully you guys will improve faster and “carry” us along. Keeping my fingers crossed.


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