By on January 8, 2011

In the 80s, there were just 4 car brands in Brazil, all domesticated animals, carrying familiar names such as Volkswagen, Fiat, Chevrolet, and Ford.  The luxury car at that time, for which we had the privilege of paying over US$50,000, was the (modernized, but nonetheless a 1960s Opel Rekord) Chevy Opala. Then, the 90s came along and bang, the market was blown wide open.

Three things happened: The so-called “domestic” makers were forced to modernize and sell here the same cars they did abroad. Before, they just had shipped outdated and slightly banged-up tooling. The so-called “newcomers” (mainly the French and the Japanese) set up shop, and imports exploded. So despite the best efforts of the domestic industry to ward off the foreign hordes, they had to cower behind the Brazilian government and convinced them for some deliverance. This came in the form of a 35 percent trade barrier on all imported cars.

Over time, market forces and unintended consequences of official trade policy have all been slowly, but surely, chipping away at the effectiveness of that 35 percent hurdle. Mercosur came into being, making cars imported from Argentina officially national cars, i.e., they receive the same tax treatment of Brazilian cars. A free trade agreement (in cars) was signed with Mexico. This provides that cars imported from there don’t have to pay 35 percent import tax. Lastly, but most importantly, the value of the dollar has been eroding. From those heady days when Brazil slew the hyperinflation dragon (largely based on a policy of parity between dollar and real), to the dark days before Lula became president (and the dollar went over R$4=US$1), to the present when the dollar was down at the beginning of the week to just R$1.60. All of this renders the 35 percent hurdle a small bump for Brazilians who dream of driving foreign metal.

According to the Brazilian news site, the general market grew around 10 or 11 percent (take your pick, see here). At the same time, whoa: Imported cars more than doubled in 2010.

According to Abeiva (the Brazilian association of car importing makers), their numbers exploded by 144 percent. In 2010, imported cars reached a grand total of 118,873. Great, right? Coincidence or not, that number is very close to the one reached in 1995 (119,543 cars), the best ever for imports. That number caused the Brazilian government to slap the import industry with the punishing 35 percent import tariff. Will history repeat itself?

Luiz Gandini, the president of Abeiva, defensively (?) declared to the g1 news portal that this number is not a threat to Brazilian industry. “Although we almost reached that same mark [in absolute numbers], in 1995 the market was just 1.7 million units”, he said. “Now, the market is 3.3 million, so our share has dropped.” Mr. Gandini emphasized, “We are not a threat.”

To back this up, Abeiva provided the following numbers: 80 percent of the cars sold in Brazil in 2010 were built here. 16.5 percent were imported and sold by the “domestic” makers. So only 3.5 percent of the total of cars sold here was sold by Abeiva members (those who don’t build anything locally). See? We are harmless!

Anfavea (the association of car makers that  produce in Brazil) said they are not yet “frightened” by imports (according to, but they emphasized that imports have grown from 13.3 percent of sales two years ago to 18.8 percent in 2010. They also said that this is beginning to affect the profitability of the “locals”.

Forecasts also guarantee that imports will remain in the news (and in Brasilia’s sight). While the forecast for the general market is a growth of only 5 percent (according Anfavea’s President Cledorvino Belini’s declaration to Brazilian website UOL), imports will probably rise by 57 percent in 2011.

Though there is some evidence to the contrary, Brazil largely remains a Catholic country. This means, of course, that guilt is very big here. In a way. Akin to the American “sin taxes” on alcohol and cigarettes, conspicuous consumption is a behavior that is politically expedient to slap high taxes on. Fairly or not, imported cars smack of conspicuous consumption to the average Brazilian. If I were a member of Abeiva, I’d surely keep that in mind.

Coincidentally or not, I talked to some bigwigs in the Brazilian car industry last week. Their biggest complaint? Imports. Steel. Mexico agreement. Weirdly, my source had some thoughts very similar to the conclusions I reached after visiting the São Paulo car show. He said that the biggest attractions there were the Koreans and Chinese because the Brazilians just can’t compete.

And what are the locals doing about it? They are in talks with the government. Again.  And they are very happy to report that the new government seems more sympathetic (read tax breaks or tariffs to protect the “national” industry so that it has time to become more competitive on a world stage)to the national industry’s plight. Hummm. At the same time, some of the more lucid minds in the industry wonder just how long can Brazil keep up the 35 percent barrier. After all, this country belongs to the WTO.

Taxes are a stifling reality in Brazil. And not only for the car biz. However, the government just can’t seem to get enough. It clouds their judgment. Though it’s become quite clear, everyone in Brazil needs some relief; the government just can’t seem to control itself.

If nothing is done however, this number of imported cars shows a clear sign of weakness in the Brazilian car industry. In another report at news site, they mention how exports are down. They also say they’ll go down even more in 2011. If the government just slaps a higher import tariff, we will go back to the bad old days of the 50s, 60s, 70s and 80s when time stopped in the Brazilian carscape. If however something is not done, there is a very real risk of deindustrialization.

The challenge is set. Can Brazil rise to the occasion?

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14 Comments on “Brazilians Heart Imports. For How Long?...”

  • avatar

    Oi Marcelo. Feliz Ano novo (google language tools FTW)
    I’ll hijack your thread for a while, I arrived yesterday from a trip to Margarita Island, and saw a LOT of Brazilians on the road. Mostly from Manaos and a few from Boa Vista. I snapped some pics.
    I was curious about the Civics, because they seem to have a filler door in the front right fender.
    The Opala is reminiscent of a 70’s Holden Kingswood, the 2 dr looks like the first Monaro. One friend, who visited one of your OEMs in Brazil in the 80’s told me that having a Monza down there meant a person had money, while here it was a compact car. Luxurious cars here were the Sierra, Century, Conquistador (Grand Marquis), Grand Wagoneer, Samurai (Toyota LC FJ60 IIRC).
    Imports are still insignificant there. Here they reached about 56% in 2007, before the goverment placed new regulations, the $$$ party somehow ended (oil went down from 120 to 60)…
    You local manufacturers have to play with the market, bring fresh product (specially GM). Fiat has a good chance, the Palio that appears in the link you showed freakin rocks (made me want buy one Siena), the Uno is a hit.

    • 0 avatar

      Hola Stingray! Feliz año nuevo para ti también!

      Bueno, the small filler oor you saw on the Civic is exactly that. It is for the extra little tanks Brazilian flex fuel cars have to contend with. In the Civic this tank is hidden somewhere in the fender. In most Brazilian cars the owner must pop up the hood as the extra little tank is in the engine bay. It is necessary because when you fill up with E100 and the temperature is below 20 degrees C it can have trouble firing up.

      Yeah the Monza was a rich man’s car. Though apparently BRazilians were richer back then. It was always a midsize to big car. But back when it first came out it was the sales leader for a couple of years. In fact it was the last time any other car rather than the VW Gol finished in first in sales OTY (in the last 20 or so years only Fiat’s Tipo and then Palio were able to tqake away first place from the Gol for a cuple of months).

      Somehow, with our strong tradition of government interference in the economic realm (often at the behest of “private” companies), I doubt we will see it growing much above 5% before some action is taken. If imports (not counting those from Argentina, the trade agreement with Mexico could be revised soon) reach anywhere near 10% there will be an outcry. From the unions, newsparers and companies themselves warning of joblessness and other unpleasentries. If the gov keeps out, it will surprise me in a totally absolutely incredible way.

  • avatar

    Oy, that’s Adriano, former player of Inter Milan and the Brazilian national team, hugely talented and then suddenly, faded into mediocrity through reasons unknown (but attributed to mental issues). Always kind of sad yet somewhat intriguing to see how that happens.

    Last I heard he has for several years running now received a price for least valuable player in the Serie A, but it seems he’s still doing ok. Hope he doesn’t spend all his money on Ferrari before he finds out the money isn’t coming in as easily as it used to anymore.

    On topic; since I heard nothing to the contrary, I assume Lula is still in charge financing his socialist dream through cutting down the rain forrest and replacing it for ethanol fields. It’s kind of similar what our gubment here in the Netherlands has done in the 70s and 80s using our natural gas reserve in the Northsea. Instating levies on imports is kind of what socialist gubments like to do, sadly. In the end the WTO will do something about it but it will take years and years. All the while, domestic product quality will likely suffer due to lack of competition as you’ve pointed out here as well…Unfortunately there is not much anyone can do about except wait long enough for things to become so bad that a majority of the people gets fed up with the crappy products and demands change.

    • 0 avatar

      I wondered if anyone else would recognize Adriano.  He seems to be doing alright this season, but it has been a rough few years for the big Brazilian.

    • 0 avatar

      As to Adriano, I’m not sure, but I think he was in the running for the title of worst foreign player in the Italian Series A. He and his agent have been making some noises about coming back (again) to Brazil at the end of the European season. Adriano’s head and heart are just not in it anymore. As some people say sometimes with a certain degree of prejudice, “you can move out of the favela, but the favela never moves out of you”. Which means he’ll only be happy in Rio in the midst of his family and friends, who still live (most of them) in Rio’s favelas.

      As implied in the article, Lula is no longer president. His successor however is his invention, since as a politician she had little previous history before working in Lula’s government. So, reputedly, the new President Dilma Rousseff (sp??) is more of a “technical” person, with “technical” and not political thinking. So, she supposedy understands the consequences of her actions better than Lula ever did. However, don’t be fooled, she is and declares herself to be a socialist, so that will “color” her view of things. At the same time, most socialists in BRazil have moved to the center and now allow for and include market forces in their thinking and planning.

      Let’s see how it pans out. As it is, we are totally in the dark right now

    • 0 avatar
      jd arms

      Adriano is currently playing for Roma, but he is seeing little of the pitch.  Roma have multiple forwards and Claudio Ranieri is known as a tinkerer, so Adriano will see sporadic action.  Roma also brought in Marco Boriello and he has been sensational.  Along with Vucinic, that makes two solid forwards.  Considering Totti can also play up there, and Menez and Taddei can play out on the wings, the Roma attack is pretty much set.  Adriano in his prime was a nearly unstoppable force, but he seems sluggish now.  Moreover, Roma have a young target striker on loan at Bari who will be hungry for Adriano’s slot when he comes back off loan.
      Discussing soccer on a car site – if we can work beautiful women in the discussion we will have covered the holy trinity.

  • avatar

    35% import tax is very deceptive.  Importing a vehicle into Brazil can cost much more than that based on additional tariffs and fees.
    35% is the import tariff based on the CIF (Cost, Insurance, Freight) value of the vehicle.  Brazil also charges an IPI (Imposto sobre Produtos Industrialilzados) in addition to the CIF value based on the vehicle category (5-25%).  Then there is the ICMS (local tax), which local companies must also pay, but importers have to pay based on CIF+IPI and must be paid before customs (so depending on region can be more expensive for importers).
    As far as FTA agreements, Brazil actually has a strong opportunity to become the manufacturing center of the Americas if its able to get more FTA agreements in place.  Obviously there is resistance from domestic manufacturers, but in reality more FTA agreements with developed nations would likely mean a more exports from Brazil than imports.
    Brazil has a very strong competitive advantage both in terms of infrastructural stability and its proximity to South America’s rich natural resources that would allow it become a major manufacturing export hub.  But like many developing countries there is still a protectionist tendency that is prohibiting it to meet the countries true manufacturing potential.

    • 0 avatar

      Wow! You certainly know BRazil. About the extra 35% import tariff. Exactly, in addtition to all the bs taxes locals have to pay, imports get burdened with the extra 35%. That’s been enough of a hurdle when the dollsr is above 2,50 reais, imports disappear. As it is know, imported cars are looking like bargains. Imagine to apy nowadays only 110,000 reais for a basic series 3!! This is unheard of.

      As to industrial policy…I was just reporting on the industry’s view. Like I mentioned in the article, I spoke to a bigwig. From Fiat. BTW, Fiat’s President is the current president of Anfavea. Do you think his positions and arguments were any different than what his executive was telling me? Naw, I think I got a good taste of what the industry is complaining about.

      As to your position being correct, my friend, I tend to agree. But all is not equal in the world. Steel prices in Brazil are notoriously high. The government however is choosing not to protect the local steelmakers at the moment. This is due largely to inflation issues. Fiat is importing steel from Korea. This is to keep prices as low as they can. (The steel industry is crying its gut out telling everybody they are the victims of Turkish, Chinese and Korean dumping…Serves them right, forever selling steel in Brazil was a cartel). Part of the reason steel prices in BRazil have been so high is that the gov protected the market (using high import tariffs). THe steel makers didn’t invest enough so now they can’t produce enough (therefore the space the gov is giving foreign steel). Foreign steelmakers have got their foot in the door.

      Another reason steel is so hogh in Brazil (lightly touched upon in article) is taxes. The gov knows it’s got to get its act together. Seemingly, they just can’t.

      The third reason is simple greed. Margins in Brazil are the stuff of CEO’s wet dreams. As the country opens itself more and more, this has to change. However, it will be slow and painful as Brazilian business men expect to get their money back in the shortest of times. And foreign capitalists only invest here when the margins are high enough to “cover” the “dangers” of investing in a country such as ours. (Don’t want to upset anybody but the truth of the matter is that in Brazil such things as Evo Moralez et al seem like a thing of the past. Democracy is alive and kicking down here).

      So in other words, if Brazil is to play the orthodox game, I think it’ll lose. The truth of the matter is that for a host of reasons (both internal and external), the Brazilian economy (though increasingly “normal”) still faces a multitude of hetherodox problems for which a little economic wizadry just might be a better solution. Stable as she goes, make her as normal as possible (low inflation, high reserves, democracy) but some protecction for locals is in order.

      Specially in a world where the Koreans keeps pulling rabbits out of their hat, and where the Chinese offer relative quailty for pennies. No, such a place is dangerous for Brazil. It must tread carefully.

  • avatar

    Over here in Argentina imports are also increasing a lot, enough for the goverment to start demanding companies to reduce imports by 20% unless they manufacture stuff in Argentina. They claim it’s because of commercial deficit, but in reality it’s good old protectionism. It’s always the same in South America:

    Goverment along with populists and left-wing parties introduce protectionism policies to “protect the industry”
    Foreign companies set up factories in South America to make crappy vehicles that people buy because they have no other choice
    When people complain about poor quality of products the populists accuse the people for being “rich cheapstake neoliberals who want to destroy our industry”
    When better products for overseas start flooding the market, the companies that set up shop in South America start asking the government for higher tariffs instead of investing instead of manufacturing products

    This is what happens in all South American countries, in nearly all industries, and this is why South America is still dirt poor. Unfortunately, ortodox economic policies only make the problem worse. It’s a lose-lose situation. Until there are massive cultural changes, forget about any decent cars, or any decent industry whatsoever in South America.

    • 0 avatar

      Yes. Your analysis is right on the money! Damn if you do, damned if you don’t! The key is probably not to set anything in stone. Be eternal tweekers. It’s tiresome, but it’s the only way. At least in the short erm. We can never be blind to the real consequence of any politic or policy. Be it orthodox or hetherodox.

  • avatar

    Oi Marcel,
    I have to disagree with this blanket statement “they just had shipped outdated and slightly banged-up tooling”
    I can’t comment on the Aero Willys or the Simca Chambourd, but the JK 2000 (Alfa), Renault Gordini, Ford Corcel, Ford Maverick, Ford Galaxie, Ford Escort, Chevy Opala, Chevy Monza, VW Passat, VW Santana and Fiat 147 were launched from domestic manufacturers very close to the same time they were launched in the home countries.  They were not old designs at the time.  The problem in that era was rust. Brasilians lust for imports stems from nearly a half century of being denied the right to choose what you want to purchase, and of course, “Carro nacional nao presta.”

    • 0 avatar

      Hi David! As I was writing an answer to you, I eventually realized that I was in fact writng an article! So hopefully I1ll finish it off quicly (am working on it now), and send it to Bertel who may just find the time to publish it today (Sunday, Jan 9).

      Thanks for inspiration!

  • avatar

    A colleague of mine I used to work with was from Brazil, when he told me that a Ford Fusion is sold for nearly $50-60k U.S., I damn near said f-off! How the hell can they charge so much for a piddling mid-size car, even when they are being imported from Mexico? Even a 3.9L Diesel F-250 (I didn’t even know that the option existed!) apparently costs like 3 times what a basic V8 F250 costs in the states.
    Even taking taxes into account, it just seems ridiculous! Ford must be laughing its ass of there!

  • avatar

    No, it really is taxes, taxes and taxes on the taxes.  Not Ford.  A Toyota Corolla sells for about the same. Brazilians have an incredibly high effective tax rate on many products.

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