By on October 12, 2012

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.

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9 Comments on “Brazil Outlines New National Auto Policy...”

  • avatar

    The ugly truth is that protectionism works very well. Japan, China and Korea all nurtured their auto industry with the heavy hand of protectionism. The US carmakers have relied on the pickup truck tariff to protect their most popular and most profitable segment.

    • 0 avatar

      ummmm have you had any economics training at all? Protectionism leads to higher prices for consumers and market inefficiency. The “chicken tax” doesnt really help American truck manufacturers — it hurts them from importing their stuff from abroad (google ford transit connect – it has to be shipped in with fake seats to get out of the rule). American trucks are simply better and dont need protection. Protectionism can sometimes help nurture young industries, but that protectionism should never be permanent. Too often (read: usually) protectionist rules end up making domestic industries lazy and inefficient. Brazilian auto protectionism has no excuse — it’s not trying to create some domestic automaker (and it shouldn’t — its too late to make a new mainstream automaker) — it’s just protecting the people who run the factories, at the expense of the Brazilian consumer. Brazilians pay obnoxious prices for their vehicles. Does that help the poor????

      Protectionism is rarely a good idea

      • 0 avatar

        Unfortunately, we are working in the real world here- the Brazilians are also concerned about balance of payment deficits on manufactured goods. You have to export a lot of raw materials to counterbalance new cars and, frankly, cheap consumer goods are not a high priority where basic infrastructure needs to get priority when foreign loans get taken out. The consumer is not king.

    • 0 avatar

      Japan did no such thing. Check your sources of liberal lies. Only use first class lies of better, never buy into 2nd class lies like these.

  • avatar
    schmitt trigger

    Protectionism works only if the country is simultaneously working towards exports. In one respect Brasil is doing precisely that. From a high of 1.72 Real per Dollar on February, it has slid down to 2.02 today. However, reneging from previously agreed upon international agreements, is not a way to achieve that.
    If you were Mexico`s government, wouldn’t you reciprocate with some tariffs on Brazilian products?
    Mexico may not have an economy as large as Brazil, but it is rapidly becoming an exports powerhouse.
    Many “Hecho en Mexico” products which could have Brazil-made components, will not.
    In other words, Brazilian export losses to Mexico may be larger than the Mexican economy itself.
    This is one example, there may be others.

  • avatar

    Why is Derek writing on topic of Brazil and not Marcelo? Just curious.

  • avatar

    I was kind of expecting the link to go to this Sinatra song:

  • avatar

    Protectionism like this rarely works for the common good. It buys votes/influence from the protected workers/industries. The cost not transparent and spread over millions of transactions.

    Basic transportation in Brasil just becomes that much more expensive. My guess is that Brasil has high entry level new car prices relative to income.

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