Dispatches Do Brasil: Tell Me Who You Walk With And I'll Tell You Who You Are

Though Christianity is a huge minority in South Korea, it would seem Hyundai has not learned to heed to that biblical injunction. Its long-time partner in Brazil, the CAOA group, has just been fined to the tune of 1 billion reais for non-payment of taxes and fiscal fraud.

Hyundai’s position in Brazil has always been complicated. Back in the 90s, in a bid to bring car makers into Brazil, the federal government extended tax credits and credit lines rather freely and Asia Motors, a mainly light commercial vehicle maker, was one of those contemplated to build a factory in this country. Asia Motors pocketed all it could.

When the region hit the economic skids, Kia (who had a stake in Asia Motors), picked it up on the cheap. In accordance with Brazilian law, Kia was now responsible for the credit lines and the factory. Nevertheless, Kia stopped all pretenses of factory construction, since they too, were in trouble. Soon, in South Korea Hyundai was ordered by its government to take over Kia. In Brazil, the lawsuit against Kia continued normally, being that Kia was replaced by Hyundai in the defendant’s chair.

Hyundai tried as much as it could to avoid responsibility, alleging reasons alien to Brazilian law. The main gist of their defense is that they were not responsible for those credits, as Kia was the beneficiary. Kia alleged much the same, claiming that Asia Motors was the responsible one. As Asia Motors no longer exists, Brazilian tax authorities continued their persecution of Hyundai until earlier this year when a settlement was reached.

When the Brazilian market opened up for international business in the 90s, Hyundai was slow to jump into the bandwagon. As the vagaries of Brazilian fiscal policies on automotive imports ebbed and flowed with rises and decreases of importation taxes, Hyundai lost its appetite to compete in Brazil. Enter CAOA. Owned by an aggressive Brazilian entrepreneur whose initials make up the group’s name, CAOA has always been involved in one way or the other in the automotive retail business.

At one point for instance, the CAOA group comprised the largest group of Ford dealerships in Brazil. Since its beginning in São Paulo, CAOA group dealerships were infamous for their high pressure sales tactics and, oftentimes misleading propaganda and promises. Soon, the CAOA group was successful enough that it was able to take Brazilian Ford models and offer up their own unique spin-offs such as a BMW-“inspired” Ford Veronas and the transformation of F-100 into proto-SUVs which in spite of all their crudeness, spoke to dreams of grandeur and affluence among 80s to 90s Brazilian consumers.

As was, CAOA faced a rush of lawsuits demanding reparations for broken promises and faulty upkeep and durability of CAOA “built” vehicles as did Ford as it had, under Brazilian law, solidarity responsibility for CAOA group failings. Eventually it got embarrassing enough, with judgments being professed not only in law courts, but also in the court of public opinion, that Ford broke off relations to the CAOA group, happily paying the necessary breach of contract fines.

Stripped of their Ford connections and looking to score, CAOA approached Hyundai. One fulfilled the other. Flush with cash and aggressive by its very nature, CAOA saw no difference (and acted no differently) in pushing traditional, Ford products, and Hyundai’s wares, which were regarded poorly at the time. The Koreans, in their turn, saw an opportunity in striking a deal with the Brazilian group. They would be able to continue peddling their cars, while maintaining in the courts that they were hardly a Brazilian operation and had no responsibility on the original Asia tax imbroglio.

As time passed Hyundai cars improved, sales naturally increased, and CAOA continued with their usual tactics and made Hyundai even more successful. Responsible for all Hyundai sales in Brazil, CAOA even took over Hyundai marketing functions and managed its website. It eventually opened a factory in Brazil assembling CKD Hyundai cars.

All was good until inevitably CAOA ran into trouble. Not only did they run into ridicule for their over the top propaganda (the mostest, bestest cars in the globe, nay the galaxy, nay the universe, ever!), but people started finding actual problems between Hyundai-CAOA claims and factual reality. How many horses did the Veloster engine actually corral? According to Hyundai-CAOA close to 150, while independent sites and blogs were finding 110-ish. So much so, that the Veloster, whose name is the vary expression of speed, became mocked and is forever called here the Lentoster (or Slowster, in English). Economy figures were high according to CAOA, more modest as measured by other parties. Even simple things like storage bins in cars became a matter of contention. Hyundai-CAOA would claim some crazy number like, for example 38, while sites and even magazines, would count less than 20. When questioned on these and other issues, Hyundai would say they were not responsible for CAOA numbers and would eventually release their own, less attractive numbers.

In the last decade, reaching an agreement with the Brazilian government, and taking advantage of the existence of never-ending government-sponsored automotive market incentive programs, Hyundai opened a factory in Brazil, under their own name, and produced the HB20 hatch and sedan. It showed signs of divorcing itself from CAOA, such as taking over HB20 production, sales and marketing and even its own website. Click on the hyundai.com.br website, then click on the HB20 and you’ll be treated to a wealth of information and navigation. Click on any other Hyundai model, and a message jumps onto the screen informing that you will now be transferred to a Hyundai CAOA Maker website. Hyundai credentialed other groups and dealers, linked to them, to sell the HB20, but yet Hyundai-CAOA still sells, exclusively, other Hyundai vehicles.

The CAOA fine is definite. The group was fined because it failed to pay taxes and kept for itself proceeds from an increase in government taxation while it contested that increase in courts and didn’t pass on to consumers the benefit of the suspension it obtained in courts. Tax authorities are demanding those extra proceeds, plus fines for non-payment. Some legal scholars here say that CAOA may even sue Hyundai to help them pay the fines. How long Hyundai chooses to keep links to this group in order to gain momentarily from a few extra sales gained by CAOA’s notorious appetite remains to be seen. Many Brazilian consumers will continue to forego having a Hyundai car as long as these nebulous relations remain intact. How long will more sales compensate for the ongoing tarnishing of it brand name? Only Hyundai has the answer.