ANALYSIS: BRAZIL: New regime poses doubts about innovations
Several aspects of the new production regime for the auto industry, to run from 2013 through 2017, are still being analysed deeply by those who produce or intend to do so here.
For the consumer, knowing if cars will be less costly, more up to date and fuel efficient is what matters.
If the new investment-attracting policy achieves full success, five or six new automakers will build cars in Brazil and the local model offer will be larger than today’s. It is possibly a fast lane for cheaper buys, combined with the rising buying power in coming years should income increase as expected.
There will be also an additional credit stimuli of up to 2% in IPI tax reduction for companies that invest a proportion of turnover, taxes excluded, in local research/innovation and engineering/industrial technology. The goal here is to incentivise more advanced technology, closer to current technologies abroad.
How to certify all these specific points remains somewhat vague yet the government plans to assign this responsibility to independent firms.
For example: ABS will be mandatory as of 2014 but will ABS-associated ESC be good for earningthe extra IPI discount? Will hybrid cars be considered?
But bad news for the consumer is the government allowing automakers to freely choose three out of four requirements to conform to the new industrial scheme:
1) Local research/innovation;
2) Basic engineering/industrial technology;
2) Manufacturing stages/local content increase;
4) Adhesion to fuel efficiency labelling programme
The last one, crucial information about vehicle efficiency, remains discretionary instead of mandatory. Those who opt for labelling will have now have up to five years to include their full line-up compared to some models today.
The change to local content application in production will force automakers to import fewer components at a devalued dollar and to do their best to procure them here so to create local jobs.
A complex calculation method for exemption of the additional IPI penalty was adopted. Yet, it might induce a rise in effective local content, not pleasing all Anfavea members obviously.
Importers who switch to producing in Brazil will be granted flexible nationalisation rules. They may earn more IPI discount for models brought in from outside Brazil but wil be limited to 50% of locally produced volume.
All this will be granted after the start of production only, in order to avoid frauds like Asia Motors in the late 1990s. It imported tax-free vehicles on the promise of building a manufacturing plant in Bahia that never went beyond the paper work.