At last, the long-expected new Brazilian automotive regime was announced, shortly before Easter. Despite the country’s notoriety for rule breaking, protectionism and excessive interventions in the economy this is is just the third such programme in over half a century. The first was in 1956 when the Automotive Industry Executive Group (GEIA) was formed. The second dates from 1995, also implemented with no big upsets or surprises.
The world has considerably changed in 56 years. And international trade all but came to a halt following the 2008 financial crisis. So it is no surprise how Brazil reacted.
A survey conducted by the Centre for Economic Policy Research revealed the country ranking ninth, with 49 measures for “commercial defence” in that period, compared with the European Union’s 242, Russia’s 112 and Argentina’s 111.
Guidelines of a new policy for the sector were announced late September. It implied a 30% rise in the industrialised products tax (IPI) for all light vehicles, even those produced locally. At the same time, exemption rules were created if certain conditions, since revealed, were met.
Importers expected price hikes but tags on locally built cars prices dropped six months later. Importers have partially absorbed the additional tax burden because the friendly currency exchange rate leaves a wide margin for manoeuvre when importing.
The finally announced regime is quite complex and was the subject of most of the debates at the Automotive Business III Auto Industry Forum in São Paulo.
It is a coherent programme running from 2013 through 2017 and focused on attracting new automakers, more investment and locally made parts use and local research/innovation. It ends the traditional local content index by replacing it by calculation of local part purchasing which proportionately reduces the additional, 30% IPI, which is likely to double the use of Brazilian and Mercosur region components.
Other aspects of this new regime will soon be explained shortly and closely followed by just-auto.
But there is already a thought that brands that took advantage of previously lax rulings will find it hard to sustain profitable operations in Brazil.
The local market forecast for 2017 is 5m units (trucks and buses included), up from 3.8m in 2012. By then, competition will be tougher with more auto manufacturers producing locally under the same rulings and incentivised to offer up to date and innovative models in order to merit lower taxes.
A true, five-year window has been opened to improve Brazilian production competitiveness and modernisation.