Brazil’s auto industry last year set records for production, sales and exports by value. The number of exported units did not, however, top the record set in 2005. The country climbed three positions in the world ranking to fifth largest market with 2.82m sales and was the sixth largest producer – 3.21m vehicles.

But the chill economic winds have blown in. December sales slipped about 20% year on year as government efforts to stumulate the flagging economy gave a boost only in the last two weeks.

Production plunged 54% in December, a result of the extended holidays automakers imposed on workers late last year to keep finished vehicle stocks down.

Yet the 36-day inventory (56 in November) was still about 20% above what is considered normal here and a truly worrying indicator.

Another indication of tough times is that the more affordable segment (up to one litre engine) remains below half of the total sales, suggesting core market weakness.

Spokesman Hideto Maehara said the tough times had prompted Honda’s Argentina unit to postpone the start of City (the sedan version of the Fit/Jazz) production in Buenos Aires province for at least six months.

This model, targeted specially at Brazilian buyers (who prefer small sedans to their hatchback equivalents), is now scheduled for launch in the second half of 2010. Honda Brazil would not comment.

This year seems likely to be difficult for the auto business. Jobs will likely be lost in local car and components plants due to an export slowdown but, at least, fewer complete vehicles will come in from other countries.

Amid such uncertainties, forecasts vary. National dealers association Fenabrave has switched from pessimistic to optimistic, believing that, even if temporarily reduced lower excise tax is restored on 1 April, a far from modest 4% growth in 2009, considering the present scenario, will be achieved.

Manufacturers group Anfavea on the other hand wants to see how January sales go before forecasting.

Two consultants have opposing views. Wolfgang Sauer, former president of VW of Brazil, believes that in two or three months the worst will be over and sales will pick up.

André Beer, an ex-president of Anfavea and former vice president of GM Brazil, with over 50 years auto industry experience, thinks sales will dip 10% year on year. And that “would be an excellent result,” he said.

Consumers are disappointed with their current cars’ high depreciation. Anfavea president Jackson Schneider acknowledges the problem and is considering strategies.

“New cars cost less now. The trade-up gap has improved”, he said.

So many variables make buyers nervous. Pounded by bad news, hesitation and lack of consumer confidence are inevitable.

One thing seems certain. Announcment of any changes to current government incentives, scheduled to end 1 April, will be postponed as long as possible, with 31 March the likely date, to encourage buyers to make their minds up soon and speed inventory reductions.

Fernando Calmon