Every month seems to bring good news for Brazil’s auto industry at the moment. Besides continually setting new domestic records, the booming local market is pushing Brazil up in the international ranking.
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For the first five months of this year, sales reached 1.15m units, making Brazil the fifth largest world market, ahead of France, Italy and the UK.
But this position – behind the US, China, Japan and Germany – is not yet consolidated as the Russian market is growing at a faster pace than Brazil’s.
This has prompted Anfavea, the local manufacturer’s association, to review forecasts for 2008 – it is now forecasting 24% growth and a 3.06m-unit domestic market. Last December, it predicted 17.5% growth to 2.88m units.
Despite of these sound numbers, the auto industry has been losing competitiveness abroad and investments are customarily burdened by federal taxes though a fraction is offset by state government incentives.
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By GlobalDataHowever, a new federal government package called the Productive Development Policy is now in effect through 2010. This relieves tax for sectors investing in machines and equipment and also boosts companies with initiatives in research and development so is seemingly tailor-made for the auto industry.
Some economists have criticised the concentration on incentives favouring automakers and parts manufacturers, claiming they’ll get more than half the tax breaks. But Anfavea has a different view.
“The incentives are aimed at all industrial sectors. It happens that the auto industry is growing fast now. Investments already total US$5bn this year alone, besides the auto parts sector. With tax breaks for the local market, we can continue competing with other countries in export markets”, Jackson Schneider, president of Anfavea, told just-auto.
In fact, the government has focused on the auto industry for its job-generating ability and for paying above-average wages. It also values its ability to generate high export revenues too. This year, in spite of difficulties, Anfavea has also increased export expectations.
Exports in 2008, including agricultural machinery, are likely to increase 7% year on year to $14.5bn, despite a 1% shrink in total units shipped abroad. This shows that that price hikes in US dollars for the exported units has been absorbed quite well.
And, even with an increase in imported vehicles, the balance of payments is still highly favourable to Brazil.
Fernando Calmon
