As the end of the current round of government incentives for new car buyers nears, conflicting information is emerging.

Although the scheme officially ends on 31 March, government sources have said an extension of the incentives – largely tax cuts – to 30 June had already been decided.

Dealers in São Paulo, a city that alone accounts for just under 20% of new vehicle sales in Brazil, have reported a sudden drop in showroom traffic as cutomers postpone ordering new cars without incentives.

Since December, the incentives have boosted sales and Brazil, of the 10 biggest vehicle global auto markets, has reacted better to government efforts to boost auto sales and the wider economy than anywhere else.

For the first two months of 2009, car sales were off just 4% year on year versus the 20% to 40% seen in some other countries.

Neither the government or the local auto industry want to knock this apparent recovery off course. There have been rumours of an informal agreement between government and automakers not to divulge anything about an extension of incentives until the end of this month. The government said only that nothing had been decided so far.

Still to be decided, apparently, is whether to maintian the incentives in full for another three months or to announce a timetable of progressive reductions month by month. This would allow dealers to continue their current ‘buy-before-the-tax-hike’ promotions.

As auto sales rise, several Brazilian parts suppliers have cancelled compulsory all-worker holidays and, in some cases, also recalled temporarily suspended staff. Volkswagen and Fiat have even returned to Saturday overtime.

February closed with sales averaging around 10,600 units daily. Auto industry consultant André Beer, a former GM vice-president, has estimated that, if this pace was sustained, 2009 sales would be slightly better than 2007’s. If the tally tops 2.5m units, that would be the second best result ever, after 2008.

CSM Worldwide predicts 2.6m-2.7m sales for 2009 – a fall of just 4% year on year.

Volkswagen of Brazil CEO Thomas Schmall said the Brazilian auto industry was well prepared for the credit crisis due to the wide fluctuations in demand it had experienced in the last decade or so.

Schmall advocates continuing the incentives for three more months.

Fernando Calmon