By the end of the first quarter, Brazil’s domestic auto market showed weak sales compared to the same period of 2013, despite the seasonal effect of Mardi Gras. Forecasts for 2014 range from a 1% downturn (some already admit up to 3%) to marginal 1% growth.

This is looking like a hard year: it started with a slight IPI excise tax rise and vehicle price rises because ABS brakes and front airbags are now mandatory and that hit entry-level models hard, models most sensitive to price rises.

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Although the 2014 quarterly sales fall was 2.1%, more worrisome is the rise in inventory at dealers and factories. It soared to 48 days by the end of March from 37 days in February.

The normal inventory level in Brazil used to be 25 days but an increase in the number of car and light commercial brands to 60 boosted the acceptable level to 35 days. Inventories are effectively almost 40% higher than usual, something unheard of since 2008 when the international financial crisis struck.

From the local production view, the slowdown hit even more strongly (8.4%) due to weaker exports to troubled Argentina.  One favourable indicator is that the market share of full imports from all countries fell to 16.5% in March, almost 10% below the peak in 2011/12.

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Half of the 20 local automakers have announced measures to mitigate the situation: shift reductions, collective vacations (used mostly until now) and lay-offs. Plants in the Greater São Paulo area are most affected.

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The situation is most delicate at the Mercedes-Benz trucks, bus chassis, engines, transmissions and axles plant, one of São Bernardo do Campo, Brazil motown’s oldest. In this case, the automaker admits to having 2,000 surplus workers and has already started a buy-out plan.

This is far from being a new problem for this Mercedes-Benz unit (there is another one in Juiz de Fora, state of Minas Gerais).