New vehicle importers that do not also have manufacturing operations in Brazil are starting to experience increasing difficulties remaining in the market and supporting dealers following the excise (IPI) tax rise.
From September to December last year, the time span between the government announcing the measure and the imposition of the increased tax, there was an importing rush to boost inventories. Yet these stocks started to drain away in May and, with the recent devaluation of the real, it became ever harder to sustain formerly competitive prices.
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These companies have an association (Abeiva) representing 28 makes and are pushing the government for a solution. The dialogue has been far from easy because Abeiva has taken quite a radical position through media statements.
Not attempts are being made to cool things down. The body says negotiations with the government are based on possibly agreeing import quotas similar to those recently agreed with Mexican automakers.
Some Abeiva members which have demonstrated firm plans to build manufacturing plants here have already been granted a 50% discount on the additional IPI. But the tax concession will only be applied when they start production so they are only building up credits for now.
How would the quotas be distributed? Abeiva members are divided into three groups: those who are willing to produce here, those who can never do that due to insufficient scale (premium makes or medium-large and large models) and those that compete with makers of compact and medium-compact cars already made here. These face quite high internal costs and very unfavourable currency exchange rates yet would generate the jobs sought by the government.
Apparently there is a possible agreement for the two first cases coming soon. But is still very hard to find a formula that pleases Chinese and South Korean automakers and their low, FOB prices, some Europeans, Canadians, Americans and Japanese with their intermediately-priced models without annoying the established automakers that have invested and intend to invest large sums to keep producing locally.
