Long awaited and successively postponed, details of the new Brazilian automotive regime for the five years from 1 January, 2013 to 31 December 2017 have finally been announced.
It encompasses fiscal and industrial policy stimuli seeking to improve cars made in the country. Focus is concentrated on new technology, fuel economy, local content (Mercosur region included), active and passive safety features, job generation and research with potential for implementing innovation.
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The regime encompasses companies already producing locally, those who just import and those who now only import but are considering investing in a local plant. All, without exception, will be affected one way or another.
Those here for a long time already might easily fulfil the new obligations to purchase more locally. However, the strategy of stimulating new manufacturers to enter the market brings competition as a really effective way of lowering retail prices.
A point yet to be clarified relates to local purchasing by the large suppliers and the proportion of local raw materials.
The government has made clear it will keep a sharp eye out and that the new rules are fair for all involved.
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By GlobalDataAlthough interventionist and, in some ways indirectly ensuring an advantage to those automakers who already are in, or are willing to enter the Brazilian market, it must be recognised that the programme’s goals are worthwhile and, if accomplished, will represent a huge efficiency leap for the industry.
There will be opportunities to estbalish plants making up to 35,000 units a year with a minimum investment of R$17,000/US$8,500 per manufactured vehicle.
There will be a lower, compulsory local purchase index to immediately attract BMW and Land Rover, which both have very advanced plans – currently on hold – for local plants. But automakers like Audi and Daimler could be interested because import quotas are now free of the super IPI excise tax, which will give them profitability to remain in the market while they are planning.
All importers benefit. New quotas are based on the average market volume between 2009 and 2011, though limited to an annual ceiling of 4,800 units.
Yet they will have to invest 0.65% of net revenues directly in R&D. The alternative will be a compulsory donation to a national technological development fund, a sort of toll to play in the local market.
There was relief for those in the import business with the exception of Kia, which, for not producing locally, will face difficulties due to its current high import volume.
One of the more positive points is fuel economy targets. The government was pragmatic and avoided using a CO2 emissions ratings as there is a direct equivalent in fuel economy.
All automaker’s average fleet fuel economy must compulsorily improve 13.6% by 2017 to 15.9km/litre/44.9 miles per imperial gallon urban-motorway average (petrol) and 11km/l/31.1mpg (ethanol).
An incentive of 2% IPI tax cut is a carrot for automakers who achieve 17.3km/l/48.8mpg and 12.1km/l/33.9mpg, average, respectively on petrol and ethanol, between 2017 and 2020.
The new rules create doubts about the lower IPI favouring prices or compensating investments. However, it seems that the influence on prices will be at the automakers’ discretion.
After all, more fuel-efficient cars are more expensive in most cases; new technologies, new prices. Therefore, it turns out to be difficult to assure an effective saving of R$1,100 (US$550) per year in fuel expenditure as the government planned for, and cut the car’s retail price as well.
