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September 30, 2009

BRAZIL: New car prices set to edge up

Brazil's new car prices are set to rise as a tax break expires at the end of this month, though the impact on the market is expected to be limited.

Brazil’s new car prices are set to rise as a tax break expires at the end of this month, though the impact on the market is expected to be limited.

The industrial production tax, or IPI, was cut by the federal government in December in an effort to help support the car market.

The measure has been largely successful as carmakers passed on the IPI savings to consumers – typically 5-7%.

The tax is being gradually reimposed in a series of adjustments.

“Our expectation is that the return of the IPI tax can gradually be absorbed by the market,” Rogelio Goldfarb, an executive at Ford told the local Estado newswire this week.

“Of course, the return of the tax means higher costs for the consumer,” Goldfarb added.

A study by the government’s strategic planning department published earlier this month said that without the tax break, car sales for the year would have fallen around 14%.

Vehicle sales are expected to hit or top 3m vehicles in Brazil this year, according to the Brazilian Automotive Vehicles Manufacturers Association, Anfavea. In 2008, Brazil sold around 2.8m vehicles.

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