The two main Brazilian public financial institutions, government-controlled Banco do Brasil and wholly government-controlled Caixa Econômica Federal, have announced a programme for the automotive supply chain that may top BRL12bn/$3.15bn in new disbursements. A protocol signed recently envisages automakers' lobby group Anfavea and Sindipeças (the suppliers’ union) acting as intermediaries in financial assistance deal between the two banks, automakers and strategically important auto parts suppliers. The heavy truck, agricultural machine and implements segments are also included.
In this first phase, the financial aid accord will focus on 26 'anchor companies' until the end of 2015. A system has been developed to provide assistance to suppliers in a predetermined sequence over a defined period. The banks will provide suppliers with finance based on anticpated sales and orders delivered.
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For suppliers, the deal give access to finance under the best possible conditions and avoids the higher costs they'd likely face by going it alone. For anchors ('sistemistas' in local jargon for such auto parts industry integrators), there is also the possibility of negotiating more favorable terms for paying their multiple suppliers.
The measures previewed in the protocol strengthen partnerships throughout the automotive sector supply chain since anchors offer their stronger financial capacity as a guarantee for credit offered to their suppliers. Credit risks are seen as minimal due to the anchors' assumed strength, thus making conditions and taxes for companies at the bottom of the supply chain similar to those enjoyed by larger companies. For anchors, this financial arrangement allows the continuity of operation of all links in their supply chain, from raw material producers to the auto industry end user, in the current, difficult economic situation where such foreign suppliers as there are will likely be replaced by local companies.
Maintenance of the supply chain’s operational capacity is seen as fundamental for the whole auto industry to benefit from such market opportunities as currently exist. Such accords also provide commercial security for all parties and more negotiating opportunity. The deal should eventually reach 500 groups in several productive chains including cooperatives, integrators and large exporters.
Once again, such an initiative has seen the auto sector move ahead of others in the Brazilian economy due to its economic muscle and good relations with with the federal government.
