A Volkswagen Brazil initiative is helping cash-strapped suppliers with short-term working capital needs.

The move came after the automaker noted that the improving Brazilian economy had increased consumer buying power and its new vehicle customers consequently were demanding more comfort items in their cars.

Between 2008 and 2009, the average retail price of cars sold in Brazil rose 10% above the 4.5% inflation rate and peaked last year at BRL38,000 (US$21,000).

Some suppliers faced a shortage of working capital that limited their ability to boost production to meet VW‘s component orders.

Volkswagen consequently agreed with the Brazilian subsidiary of Bank of New York Mellon that the bank would purchase accounts receivables from the suppliers. This also brought tax benefits because the automaker’s Brazilian unit is the main customer of the suppliers benfiting from the scheme.

The initiative seem to be paying off. Delivery delays are now practically zero with no impact on quality. And the financial health of local tier two and three suppliers, previously one of the biggest concerns of the local automaking industry, has been boosted.

VW decided to help its suppliers to avoid any roadblocks to its ambitious Brazilian investment plan.

Over 60% of the $3bn allocated to the local unit by 2014 is intended to boost capacity to an eventual 1m units a year.

This assumes that the VW brand, boosted by imports from other VW units in countries such as Argentina (source of the new Amarok pickup truck), will, by 2014, account for a quarter of the 4m unit total industry sales expected by then.

VW suppliers will have to provide a more diverse range of parts – new, multiple versions and short-run for limited-edition vehicle models.

This year alone, VW Brazil will launch 13 new models. This week’s debut was the Cross version of the new Saveiro compact pick-up, targeted at Fiat’s Strada Adventure.

Last year VW beat Fiat’s Brazilian unit in passenger car sales but lagged way behind in light commercials.

Here, the light vehicle market is split 83% passenger and 17% LCV.