The chill winds of the global financial crisis finally blew into Brazil last month, auto manufacturers' association Anfavea said at its monthly press conference last night (6 November).

October was the first month potential customers really had difficulties in obtaining credit approval and shorter instalment periods and rising interest rates (which had already climbed in September) really came into play.

Production for the last 12 months (Nov 07/Oct 08) was 2.93m units (cars, trucks and buses) compared witrh 2.37m in the 06/07 period, a 23.4% jump. This kind of comparison minimises seasonal effects, Anfavea said.

October 2007, however, was down 2% year on year (off 11% versus September 2008) to 239,200 units. Sales had jumped 9.8% in September from the previous month, rebounding from a 15% drop in August.

Production of cars and trucks dropped in October for the third month in a row, slipping 1.3% from September to 296,300 vehicles. Output had fallen 4.3% in September and 1% in August.

What really jolted the industry, however, was the sudden inventory increase from 30 to 38 days' supply from September to October.

This has led to cutting labour time with compulsory vacations for some assembly line workers but nothing (yet) on the scale seen in other countries.

The current conditions have had uneven effects on  local automakers. Volkswagen, with its new Gol and Voyage to sell, is seemingly less affected. For the first time in five years, it has sold marginally more cars than Fiat, which sustained its lead when light commercials were added to the tally.

Yet GM, without new products in the strong-demand segments, felt the shock. It has just announced a voluntary dismissal plan, the only one so far. There are no signs of this at the other automakers, both 'originals' and recent newcomers.

Anfavea is maintaining its growth objective of 24% to 3.06m units this year (production up 15%) but there are greater fears over exports.

The key importers of Brazilian vehicles - Venezuela (especially), Argentina and Mexico - are likely to post weak sales in the next few months and through 2009. Exports of completely built and CKD units represent one fifth of Brazil's total production.

The good news, announced yesterday, was the first release of funds from Banco do Brasil (Bank of Brazil, a state/private open-capital institution under federal control) directly to the automaker's banks. It amounts to $2bn in total with a quarter being immediately available.

Automaker-linked banks do not have borrowing agencies and are finding it difficult to obtain funds in the inter-banking market. The fresh cash arrives in times of uncertainty and may help a softer landing should sales slump further. The money will allow automakers' financing units to increase lending and boost sales, finance minister Guido Mantega said on Thursday.

"With these resources, we're ensuring that there will be enough financing available for the automobile industry to maintain sales in November and December," Mantega told business leaders in Brasilia.

Automakers will also get some flexibility with their working capital from the postponed tax payments recently granted to all of Brazil's industry.

Anfavea said automakers would keep up incentives and promotions at least until the end of this year.

Fernando Calmon

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