Preliminary figures show higher sales in Brazil's struggling light vehicle market in November, but demand is not yet strong enough to allow the industry to offset rising costs with higher prices, Dow Jones Newswires reported.

Brazilian makers sold about 130,400 new cars and light trucks last month, a source told Dow Jones Newswires ahead of Brazil's motor industry association Anfavea publishing official November data on Thursday.

If the preliminary figure is correct, the report said, sales in November were higher than any other month except October this year and up more than 5% from November 2002, though the number fell short of the 140,700 vehicles sold in October by more than 7%.

For vehicle makers, who have invested more than $US25 billion over the past decade to increase capacity in Brazil, 2003 has been the low point of a multi-year slump, Dow Jones said.

Sales, measured by new vehicle registration numbers, were down 6.8% between January and November from the same period last year, the source told Dow Jones. Sales had already fallen to little more than 1.4 million vehicles last year from a peak of 1.9 million in 1997, the report added.

The report noted that Brazil's government extended a temporary tax break for the vehicle sector last week, lowering a key tax on cars by about 3% until the end of February, while car makers in return agreed to delay increasing prices until the end of the year, even as costs for items like steel and labour start to rise - unionised vehicle industry workers won pay hikes of up to 18% in annual wage talks concluded last month.

It's only a matter of time before rising costs push up prices, Andriano Pitoli, an automotive sector consultant with Tendencias in Sao Paulo, told Dow Jones.

"Prices are going to have to go up but it's going to be spread out over several months," he reportedly said, adding that car makers will try to keep prices down as long as possible to take advantage of improving demand.
Dow Jones said Brazil's economy timidly rose out of recession in the third quarter, and the central bank has lowered its benchmark interest rate by 8.5% since June.

The light vehicle sector, where some 70% of sales are financed, is expected to be among the biggest beneficiaries of lower lending rates in Brazil, the report added.

Pitoli told Dow Jones he expects the car industry to stand out among sectors as the economy warms next year. Output and sales of new vehicles should rise 10% and 11%, respectively, from this year's low, he reportedly said.

However, Dow Jones noted, Anfavea, at least for now, is taking a more cautious view, predicting that output should rise 3% to 4% next year as domestic demand turns higher and exports remain strong.

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