MercoPress. South Atlantic News Agency

Brazilian car industry scaling down production as inventories rise

GM workers on strike demanding 17.45% wage increase

Metalworkers at a General Motors factory in Brazil decided to go on strike on Tuesday to demand a 17.45% wage increase just as the industry is scaling back production amid rising inventories.

Workers at the plant in Sao Paulo state are seeking a 9.4% real salary increase above their calculation of inflation. Brazil's official IPCA inflation rate is running at an annual pace of 7.2%.

The company has offered to raise real wages by 2%, according to the Metalworkers Union of Sao Jose dos Campos. GM did not comment on wage talks at the factory, which is one of six operated by the carmaker in Brazil.

Brazil's labour market has remained tight even as the economy slows from last year's torrid growth of 7.5%.

Late last month, the ABC Metalworkers Union in Sao Paulo state agreed to a two-year deal to raise real wages by 5%.

The negotiations come as carmakers are throttling back production due to high inventories and signs of cooling demand in Latin America's largest economy after a red-hot first half of the year.

Volkswagen and Ford are also slowing production by giving workers the week off in coincidence with September 7, at mid week, Brazil’s Independence Day.

Volkswagen said that “it is using flexibility tools to help adjust a rising inventory”. However Ford announced that it will stop production activities, rotating along different workshops, from September 12 to October 7.

Fiat also announced that activities will diminish considerably this week to help regulate inventories and maintenance of the different assembly plants.

The latest August data on auto inventories is expected next Monday. July figures showed inventories stood at 36 days of sales, which is the highest since June 2010.

Sergio Reze, president of the Brazilian car dealers said that inventories were close to their limit and”we are concerned about what are the production targets of car manufacturers. It’s a complicated situation”.

Nevertheless August was a record sales month with 327.400 units (cars, buses, trucks, and vans) and for the eight months of 2011 with 2.371 million, which represents an increase of 4.7% and 8% over the same periods in 2010.

Regarding cars and small commercial vehicles in the firs eight months of the year, Fiat leads in sales with 22.44% of the market, followed by Volkswagen with 20.66%; GM, 18.39%; Ford, 9.42% and Renault, 5.12%.

The number of middle-class Brazilians has grown 25% in the past decade, making it a crucial growth market for the world's biggest automakers as developed economies stagnate.