Brazil on Thursday raised a tax on cars with a high content of imported components to protect jobs following a surge in shipments from China and elsewhere that has been fueled by a rally in the currency.
Finance Minister Guido Mantega lifted the so-called industrial products tax on carmakers by 30 percentage points, except for those who source 65% of their parts from the Mercosur trade bloc or Mexico. The measure will raise the cost of imported cars by as much as 28% and force foreign automakers to build key components in Brazil, he said.
“These measures are going to stimulate national production and guarantee investment,” Mantega told reporters in Brasilia. “If we don’t do anything, we are going to lose space to imports, and we are not going to permit that.”
Carmakers based in Brazil have been hit by a rally in the Real, which has sucked in cheap imports from China and elsewhere. Brazil’s motor industry the world’s fifth-biggest, is dominated by Volkswagen AG, Fiat SpA and General Motors Co. who between them have about two thirds of the market.
Chinese automakers’ market share expanded to 3.29% in August from virtually zero in April 2010, according to the national car dealers’ association Fenabrave. The increase has come at the expense of Fiat, General Motors and Ford Motor Co.
Mantega said the government is worried by the rise in car inventories, and the spare capacity in the industry. Besides the Real hit a 12-year high against the dollar in July, and is up 36% since the start of 2009, as near-zero interest rates in the U.S. and Europe led investors to seek higher returns elsewhere.
Carmakers must meet six of 11 requirements ranging from building of transmissions to the assembly of cars in Brazil in order to avoid the higher tax, Mantega said. The new rules take effect tomorrow and will apply until December 2012, he said.
JAC Motors, Suzuki Motor Corp. and Chery Automobile Co. could reconsider their decision to invest in Brazil due to the rise in the tax, the president of the Brazilian Association of Vehicle Importers José Luis Gandini told reporters in Brasilia.
Brazil’s car industry has also been hit by central bank measures to curb credit growth. Auto loans fell to 8.4 billion Reais (4.9 billion dollars) in July, down 24% from December when the central bank set capital requirements encouraging higher down payments and fewer installments on car purchases.
Since last year, Chinese carmakers Chery, Chongqing Lifan Auto Co. and Anhui Jianghuai Automobile Co.’s JAC Motors have all announced plans to build plants in Brazil.
Cledorvino Belini, president of the National Association of Carmakers and head of Fiat in Brazil, welcomed the measure, saying it would benefit the entire automobile sector. The measure will not raise prices for consumers, since Brazil’s car market is very competitive, Belini told reporters in Brasilia.