Auto production in Brazil during July dropped 20.5% from a year earlier, national automakers' association Anfavea said on Wednesday, while sales slid 13.9%. Compared to June, production rose 17% and sales 11.8%, as July had an additional two working days.
Brazil's auto industry, which makes up a fifth of the country's manufacturing output, has slashed production by 16% in the first seven months of the year, and accompanying layoffs could echo in this year's presidential campaign.
Carmakers have cut their payrolls by 5% in the past 12 months, offering buyouts and paid leave to reduce costs as assembly lines go quiet.
President Dilma Rousseff, who is seeking re-election in October, kept the auto industry humming in recent years with tax breaks and cheap credit, which has been pared back this year to ease the federal government's strained budget.
In exchange for the stimulus, Rousseff demanded that carmakers maintain employment levels during a slowdown two years ago. Finance Minister Guido Mantega said in June that carmakers had agreed to avoid outright firings as the government extended some of the industry's tax benefits.
Anfavea President Luiz Moan blamed the ongoing slump on tight credit and weak consumer confidence, which hit a five-year low in May as inflation climbed while the economy stagnated.
Confidence among Brazilian consumers rebounded in July, but car sales have not recovered. A currency swing in Argentina has also sapped demand for Brazilian car exports, which fell 37% in July from a year earlier.
Brazil is the world's fourth biggest auto market and a major base of operations for Italy's Fiat SpA, Germany's Volkswagen AG and U.S.-based General Motors Co and Ford Motor Co.
Fiat remained Brazil's top seller of cars and light trucks in June, with nearly 58,800 new registrations. GM stole second place from VW, selling some 50,200 passenger vehicles compared to about 48,800 cars and light trucks sold by its German rival. Ford sold around 25,400 vehicles.