Brazil to encourage local car manufacturing as China feels the pressure

Chinese auto-makers, who export their vehicles, are feeling the pressure from Brazil’s auto import substitution policy, which may accelerate Chinese plans to make cars locally in brazil. The positive factor is that Brazil will most likely be able to establish more stability for local manufacturing in the world’s fifth largest auto market.

Brazil is now attempting to replace cars they import, with cars they make within their own country. Brazil’s government made a large decision on September 16, 2011 that taxes on imported cars and trucks, as well as those that do not meet localization rates of 65 percent, will be raised by 30 percentage points. This move will increase Brazil’s industrial product tax on automobiles greatly. The raises will be anywhere between 7-55 percent and will remain in effect until December of 2012.

The raise in taxes will depend on engine size. Larger engine sizes can bring taxes up to 55 percent; however, taxes will most likely be between 7-25 percent. Cui Dongshu, of the China Passenger Car Association made this statement: “The new taxation policy will push Chinese automakers to speed up efforts to establish production facilities in Brazil so they can avoid high taxes."

Chinese auto-makers are feeling this pressure tremendously. The deputy secretary-general of the China Passenger Car Association made this statement: “It's clearly a blow to Chinese automakers' recently surging vehicle exports to Brazil. The quickly launched measure also reflects the Brazilian government's awareness of and attention to the foray of made-in-China vehicles into the local market."

Chinese domestically made vehicle production has massively suffered and slowed and Chinese automakers are building their sales volumes in other countries, including Brazil. China is being highly responsive to this global expansion. Afterall, Chinese automakers do control 3.29 percent of Brazil’s car sales and chinese automakers did not have any presence in Brazil in April 2010, according to Fenabrave, the Brazilian car dealers association.

Last year, Chinese automakers sold 2.6 million passenger cars in Brazil. So far, in the first 8 months of 2011, Chinese automakers sold over 43,000 vehicles in Brazil. The consultancy IHS Automotive predicts that by 2015, passenger car sales in Brazil will rise by 33 percent and furthermore, by 2020, passenger cars are likely to increase to over 4.5 million sales.

China and Brazil have established a very amicable relationship and trade agreement as far as automobiles. They became the largest trading partners in 2009. Why is Brazil targeted as one of the best countries for auto trading, sales and production? Because it is the largest market in the region, has high-volume sales and a large established auto-making industry for parts suppliers.

Wang Zhile, director of the research center for transnational corporations under the Ministry of Commerce made this statement: “Brazil's 'import substitution industrialization' is like a bid to develop its automobile industry by attracting foreign investment and technologies, not only products, by encouraging joint ventures with Chinese automakers. The market potential, and the Chinese companies' successful exports to Brazil, have produced a mature opportunity for domestic players to produce cars there."

Reference: China Daily