As stocks run out, prices will rise again, which could raise idleness in factories
Funds amounted to R$800 million for cars and light trucks alone and were over in less than a month — Foto: Lucas Tavares/Agência O Globo
The federal government’s tax incentive program that allowed cars priced up to R$120,000 to be discounted expired. However, some of the inventory of these vehicles is still available at dealerships this month. This will keep the pace of sales accelerating in July. After that, prices will rise again, which may again increase idleness in factories.
The public funds allocated for this purpose, which amounted to R$800 million for cars and light trucks alone, were exhausted in less than a month. There was a rush to the shops and a concentration of sales in the last days of last month.
On June 30, 27,000 vehicles were registered in a single day, a record volume that is almost three times the daily average of recent months. On the same day, 79,000 units were sold. These vehicles were registered on the first working day of July, which will help the sector post good results later this month.
The program released R$500 million at the beginning of June. When the money was exhausted, the Ministry of Development, Industry, Trade and Services, which released the funds through tax credits to car manufacturers, received additional requests for R$270 million that could not be approved due to the exceeding of the initial limit.
The government then released another R$300 million under pressure from the sector, which in the first phase had stopped serving the rental companies, which account for 50% of the market.
In an interview early last week, Ciro Possobom, CEO of Volkswagen do Brasil, said that sales would continue at a fast pace in July because the dealer network’s inventory would still have cars with discounts that ranged from 1.6% to 11.6%, corresponding to discounts of between R$8,000 and R$10,000. Automakers also ran their promotions on vehicles outside the program.
Both Mr. Possobom and the president of the National Association of Vehicles Manufacturers (Anfavea), Márcio de Lima Leite, said they hoped the end of the incentive program would coincide with a period of falling interest rates, which would help offset rising prices. It is the same reasoning the government used when it launched the program.
If this does not happen, the industry may again have to shut down factories through collective holidays. At the same time, the second half of the year is generally good for this sector, with increased demand from consumers looking for launches and changes in the line of cars.
On the eve of the release of the second part of funds, Volkwagen announced stoppages in its factories. According to Mr. Possobom, in some cases, technical stoppages, scheduled for August, were in anticipation of the need to reduce the pace. According to Anfavea, last month five factories came to a standstill.
With these stoppages caused by the increase in vehicle inventories, vehicle production in June fell by 7.1% compared to the same month last year and by 17% compared to May, to a total of 189,200 units.
The decline in production was also due to the contraction of the foreign market. Important markets such as Chile and Colombia experienced a drop in demand due to domestic economic problems. Added to this is the crisis in Argentina, the main destination for exported cars.
In June, exports fell by 22% compared to the same month last year, to a total of 36,600 vehicles. For the first half of the year, exports were down 7.7% to 227,200 units.
In addition to the incentive program, Anfavea also celebrated the approval of the text of the tax reform by the Chamber of Deputies. The company estimates that today, the management of the tax bureaucracy alone accounts for 1.2% of the revenues (R$4.2 billion) of automakers, whose annual revenues amount to R$350 billion. According to Mr. Leite, the reform will attract investments. The funds spent on bureaucracy will be redirected to the training of personnel and research and development.
The automotive industry, on the other hand, is going to have to deal with the impact of the reform on the prices of cars sold. In the case of the industrial products tax (IPI), for example, luxury cars are taxed at 23%, compared to 5% for cheaper entry-level models. The balance of rates can increase the price of one or another type of vehicle.
After the phase of tax incentives for the purchase of cars, a new federal program is coming. This is the second phase of the so-called Route 2030. One of the main novelties of the program will be the government’s decision on the import tax (II) for 100% electric cars.
Major local manufacturers are in favor of the immediate suspension of the II exemption for 100% electric models, in force since 2015. The Chinese automakers that are beginning to set up shop in the country are already asking for more time with the benefit.
A new measurement of emissions will be another novelty of the second phase of Route 2030. Until now, measuring emissions only considered what comes out of the exhaust. Now, a new concept known as “well to wheel” will be introduced. This will measure emissions from the source of the energy used, be it oil, biofuels such as ethanol, or electricity. These changes will be announced between the end of this month and the beginning of the next one.
*Por Marli Olmos — São Paulo
Source: Valor International