Brazil Car Makers Leave Slump in the Dust

 rebound by the Brazilian auto industry this year has been so swift and so widespread that auto makers are now planning new hires and expanded output.

That’s a stark contrast from much of the rest of the world, where the industry continues to retrench. Not long ago, Brazil’s auto makers were also cutting back production and eliminating jobs in the face of an uncertain fate for the economy and their sales.

Workers assemble a car at a Renault plant in Curitiba, Brazil. Tax breaks helped an industry that employs 130,000 pull out of a slump this year.

But a combination of tax breaks, easier loan terms and low interest rates have jump-started domestic demand — and with it an industry that employs 130,000 workers and produces more cars than all but five other countries. Auto sales posted their third-highest monthly total in July, even as they slipped from an even hotter June, numbers released on Monday showed.

“With Brazil’s economy well on the way to recovery, auto makers are dusting off their plans for the country,” said Mariana Oliveira, an industry analyst at local consultant Tendencias.

The Brazilian industry, populated almost entirely by brand name multinationals including General Motors Co., Volkswagen AG and Fiat SpA, carries international weight. According to the International Organization of Motor Vehicle Manufacturers, Brazil produced 3.2 million vehicles in 2008, ranking it as the sixth largest auto producing country in the world, behind South Korea and ahead of France.

As recently as January, the local unit of General Motors Co. was cutting 744 jobs at one of its factories, and the company’s vice president for Brazil, Jose Carlos Pinheiro Neto, was saying he would be happy if Brazil could sell 2.5 million vehicles.

The gloomy outlook prompted the government to pass a tax cut that led to an average price rollback of 7.5% for passenger cars. Meanwhile, Brazil’s largest banks lengthened installment terms for auto loans to 80 months from the previous 60. And longer terms came at the same time as lower interest rates. Brazil’s central bank has cut its Selic base rate five full percentage points this year to 8.75%, its lowest level ever.

Although sales remained sluggish for the first two months of 2009, the moves eventually gave auto makers the oxygen they needed for a comeback. First half sales set a record, and Brazil’s National Motor Vehicle Manufacturers Association now forecasts domestic auto sales will hit a highest-ever 3 million this year.

Last week, the Brazilian unit of French auto maker Renault SA said it will hire 600 workers to meet growing demand. “Renault is confident about the performance of the Brazilian domestic market,” said Antonio Calcagnotto, the company’s director for institutional relations.