Economy & Trade, Financial Crisis, Headlines, Labour, Latin America & the Caribbean

ECONOMY-BRAZIL: Car Industry in Reverse Gear

Fabiana Frayssinet

RIO DE JANEIRO, Nov 21 2008 (IPS) - Although the global financial crisis has not yet triggered a rise in unemployment in Brazil, car industry and related workers are starting to forge strategies for facing severe recession in the sector.

The south of Rio de Janeiro state, where car factories like Peugeot-Citroën, Volkswagen’s truck and bus assembly plant and big metalworks like the Companhia Siderúrgica Nacional (CSN – National Steelmaking Company) operate, is on the alert.

According to a report released Wednesday by the governmental Institute of Geography and Statistics, unemployment between January and October was about eight percent, 1.6 percentage points lower than for the same period in 2007.

But factories like Peugeot-Citroën are starting to talk about cancelling the third shift, the existence of which was taken until recently as a sign of the production boom in the industry.

“Management is arguing that there are over 28,000 finished cars in stock, and that it makes no sense to produce more if people aren’t buying them,” the head of the Metalworkers’ Union of South Fluminense, Renato Soares, told IPS.

The CSN called for “conversations” with the union, saying that because of the crisis, demand for car parts is falling, as is demand for steel, he added.

The same scenario is repeated in the southern city of Sao Paulo, the biggest consumer market in the country, where 15 percent of car manufacturing takes place. “Voluntary retirement plans” are already being spoken of there.

Companies located in Sao Paulo – General Motors, Honda, Volkswagen and Ford – as well as Fiat in the state of Minas Gerais, have brought forward the annual holidays of some 25,000 workers.

“One thing leads to another,” Soares said. “Fear of unemployment leads automotive factory and car parts workers to cut their spending, causing a domino effect in the country’s economy.”

The union leader called on the government to provide financial help for the companies, and also to “take measures to secure employment, such as guaranteeing provisional job stability.”

The governor of the state of Sao Paulo, José Serra, ordered 1.8 billion dollars in credit to be provided to about 15 companies that finance car purchases.

In his view, this was essential to “maintain employment levels in an important sector like car manufacturing, which provides jobs for close to 1.5 million people in Brazil.”

This aid was additional to the help given by the state government of Minas Gerais to the industrial sector, and by President Luiz Inácio Lula de Silva to financial companies, which received 1.8 billion dollars through the Central Bank of Brazil.

“Although this crisis is global, and since September there has been a strong retraction of credit in practically every country, Brazil has managed to minimise these effects,” said Finance Minister Guido Mantega.

“These measures will prevent the crisis from becoming entrenched in our midst,” he added, reminding people of Lula’s promise “not to let poor people go without buying their car.”

The rescue plans were announced at almost the same time as the release of a report by the National Association of Automotive Vehicle Manufacturers (ANFAVEA), which indicated that new car sales in October fell by more than 11 percent compared to the same month in 2007, the worst result in recent years.

The announcement followed another on Wednesday by the National Federation of Automobile Distributors (FENABRAVE), reporting that sales of cars and light trucks contracted by slightly over 20 percent in the first half of November, compared to the first half of October.

The head of ANFAVEA, Jackson Schneider, attributed this to “a significant restriction of market liquidity.”

In Brazil, 70 percent of car sales were financed in up to 72 monthly instalments, which particularly boosted sales of lower-end affordable models.

In Schneider’s view, government help will reestablish confidence and access to loans. But his concerns are focused on what he calls “the most delicate market for us, exports.”

The major international car-makers operate in the country, and sell a significant proportion of their production abroad.

“Brazil’s big problem is that the international credit squeeze ultimately asphyxiates the small banks, producers and investors, who face the higher cost of money. And that could have consequences, mainly in the import and export markets,” said Labour Minister Carlos Lupi.