Brazil Moves to Get Frozen Auto Industry Rolling Again

President Fernando Collor announced measures Tuesday to help Brazil’s automobile industry, nearly paralyzed for the past month by a government austerity program aimed at controlling inflation.

Brazilian subsidiaries of General Motors, Ford and Volkswagen put most of their workers on paid leave in late March as a result of the austerity program, which reduced domestic car sales to a trickle while bringing inflation of more than 80% a month down to 0 in April.

“The first stage, that of conquering inflation, has been carried out,” Collor said Tuesday. He predicted that in 100 days Brazil will be celebrating “not only the definitive end of inflation but also the decisive and vigorous resumption of our economic growth.”

One of the measures he announced will release frozen funds to purchasing “consortiums,” which are widely used in Brazil as a form of financing retail sales of automobiles. The other measure grants the auto industry a 30-day grace period for payment of a heavy tax on cars delivered to retailers.

Both measures had been requested by the industry.

“We all are aware of the vital importance of the automobile industry in the economic activity of our country,” Collor said.

On March 16, the day after he took office, Collor announced anti-inflation measures that included an 18-month freeze on most deposits in savings accounts and financial markets. The freeze took the equivalent of about $80 billion out of circulation, curtailing major purchases by consumers and interrupting the cash flow of businesses.

General Motors and Autolatina, a joint venture of Ford and Volkswagen, were forced to borrow funds to meet payrolls. Both shut down production lines.

The austerity program “practically immobilized all the company’s resources,” an Autolatina press spokesman said.

General Motors put 15,000 of its 23,000 employees on paid leave. Autolatina did the same with 28,000 of its 45,000 employees.

Fiat, Brazil’s other major automobile manufacturer, has put only about 7% of its 19,500 employees on leave and has maintained production at levels 70% of normal. But most of Fiat’s production is for export.

Autolatina currently has 6,000 cars in stock, 2,000 VWs and 4,000 Fords. This month, it has sold only 5,000 cars, about a fourth of the normal sales level, an Autolatina spokesman said. General Motors has 5,000 cars in stock and has sold 6,000 since mid-March.

A General Motors spokesman said the release of frozen funds to consortiums, which account for about 30% of all car sales in Brazil, will inject new life into the market. Retail purchasers make monthly payments to consortiums, which stagger car deliveries to the purchasers according to a lottery system.

Most consortium deliveries had stopped because their funds were frozen March 16. The release of those funds will permit car deliveries to customers who began making payments to consortiums before the freeze.

The 30-day grace period granted to car makers for payment of the tax on industrialized products was requested by the industry to help solve cash-flow problems. The tax is about 45% of a car’s value.

Auto executives have emphasized in recent days that favorable government measures will not return the industry to normal levels immediately. Luiz Carlos Mello, president of Ford do Brasil, said Autolatina expects its operations to remain at a modest level for the next 60 to 90 days, “although all the measures will have a positive effect on the market.”