These are dark days for Brazil's automotive sector. Following Ford's departure in January 2021, Mercedes-Benz announced in May 2023 that it would suspend the contracts of 1,200 workers for three months. Faced with a backlog of car stocks, Volkswagen temporarily halted production in June, citing "market stagnation."
Severely affected by the Covid-19 pandemic, Brazil's automotive industry – the sixth largest in the world – is struggling to recover. After a drop in production due to a worldwide shortage of materials, the market is now facing a demand crisis. To control inflation, the Central Bank of Brazil is maintaining a very high key interest rate, which makes loans more expensive and discourages households from buying cars. As a result, while the country has the capacity to produce 4.5 million vehicles a year, it plans to manufacture only half that number by 2023, threatening over 1.2 million jobs.
Fearing a wave of layoffs, Luiz Inacio Lula da Silva's government launched a subsidy program called the "People's Car" on June 6 to reduce the cost of cars. A total of 1.8 billion reais (around €334 million) in tax credits was allocated to manufacturers: 800 million reais for cars, 700 million reais for trucks and 300 million reais for buses and vans. In exchange for this tax incentive, manufacturers agreed to reduce the selling price of entry-level vehicles by a maximum of 8,000 reais for cars, 80,300 reais for trucks and 99,400 reais for buses.
The measure was a great success. Passenger car loans, originally planned for a four-month duration, were fully subscribed within a single month, while loans for other vehicle categories are currently ongoing. "This was an excellent short-term measure to stimulate the market," said Marcio de Lima Leite, president of the National Association of Automobile Manufacturers (ANFAVEA, Brazil's national association of motor vehicle manufacturers), in a press release, declining to answer our questions. In July, new vehicle sales were up by 24%, compared to the same period in 2022.
Despite these results, the unions remain concerned. "This improvement is not enough to guarantee the continuity of the market throughout the year," said Wellington Messias Damasceno, administrative director of the metalworkers' union in the ABC region, the cradle of the Brazilian automotive industry, located on the outskirts of Sao Paulo. "We're expecting further mass layoffs, contract suspensions and staff cutbacks," he said.
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