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Brazilian Auto Industry | Beemers Built in Blumenau?

It is not by accident that the Brazilian automobile sector has been the showcase of industrial policy under a president whose political career emerged from the auto workers unions of the São Paulo metropolitan area.

It is no surprise, either, that FIESP president Paulo Skaf — the Industrial Federation of São Paulo State — is endorsing the PT’s candidate for mayor, Fernando Haddad.  This here is not Venezuela. Corporate interests have enjoyed a seat at the table from the get go.

In contrast with other sectors — telecommunications, media, agribusiness, logistics —  the auto market already seems more modern, diverse and competitive and has attracted foreign investment to manufacturing for Brazil’s promising internal market.

Stuck in the city’s legendary traffic jams, you can bide the time birdwatching the economy models of U.S. and European brands — Citroen, Renault, Mercedes, Fiat, VW —  as well as Asian vehicles — the recently launched Chery of China, Honda, Toyota, Kia, Nissan.

Source: Estadão Conteudo, via Yahoo! Notícias.

On Friday, October 20,  BMW announced through its press office that its Brazilian president, Henning Dornbusch, will meet with President Dilma on Monday to formalize the company’s plan to build a factory in Brazil and to announce its location.

BMW has intended to build vehicles in Brazil for some time now — an intention bolstered by the new regulatory scheme for the industry, known as Inovar Auto, which will take effect in 2013.

BMW has yet to confirm whether the factory will be located in  Santa Catarina or  São Paulo.

Santa Catarina has Brazil’s largest concentration of tropical Germans — the Oktoberfest in Blumenau gets national coverage this week, for instance.

Contacted for comment by the Agência Estado as to the choice of the southern state, BMW spokespersons were not to be found.

“This is a victory for Santa Catarina. Every time an industry of this size is installed, others grow up around it, generating employment and income. In this way, the economy as a whole develops significantly and becomes more competitive,”says Colombo, emphasizing that the official ceremony marking the project will be held on Wednesday, October 24. In the first stage alone, the factory should create 1,500 jobs.

Business newsweekly Exame (Editora Abril) summarizes the main points of the Inovar Auto policy. I translate.

[On October 4, 2012] the federal government published in its Official Diary the decree that regulates the Inovar-Auto program. The program responds to certain auto industry requirements that, if met, could compensate for the 30% hike in the tax on imported vehicles as well as on vehicles containing less than 65% domestically produced parts, instituted in 2011.

According to the Ministry of Development, the main goal of the program is “to encourage production of safer, more economical vehicles;to drive investment in the supply chain,  engineering, basic technologyand research; and to train suppliers.”  In exchange, companies that manufacture vehicles in Brazil and those that present investment plans may earn the right to a 30% discount on the IPI tax.

IPI: Tax on industrial finished goods.

The criteria for receiving the tax creditor are: energy efficiency first and  foremost, followed by increased safety and an increase in spending on engineering, basic industrial technology and licensing of suppliers. Treasury minister Guido Mantega believes the program will make vehicles cheaper and create jobs.  Nelson de Souza, an economist at Ibmec, says the program will make cars cheaper, but job creation will not be as intense as expected.

In Souza’s view, Inovar Auto is designed to encourage foreign manufactures to form value chains in Brazilian territory. Souza also points to goals set for industrial companies already installed in Brazil.  “It sets goals for investment in research and safety, which should be a good thing. If we continue as before, we will continue to have cars of less than stellar quality that are still too expensive.”

The goal for reducing  fuel consumption will be imposed on manufacturers as a condition for participating in the reformed auto market. Cars produced under the program will be required to use 12.08% less fuel than current models, on average.