Auto sales in Brazil, the world’s fourth biggest car market, staged a comeback in July after the government intervened with tax breaks designed to revive an industry seen as crucial to economic growth.
The 8.8 per cent rise in vehicle production compared with June came as General Motors and its main union agreed to delay proposed lay-offs only a week after Dilma Rousseff, Brazil’s president, warned automotive makers against job cuts.
“The automotive industry, alongside recording increases in sales, must also guarantee there are no lay-offs,” said Guido Mantega, finance minister, commenting on the GM case. “The federal government will be vigilant about ensuring this.”
Brazil’s government cut excise taxes for the industry after sales plummeted this year on the back of competition from imports and souring automotive loans.
But the administration has become increasingly concerned that car companies might lay off workers in spite of the tax breaks, with Ms Rousseff warning that there was a direct link between preserving jobs and receiving government tax breaks.
Her Workers’ Party-led centre-left government has maintained its popularity with voters in spite of a slow in economic growth, partly because unemployment remains at record lows, analysts say.
The automotive industry manufacturers association, Anfavea, said on Monday that the number of vehicles produced in July rose to 297,800 units, up 8.8 per cent compared with June.
The number of new cars registered during the month, an indicator of sales, rose 3.1 per cent compared with a month earlier or 18.9 per cent year on year.
The figures, which follow a strong June for car sales, represent a comeback by the industry.
But during the first seven months of this year, production is still 8.5 per cent lower than a year earlier while sales are up 1.8 per cent.
Itaú-Unibanco said in an analyst report that while sales were rising, clearing out inventories, production was yet to stage a strong comeback.
This indicated that overall Brazilian industrial production was likely to have been flat in July, continuing a weak performance in June that has been undermining economic growth in the world’s second largest emerging market.
“After a slow 0.2 per cent growth in June [industrial production], the data points to a mere stabilisation and not a pick-up in manufacturing activity into the third quarter,” Itaú said.
GM agreed to put off until November its plan to fire 1,840 workers at a factory in São José dos Campos near São Paulo after nine hours of negotiations on Saturday.
The São José dos Campos Metalworkers Union said GM would keep on 900 workers at the factory, which produces GM’s so-called Classic car, until November under the new proposal, which must be voted on by the workers on Tuesday.
The company will remove the other 940 workers from the production line until November 30, but will continue to pay them and retrain them for work in other areas.
The federal government has agreed to pay R$1,163 ($572) for each worker laid off, while GM will pay the remainder of their salaries.
“We will continue to demand measures from the government that put an end to these redundancies,” said the president of the São José dos Campos Metalworkers Union, Antonio Ferreira de Barros.
The automaker will also open a voluntary redundancy programme across the whole factory.