Brazilian Carmakers’ Faustian Bargain
Brazilian carmakers were happy to take the handouts when the government offered them. Now they are realizing they may have made a bargain with the devil.
After car sales plummetted earlier this year, the government granted tax breaks to the industry, which is dominated by the big four - Fiat, Volkswagen, General Motors and Ford. The measure slashed the retail price of cars and helped manufacturers clear a build-up of inventories that was burning a hole in their balance sheets.
Now many manufacturers would like to go a step further and begin rationalizing some of their operations, such as through cutting jobs or production lines for obsolete models. Uh uh! Not so fast. If automakers thought the tax break was for free, they were drastically mistaken. In recent weeks, everyone from President Dilma Rousseff down has made it clear to the big four that there will be no redundancies, please.
The latest to do so was Finance Minister Guido Mantega, who echoed Rousseff on Monday when he said he was happy to see General Motors resolving a dispute with its union over potential layoffs that ended in a decision to delay the proposal.