Brazil's
Auto Industry Shaken by World Economic
Tremors
By DIANA JEAN SCHEMO
TAUBATE, Brazil -- The Volkswagen factory here was built for
better days. Thanks to aggressive streamlining over the last four
years, the plant's
2,304 shift workers, 137 robots and miles of machinery
send another
boxy Gol subcompact or Parati station wagon into the world
every 90 seconds.
But finding homes for all of those cars is something else again.
With the international
financial crisis that wrecked economies in Asia and
Russia now buffeting
Latin America, the Brazilian car industry is slamming
on the brakes.
Shortly, 20,000 of Volkswagen's workers here and at a
plant in Sao
Bernardo do Campo, about 100 miles away, will take 10
days of forced
vacation.
There will be
unexpected time off soon, too, at the factories of other
automakers here
in the Sao Paulo region: 12 days at Ford Motor; two at
Mercedes-Benz,
a unit of Daimler-Benz, 11 at General Motors.
Just two years
ago, Brazil was seen as the most promising new market for
car makers,
the natural gateway to South America and its more than 300
million consumers.
Automakers including General Motors, Volkswagen,
Fiat and Honda
Motor poured billions of dollars into opening plants here,
encouraged by
forecasts of 4 percent annual growth and by new laws that
lowered import
tariffs for companies with factories in Brazil and made it
easier for them
to take money out of the country.
Though manufacturers
remain excited about the country's long-term
prospects --
indeed, Toyota Motor just cut the ribbon on a $150 million
Corolla factory
near Taubate -- today's reality is less promising.
Earlier this
month, as the world financial crisis reduced confidence in the
Brazilian currency
and sparked a $1-billion-a-day run on dollar reserves,
the central
bank responded by doubling interest rates to nearly 50 percent
-- an increase
that is striking the automobile and appliance industries
especially hard.
Devaluations in Asian currencies are lowering prices for
competing Asian-made
products by as much as 20 percent, according to
the auto industry,
which expects its export sales to fall 15 percent this
year from their
1997 levels.
Lately, fears
of an imminent currency collapse have lessened, but a
recession, brought
on by the high interest rates used to maintain currency
stability, now
looks all but inevitable in the year ahead.
In Brazil, Latin
America's largest market, with 160 million people, the end
of hyperinflation
created a growing class of consumers, many of them
blue-collar
workers. The biggest booms were in cars and appliances, with
demand running
so high that steel had to be imported from Argentina to
keep production
rolling here.
Now those consumers
are not only shrinking from the high cost of
financing large
purchases but also fearing their jobs may vanish as the
downturn in
the economy deepens. Economists forecast little or no
growth this
year and next, and unemployment in this region, the industrial
and financial
center of Brazil, is running at 19 percent and expected to
grow. The Brazilian
stock market has bounced wildly throughout the year,
with huge losses
on some days followed by big jumps as investors are
torn between
optimism and pessimism.
The National
Association of Electronic Products Manufacturers reports
that sales of
electronic goods in July, before this month's latest round of
interest rate
increases, had already plunged 30 percent from their levels in
July 1997. In
appliance stores from Manaus to Rio de Janeiro to Rio
Branco these
days, customers look at the rows of television sets,
refrigerators
and stereos but seldom buy.
"When the government
increased interest rates last year, it made
consumers lose
confidence," said Paulo Periquito, vice president for Latin
America at Whirlpool.
"People who lost their jobs and people who were
afraid of losing
their jobs stopped buying." Because sales were so hard hit
over the last
two years, Periquito said that Whirlpool did not expect this
month's interest
rate increase to make much difference.
The National
Association of Car Manufacturers here expects car sales to
shrink by at
least 15 to 20 percent for 1998, compared with sales in
1997. Auto exports
in August dropped 16 percent from levels in August
1997. Volkswagen's
pause in operations will reduce its production by
15,000 cars,
said Antonio Fre, the manufacturing operations chief at the
Taubate plant.
But he said no layoffs were expected.
"Before we reach
the point where we have to let people go, we have a lot
of other measures
we can take," said Thomas Bielefeld, the plant's
director of
human resources.
But labor representatives
are worried. "We're in the middle of a crisis,
and the government
is worried only about re-election," said Paulo Justi,
who represents
employees at the Volkswagen plant here. "As workers
we have to think
not only about today or tomorrow, but about the future,
and the future
to us looks very bleak."
Miguel Jorge,
a company spokesman, said that the highly popular
four-door Gol
(the name means "goal" in Portuguese) was not expected
to slip in sales,
though other models could. Some 15 percent of
Volkswagen's
production goes to exports, principally to Argentina and
Mexico. The
Gol, which is not sold in the United States, is the most
popular car
in Brazil, accounting for one of every four cars sold, Jorge
said.
Over the last
four months, the company has reversed a policy of aiming
for export business
only in large markets, he said. "We used to say: 'St.
Martin wants
to buy 10 Volkswagens? Oh no, 10 cars is too few; it's not
worth the trouble.'
Now, we'll send 10 cars. Five cars we'll send. There is
no longer any
market too small for us."
The first tremors
from the tumult elsewhere in the world reached Brazil
last fall, as
investors who had lost money in Asia and Russia became
skittish about
investing in nearly all emerging markets. Since then, Justi
said, trends
in the auto industry have grown steadily more threatening for
the Volkswagen
workers. Faced with company plans to lay off 10,000
workers last
year, the union agreed to a buyout plan and voluntary
retirement for
more than 4,000.
Workers also
agreed to give the company more flexibility to tackle the
crisis with
three "tools." The first was a bank of hours. Workers would
stay home to
slow production and make up the time when the company
wanted to step
up production. The second was a bank of days that
functioned the
same way. The last was collective vacations.
"The fourth tool is going to be layoffs," Justi said, and shook his head.
Though Volkswagen
and a number of other automakers signed
agreements with
the ABC Metalworkers Union, which represents auto
workers, guaranteeing
jobs through December, workers are worried
about their
prospects after the New Year.
"This crisis
hasn't even really begun to take its toll," said Joao Antunis, the
union representative
for auto workers at the two Volkswagen plants and
two others.
The layoffs, he predicted, would begin with the automakers,
then hit parts
suppliers and then whip through the suppliers of the
suppliers. The
union leadership is floating a plan to occupy the Via Dutra,
an important
north-south highway that runs through Sao Paulo. Paralyzing
this commercial
artery, they think, will force the government to take their
plight into
account.
"Obviously, the
union is going to work, to pressure for a dialogue with the
companies and
with government so that there won't be layoffs," said ABC
Metalworkers
Union president Luis Marinho in an interview at union
headquarters
in Sao Bernardo do Campo. "But sincerely, I don't believe
that we're going
to be able to avoid layoffs."
The union represents
80,000 of the 117,000 workers in metal-related
industries in
metropolitan Sao Paulo. According to its analyses, car sales
are not likely
to reach their level of last November for at least another
year.
"The recession
is only going to get worse," said Moises Selerges Jr., a
33-year-old
union member who works at Mercedes-Benz. "We're in the
boat, water's
coming in, and we're sinking."
At car dealerships,
the central bank's increase in interest rates this month
might as well
have been an evil magician's wand, instantly making sales
disappear. Last
month, after the government reduced a tax affecting cars,
domestic auto
sales surged, registering 13 percent over August sales in
1997. But they
fell dramatically with the interest-rate increase this month.
Outside Rio de
Janeiro, at Recreio Vehicles , the biggest Volkswagen
dealership in
Brazil, sales fell 30 percent after interest rates on typical
two- or three-year
car loans rose to 4 to 6 percent a month from 2.5 to
3.5 percent
a month.
"The market is
very unstable, so the interest rate can vary more than once
in the same
day," said Mario Rubino, the manager of the dealership.
Dulcemar Portilho
Baliera, a 28-year-old bank employee, was looking
over the cars
for sale but did not expect to buy. "So far, I haven't had to
change my standard
of living, but I think we're headed for recession," she
said.
Ms. Baliera said
that now, when poverty could lie a paycheck away, was
not the time
to splurge on a car at such high rates. "In a recession, the
ones who suffer
most are the ones who have the least," she said.
Luciana Silva
Vieira, 28, a systems analyst, was more optimistic. She was
trading in her
Chevrolet Corsa, a small hatchback, for a new Gol at an
interest rate
of 5 percent a month, or 60 percent a year. "Maybe I'm
rushing things,
but I was able to get a really good price for my car," she
said.
Ms. Vieira said
she did not expect a currency devaluation, which would
probably lead
to a return of inflation, after the election. "If there's one
good thing about
Fernando Henrique Cardoso, it's that," Ms. Vieira said,
referring to
the Brazilian President.
The gloomy economic
news, she said, had not affected her standard of
living in the
least. "But I'm such a little fish," she said.