Brazil has some of the most expensive cars in the world. This is a fact. The very same car sold in Mexico for Real 25,800.00 (equivalent to US$15,300.00) retails here for Real 56,210.00 (US$33,310.00). Surprised? Let’s look at some of the main reasons.
This largest of South American countries has an enormous tax revenue, a relatively low production rate and a high cost workforce. The manufactures here have to pay benefits such as transportation and medical assistance, benefits which in other countries are paid by the government.
Even though total production has increased, that total comprises the output of more than 20 different companies, so the scale remains low.
The high taxes are down to what we in Brazil call “Custo Brasil”, which translates literally as “Brazilian cost” – the high tax revenue added to capital cost which burdens production.
The country’s vehicle output raises an interesting question: at the end of 2010, Brazil was the fifth-largest vehicle manufacturer in the world, and the fourth-largest consumer market, with an annual output of over three million units. Shouldn’t that be enough to push prices down? Apparently not…
According to Cledorvino Bellini, President of Brazil’s National Association of Automobile Manufacturers (ANFAVEA), even though total production has increased, that total comprises the output of more than 20 different companies, so the scale remains low. Bellini states that a production total of five million vehicles per year would be necessary to reduce consumer prices.
Another reason for the high prices paid in Brazil is the profit that manufacturers make on certain car models. According to the British investment bank, Morgan Stanley, some vehicle manufacturers located in Brazil are responsible for a critical global share of their headquarters’ profit, and much of these profits come from vehicles that seem to be exclusively off-road variants, which are a success here.
These vehicles are generally between 5-7% more expensive than their mainstream equivalent. They are equipped with “off-road” features such as an elevated suspension, off-road tyres and car racks. As the profit margins here are almost three times higher than in any other country, this kind of vehicle reaches the consumer at a 10% to 15% higher price.
Although tax rates in the automotive industry are still very high, they are decreasing, and some government measures have helped, such as tax relief during the global economic crisis.
So it can be concluded that taxes are not the only cause of high car prices in Brazil – there are other aspects that lead to inflated prices and overwhelming profits. Although tax rates in the automotive industry are still very high, they are decreasing, and some government measures have helped, such as tax relief during the global economic crisis.
And the automotive industry is not the only industry to “suffer” from high taxation. Other Brazilian industries, such as electronics and clothing, have also increased rates, leading to high market prices. Some say that Brazilian people are used to that… Are we, really? Perhaps it’s time for a careful analysis of the situation.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Jeannette Galbinski is the Director of Setec Consulting Group (www.setecnet.com.br). Setec Consulting Group is one of the largest consulting, training and auditing companies in Latin America. Founded in 1994, it is headquartered in Sao Paulo, Brazil, with offices in Manaus (Brazil), Buenos Aires (Argentina) and Santiago (Chile).
Jeannette Galbinski has a doctorate in Production Engineering from the University of Sao Paulo (USP), M.Sc. Quality and Reliability from Technion Institute of Technology and a degree in Statistics from USP, and she specialised in Industrial administration at Fundacao Vanzolini. Jeanette is a certified Master Black Belt and international consultant specialised in implementing Quality Systems and Tools and Six Sigma projects. Jeannette also writes for Banas Qualidade, Brazil’s most recognised quality magazine.
The AutomotiveWorld.com Expert Opinion column is open to automotive industry decision makers and influencers. If you would like to contribute an Expert Opinion piece, please contact firstname.lastname@example.org