UPDATE 2-Brazil auto sales fall for 1st time in decade, rebound looks weak

Tue Jan 7, 2014 10:23am EST

By Brad Haynes and Marcela Ayres

SAO PAULO Jan 7 (Reuters) - Motor vehicle sales in Brazil are likely to stage a feeble recovery in 2014 from their first annual drop in a decade, an industry group said on Tuesday, as tighter credit and higher taxes stifle the world's fourth-largest car market.

New auto sales should rise 1.1 percent this year after falling 0.9 percent in 2013, according to national automakers' group Anfavea - sour news after sales averaged double-digit annual growth in the previous 10 years.

Auto production is also expected to be stagnant, with output seen up just 0.7 percent as expiring government incentives and new safety requirements push up production costs, according to Anfavea.

The slump underscores the extent of an economic malaise hanging over the Brazilian economy. Carmakers have long complained of stifling taxes and labor costs, but government incentives at least kept dealerships buzzing - until now.

Sales growth is seen slowing to just 3 percent per year over the next decade, down from the double-digit bonanza of the past ten years, according to economists advising an association of Brazilian car dealers.

Traffic-choked cities and rising family debt loads have worsened the slowdown, defying the costly tax breaks that President Dilma Rousseff offered the industry in the hopes of protecting coveted factory jobs.

Rousseff's stimulus boosted sales when they were first rolled out in 2012, but economists warned that the temporary measures only affected the timing of purchases rather than underlying demand. Dealers expect sales to stagnate or fall again this year, as the taxes are gradually restored.

Higher interest rates and more expensive mandatory safety equipment may also put new cars - an emblem of Brazilians' rising affluence over the past decade - out of reach for more families.

That means diminishing returns for carmakers who cashed in on Brazil's booming middle class. The biggest investments in Brazilian factories have come from Italy's Fiat SpA, Germany's Volkswagen AG, and U.S.-based General Motors Co and Ford Motor Co, which account for more than 70 percent of vehicle sales in Brazil.

The major brands all accelerated sales in the last month of 2013, as consumers jumped at holiday deals before the return of higher tax rates.

Fiat remained Brazil's top seller of cars and light trucks in December, with about 65,200 new registrations. VW barely held second place ahead of GM, selling some 61,900 passenger vehicles compared with the U.S. automaker's roughly 61,200 cars and light trucks. Ford sold about 31,500 vehicles.

French car maker Renault SA maintained its lead over Hyundai Motor Co with about 25,800 new registrations versus the Korean rival's roughly 22,100 sales.

Altogether, auto sales in Brazil jumped 16.8 percent in December from November. Production fell 18.6 percent in the month as high inventories and year-end holidays slowed assembly lines.

Anfavea forecast Brazil's automobile exports will grow 2.1 percent this year, slowing sharply from a 26.5 percent jump in 2013, as Argentina moves to reduce Brazilian car imports, which contributed to its eroding trade balance last year.

Exports to Argentina and new tariffs on imported cars helped lift the output of Brazilian auto factories 9.9 percent last year, recovering from a 0.9 percent drop in 2012.

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