UPDATE 1-Brazil auto sales sink in Jan after holiday spree

Thu Feb 6, 2014 8:13am EST

SAO PAULO Feb 6 (Reuters) - Motor vehicle sales in Brazil fell in January, a month after consumers flocked to dealerships in the world's fourth largest car market to take advantage of holiday discounts and expiring tax breaks.

Automobile sales dropped 11.7 percent in January from December after having risen 16.8 percent in the previous month, according to data from industry group Anfavea on Thursday.

President Dilma Rousseff's government cut taxes on automobiles in 2012 in an effort to boost manufacturing, spur consumption and protect jobs. Many local car-buyers were concerned that the taxes would be fully re-instated at the start of the year, leading to December's soaring sales numbers. Brazil's finance ministry eased those fears only late in December, saying that the tax would be re-introduced gradually.

While the stimulus supported the car industry when they were first rolled out, economists have 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 restored.

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.

Auto production rose 2.9 percent in January from February, as factories returned from year-end holidays. Output had fallen 18.6 percent in the previous month.

Brazil is a key market for the world's biggest automakers, including Italy's Fiat SpA, Germany's Volkswagen AG and U.S.-based General Motors Co and Ford Motor Co.

Fiat remained Brazil's top seller of cars and light trucks in January, with 63,049 new registrations. VW held second place ahead of GM, selling some 56,133 passenger vehicles compared with the U.S. automaker's roughly 53,892 cars and light trucks.

Altogether, automakers in Brazil produced some 237,500 new cars and trucks last month, while sales totaled about 312,600 vehicles, Anfavea said.

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