Auto Industry Shaken by World Economic
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.
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.
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.
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.
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.
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."
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
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.
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.
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.
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.
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
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.
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
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.
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
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.