U.S. auto giant General Motors is likely to put on hold its plans to invest $1.6 billion in ramping up operations in Brazil. In an interview published earlier this month in O Estado de S. Paulo, Brazil’s fifth-largest newspaper, GM’s president Dan Ammann said that GM might reconsider its plan if economic conditions do not improve.
It is true that the conditions are not rosy for the auto industry in Brazil, but GM tends to make such statements during election years in the United States. The carmaker made similar statement in 2012, when it announced to cut technology outsourcing and hire as many as 10,000 tech professionals mainly in the United States.
In January this year, GM fired about 800 workers at a São Paulo factory, casting doubt on its expansion plans. The U.S. firm runs at least five plants in Brazil, two of which make components for vehicles produced at the other three. For the fourth quarter last year, GM’s South American unit reported $47 million in loss, versus a $119 million profit a year ago.
But Brazil’s government is talking of supporting auto companies. According to Reuters, Brazil is likely to propose free trade in vehicles and auto parts with Latin American neighbors.
Supporting auto export is inevitable for Brazil, because the crisis in the sector has already thrown one in six autoworkers out of a job over the past two years. Moreover, the country is a major base of operations not only for GM Brazil but also for several other global auto companies including Fiat Chrysler, Volkswagen, and Ford Motor.
According to national automakers’ association Anfavea, production of cars and trucks in Brazil dropped 29% in January from a year earlier. Production is likely to decrease in the months to come, because inventories are ballooning while sales are dropping.
Faced with the downturn and labor strikes, auto companies are demanding for reforms to its tax, labor, and regulatory laws.