Gasgoo.com (Shanghai October 3) - With the Brazil's to raise taxes on imported vehicles, many Chinese companies, hoping to thrive off exports to the developing economy, have had no choice but to reconsider their plan of attack. Brazil's government has ordered a 30 percent tax hike on vehicles from foreign companies with a localized production rate of less than 65 percent, with final tax rates between 37 and 55 percent.
Industry insiders believe that this move would raise the prices of exported cars by 25 to 28 percent. The legislation is especially targeted towards Chinese and Korean cars, with the aim of protecting the local industry. Chery, Hafei and Jianghuai (JAC) will be most affected by the move.
The Brazilian market is currently the fifth largest in the world. Although Western manufacturers have had their eyes on its for a long time, it is Japanese, Korean and Chinese companies which have seized on it in the past two years. In 2008, three Chinese brand, including Changan, first entered the country. The manufacturer only managed sales of 1,031 vehicles that year, a figure which has multiplied over ten times in the following three years. Currently, Chery, JAC, Lifan and Hafei are the largest Chinese manufacturers selling to the country, with only the first having plans for Brazilian production of its vehicles (the factory is scheduled to open in 2013).
Ever since its entry into Brazil in 2009, Chery made a record sales result of 18,000 vehicles in the first half of this year, equal to a year-on-year growth of 321 percent. This is compared to the 25 percent growth in the manufacturer's overall sales. Chery has already opened over 80 dealers in the country. Meanwhile, JAC's cumulative Brazilian sales in the first seven months of the year reached 27,000 vehicles. JAC, Chery and Hafei currently rank 14th, 15th and 16th in the country, respectively. Chery and JAC, being the largest Chinese exporters to Brazil, will be especially affected by the new legislation. In an interview with the National Business Daily, Chery Spokesman Jin Yibo said that the company was currently thinking of a suitable policy.
The trade barriers will prove another obstacle to the Chinese industry, which is already cooling down. Manufacturers will have no choice but to increase the number of its factories located overseas. Russia, which in 2008 the largest importer of vehicles for the Chinese industry, saw its sales volume decrease drastically following the introduction of tax increases. Currently, Russian vehicle imports only number in the hundreds. It remains to be seen whether or not Brazil will be a repeat of this case.
Source:gasgoo