Popular car: Incentive for automakers will be brief – 05/30/2023 – Market

The incentive program for the purchase of cars of up to R$ 120,000 announced last week by the Lula government (PT) aims to preserve jobs in the automotive chain, which employs around 1.2 million people, directly and indirectly.

The evaluation is by Uallace Moreira Lima, 44, secretary of Industrial Development, Innovation, Commerce and Services of the MDIC (Ministry of Development, Industry, Commerce and Services). He says the plan is conjunctural. Expiry date and subsidies involved, according to him, should be announced in the coming days.

Lima claims, however, that the government is preparing to announce several structural measures to encourage the industry, with the involvement of 18 ministries.

The program was announced on Thursday (25) without it being known so far how long it will last or cost. The following day, Minister Fernando Haddad (Finance) said that it would be short-term and that it might not reach R$ 2 billion. The fact is that dealerships report a sharp drop in sales waiting for the program. Was it rash to announce something not closed? Was the Farm in agreement? For context, the automotive sector in Brazil has an installed capacity of 4.5 million cars, and 84% of production depends on the domestic market. Capacity utilization is very low, and around 13 factories have announced shutdowns. Manufacturers complain about the price of international inputs, which has raised the average value of cars, and there is a high interest rate that makes market dynamics unfeasible.

The sector’s production chain is very extensive. Behind, with sectors such as metallurgical and chemical. Forward, with dealerships, spare parts, gas stations. The sector directly generates 101 thousand jobs and, indirectly, 1.2 million. In this scenario, President Lula asked Vice President Geraldo Alckmin for the Ministry to present a proposal to minimize the problems.

The MDIC doesn’t do anything alone, and the first thing we did was talk to the Treasury to draw up a countercyclical and conjunctural proposal. The conversations were concerned with two dimensions: with the issue of fiscal balance and with sustainability, from the point of view of decarbonization.

If we only consider 1.0 models, this would cover only 10% of the market. We were also not in favor of a linear benefit proposal, which is why the staggering of tax incentives, taking into account three factors: emissions and energy efficiency, the social factor, which is the price of the car, and the density of the production chain, concerned precisely with the effects on the generation of jobs and income.

If a sector like this collapses, we have a very large social effect, which is unemployment. The plan includes a tax scale involving 11 automakers and 33 vehicle models up to R$ 120,000 and a PIS and Cofins tax benefit with a maximum limit of 10.96% and a minimum of 1.53%.

But how long will the program last and how much will be given in incentives? In 15 days we will announce the timeframe, given all the possibilities that we assess regarding the fiscal impact. This is being discussed with the Treasury, respecting the principle of fiscal responsibility. It’s nothing close [em valor] than has been speculated.

Is it around R$ 1 billion, R$ 2 billion? This depends a lot on the time factor that we are going to define, and this is being discussed with great responsibility from a fiscal point of view. We are in dialogue with the Treasury within this principle. From the moment we define the term, we will have the value.

I return to the question: was it not precipitated? Because those who wanted to buy a car are waiting for the program. Cars will no longer be sold in these 15 days that it will take you to announce the program, worsening the situation in the sector, right? Since the debate about industry incentives began, sales had already fallen. What needed to be clear on the 25th is that there would be the program. Because there were a lot of things in the press speculating about a popular, green car. We never had this discussion.

But when this demand came, we began to discuss the short-term, countercyclical program. This debate paralyzed the industry. What we did on the 25th was to say that there will be a program and what criteria would be adopted, so that automakers would have clarity and guarantees of what, in fact, we were proposing.

Brazil will waive taxes with a projected primary deficit of BRL 136.2 billion this year, a BRL 175 billion bill for Bolsa Família and needing about BRL 150 billion more in revenue for the fiscal framework to work . Does it make sense for a program to finance what Lula called the “lower middle class”, or class C, since half of the population, according to the IBGE, lives in families with monthly per capita income of up to R$ 537? This is a healthy debate. But we are talking about a productive chain that involves several sectors, with 1.2 million jobs. The question is: do we then let the sector collapse and impact more companies, which will end up being paralyzed and unemployed?

This is a conjunctural policy. A structural, transforming policy, for income generation, jobs, decarbonization, does not dispense with a conjunctural policy. We are concerned about the effects on the production chain, forwards and backwards, that the sector may face, generating more unemployment. This is our main concern. It makes sense to protect employment and income from a knock-on effect in a sector that represents about 20% of the industry.

Between 2000 and 2021, automakers received tax benefits of R$ 69.1 billion, according to Revenue data. In the 1990s, they employed 117,000 people. Today, there are 101 thousand, with a fourfold increase in production. How do you rate it? Since 2015, with the low growth of the economy, the sector has been going through a very big crisis, as it depends on the domestic market. We have not had sustainable growth to evaluate the number of jobs generated in this sector and, with the current very low level of capacity utilization, this could get even worse.

When you bring up the issue of job creation in the sector, there is a debate about whether new technologies generate more jobs or not. South Korea has the highest level of robotization in the world and has an unemployment rate of 3.7%. In this perspective, technology and innovation can destroy or create new types of jobs.

We need to assess well which are the new types of jobs that the technologies incorporated in the structures of the automotive industry are generating. Not only directly, but indirectly as well, as in the service sector.

In the case of the automobile industry, if there is a problem in the internal market, we have, on the other hand, the world. Why doesn’t the industry become more sophisticated to export more? The automotive sector currently exports predominantly to the South American market, where one of the main destinations is Argentina, which is in crisis. What we want now is to solve a situational problem.

Structurally, with Rota 2030 [programa federal para apoiar o desenvolvimento tecnológico, a competividade, a inovação, a eficiência energética e a qualidade dos automóveis] there is the main objective of decarbonization. Explore all possible routes to accelerate the decarbonization of Brazil and, at the same time, encourage innovation and greater international insertion. I believe that the automotive sector is very clear about the need for greater insertion abroad.

There are 80% of industries in other sectors. If the government adopts a program of this type, why not others, such as agroindustry, which still exports most products without processing? On the day the program was announced, the BNDES, which is linked to the MDIC, announced a BRL 20 billion credit over four years [corrigidos] by TR [Taxa Referencial, um dos componentes que corrigem a poupança e o FGTS] for innovation. That same day, the BNDES announced a credit for industrial sector exports of R$ 2 billion.

And the MDIC and the Treasury announced a partnership around the proposition of an accelerated depreciation policy to stimulate productive investment throughout the country’s production chain. In this same announcement, minister Alckmin said that he has been talking to the president of the Senate, Rodrigo Pacheco, to help approve law 4,188, of the new framework of guarantees, for credit. Given that the interest rate in Brazil is high, the approval of this law could contribute a lot to the reduction of the banking “spread”.

We are working now on the CNDI [Conselho Nacional de Desenvolvimento Industrial], made up of more than 18 ministries, in addition to the BNDES, to present a proposal for an industrial policy of a structural nature. CNDI is working to announce, as soon as possible, an industry plan with all ministries working in partnership.

In previous PT governments, between 2003 and 2016, the BNDES acted strongly to finance some sectors, companies and the so-called national champions. What is your assessment of this? About the BNDES’ past, I think this can be discussed with the president of the BNDES. I have a lot of respect for the issue of institutionality, of evaluation divisions.

But when talking about industrialization, several elements must be involved. We had industrial policies, but was the exchange rate favorable? Was the interest rate favorable at that time? There are several elements that we bring to the debate to understand the process of deindustrialization in Brazil.

There is a clear diagnosis that deindustrialization was accelerated and premature. Right now, we strongly believe in the neo-industrialization process led by Vice President and Minister Geraldo Alckmin.

In this neo-industrialization, milestones are being set, based on transformations and windows of opportunity that are opening up in the world. One of them is what is conventionally called industry 4.0, with disruptive technologies that open windows in which Brazil has internal capabilities built.

This takes into account both national and foreign companies, which can corroborate this process of strengthening the productive industry in a world in which all countries are implementing industrial policies.

A second point is that we dialogue with the perspective of windows of opportunity that sustainability opens up. Brazil has an extraordinary competitive advantage in this.

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X-RAY | UALLACE MOREIRA LIMA, 44

Secretary of Industrial Development, Innovation, Commerce and Services, holds a master’s and doctor’s degree in Economic Development from the Institute of Economics at the State University of Campinas, was a consultant at the Inter-American Development Bank, visiting researcher at the Korea Institute for International Economic Policy, guest researcher at Russian Institute for Strategic Studies and consultant to the Economic Commission for Latin America and the Caribbean.