The good investment by car manufacturers is not a record – 03/07/2024 – Vinicius Torres Freire

Automakers have announced large investments. The first reaction of many people, including this journalist, is one of slight optimism, given the quagmire the country has found itself in since 2014. But, however good the outlook may be, it is not quite like that.

To start with the most “pop”, it’s hardly a record. According to the numbers compiled by Anfavea, the association of car manufacturers, the investments announced for the years ranging from 2021 to 2032 reach just over R$116 billion.

So far, “…the period of the Inovar-Auto program [de subsídios federais]from 2012 to 2018, had the highest volume of contributions, with R$85 billion”, also in announced investments, reads a note from Anfavea.

As it is not known how much the investment was in each year from 2012 to 2018, it is difficult to correct values ​​for inflation and compare them with current announcements.

Even if it is assumed that all of those R$85 billion were invested in 2018, the corrected value would be at least similar to the value announced now (R$116 billion). As some investment was made before between 2012 and 2017, the value of that “cycle”, which is shorter, is much greater than that of the current one.

Some companies say that federal subsidies from the Mover program, for “green” technological updates, have encouraged part of the investment plan. Subsidy is the central issue.

In today’s prices, the value of investments announced for 2021-2032 would be R$9.7 billion per year, on average. In the case of the automotive sector, the Federal Revenue predicts loss of revenue due to tax waivers (“tax expenditure”) of R$9.64 billion in 2024.

In 2012, Inovar-Auto started. From then until 2023, the value of direct federal subsidies, adjusted for inflation, was R$73.8 billion. Average of R$6.2 billion per year, if the Revenue’s tax expenditure estimates were correct.

These are just direct federal subsidies. State tax waivers are not included in the account. As we know, states give up revenue in order to attract factories, with economic and social results that are controversial to say the least. There may also be implicit subsidies in low-interest loans from state banks. In short, the value of the subsidy goes well beyond federal tax expenditure.

In an unintelligent account, someone could say that the money that comes in through one door comes out the other: the predicted value of federal subsidies for the automotive sector this year is similar to the annual average of investments predicted for the years 2021 to 2032 .

It’s not quite like that either, especially because automakers end up paying taxes. With less or no subsidy, the investment could be less or none. We do not know. This is a problem. It’s not the only one.

The bulk of federal subsidies have gone to less industrialized regions, with inadequate infrastructure, etc. Thus, the investment can be made not based on the return of the business, but on the return that takes into account income offered by the government (federal, state). It may well be a less productive investment, inefficient use of capital, which results in less growth.

We always need to try to know if there is a more productive alternative use for any expenditure, “tax expenditure” as well.

Furthermore, we do not know whether, with such subsidies and protections against imports (tariffs), we are avoiding increased efficiency through specialization and economies of scale in certain products.

We need more economic, technical and difficult studies. To complete them, it is necessary to know what the strategy of these companies would be in the face of different taxes and tariffs, in addition to an estimate of what the size of the Brazilian and global market will be.

The euphoric talk of a record doesn’t mean anything, it’s easy to see.

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