Lower Taxes Put More Cars on Road

JOAO VIEGAS is buying his first new car. It's not much - a stripped-down Corsa Wind subcompact with manual windows, no air conditioning, and a sluggish 1.0 liter engine. But Mr. Viegas is as proud as he was when his first son was born.

``It is my car,'' he says. ``Now I no longer have to ride the crowded bus every morning. It is too good to believe.''

Until recently, at least, he would have been right. Viegas could never have afforded a car on his modest income as a salesman at a shop along Avenue Paulista, Sao Paulo's main drag. But his Corsa Wind is one of the country's new ``Popular Cars.''

As part of a 1992 agreement with Brazil's auto industry, the federal government agreed to roll back the stultifying taxes on a small number of entry-level cars - provided they're sold for a fixed price of about $7,350 at current exchange rates. The results have exceeded even the most optimistic expectations. Popular Car sales are the main reason why Brazilian new-car and truck sales will surge past 1.4 million this year - an all-time record. In 1990, the market totaled 800,000.

By most estimates, the market could reach 2 million before the end of the century, ``and we will be the world's fifth- or six-largest automotive manufacturing country,'' notes Luiz Muraca, marketing manager for Volkswagen, which produces cars in Brazil in partnership with the Ford Motor Company under the Autolatina joint venture.

That confidence level is almost more than the auto industry can bear. The Autolatina plant in Anchetta was building 885 cars a day in January. Now it's squeezing out 1,000 Fords and Volkswagens. By November, Autolatina managers say they hope to take the kinks out of enough bottlenecks to boost that line rate to 1,150 cars a day. General Motors do Brasil has its two assembly lines operating 20 hours a day and is readying plans to open a third factory by 1996. The move would boost capacity from 300,000 to 500,000 cars and trucks a year. ``The market is just growing and growing,'' says a smiling Salvador Marcos Pellegrino, one of the owners of Ricavel Chevrolet, a vast and modern dealership on the outskirts of Sao Paulo, Brazil's largest city.

Only a few years ago, that, too, would have seemed impossible. Brazil couldn't pay its foreign debt. Unemployment was rampant, and inflation was surging to 4,000 percent a year. Banks wouldn't lend money, so buyers either had to pay cash or join a ``consorcio.'' The members of the group would make a payment each month, and the consorcio would use that money to buy a couple cars, which were passed out according to a lottery drawing. After several years, everyone in the group would get a car.

It took seven tries, but the government's latest austerity program is finally helping to mend the economy. Inflation is running at only 1 percent or 2 percent a month, and banks are lending money again. Consumer confidence is high, and people are buying cars again.

That is obvious walking around this smog-choked city of 15 million, which makes up 10 percent of the Brazilian population. There's a sulfurous pallor to the air, as smoke belches from the cars and buses trapped in the city's steadily worsening traffic. ``This is a very big problem,'' acknowledges Fernando Canavos, a marketing executive with General Motors do Brazil.

Mr. Canavos notes that the government is spending billions of dollars to improve highway infrastructure, often by carving new roadways through the favelas, or slums, that ring cities such as Sao Paulo. New auto-emissions regulations approximate the standards put into effect in the United States in 1984. Even so, it will take years to get the older cars off the road and replace them with newer ones equipped with catalytic converters.

In the meantime, millions more cars and trucks will join the Brazilian fleet. But there is no one who seriously considers the alternative: slowing the auto industry's growth. ``Our country is completely dependent on the automotive industry,'' Mr. Muraca says.

Automakers such as Autolatina are not only providing jobs and wealth in Brazil but also prestige. And for a country that has struggled so long to meet its potential, it is a dependency that everyone is ready to encourage.

Brazil Passenger Car Sales

Does not include buses, commercial vehicles, and other trucks

1990 713,000

1991 771,000

1992 740,000

1993 1,061,000

1994 1,264,000