Gasgoo.com (Shanghai September 20) - Brazil's purported plan to tax imported vehicles looks set to put a damper on Anhui-based Jianghuai Automobile's (JAC Motors) plans. According to the new legislation, which was enacted last Friday, taxes on vehicles exported from outside of the Mercosur trade union will be raised 30 percent, causing prices on imported vehicles to rise from 25 to 28 percent, sznews.com reported today.
The news is of special concern to JAC, whose Brazilian performance is very strong compared to its Chinese rivals.
According to official legislation, automobile manufacturers must adhere to three rules in order to avoid the tax hike. First, 65 percent or more of the parts used in manufacturing automobiles must come from Mercosur countries (outside of Brazil, including Argentina, Uruguay and Paraguay). Secondly, 0.5 percent or more of the returns must be used for research and development. Thirdly, at least six assembly programs must be completed within Brazil.
Outside of JAC, Lifan and Chery are China's main automobile exporters to Brazil. According to analysts, the motives behind the raise is similar to those behind decision the Chinese government made many years earlier to tax imported automobiles 250 percent: to protect local industry while maximizing inflow of foreign technology.
JAC exported over 27,000 vehicles to Brazil since the start of the year, much more than any other Chinese manufacturer. JAC is currently ranked 14th in the country with market coverage of 0.92 percent. JAC originally planned to export 620,000 vehicles to Brazil between 2010 and 2020. It seems now that the manufacturer may have to change those plans.
JAC's core market in Brazil is still focused around cost-effective vehicles, so it is unreasonable for the manufacturer to raises prices in response to the tax raise. However, it is important to note that the most important for Chinese manufacturers, including JAC, is still their home market, so that tax raises in South America, the Middle East, Africa, Southeast Asia or other regions will still not affect their core sales. Additionally, introduction of similar policies in Russia, India or other countries should not be surprising, as a thriving indigenous automobile industry is of key importance to an emerging market.
