Volkswagen AG, Europe's largest automaker, plans to invest 6.2 billion reais ($3.55 billion) in Brazil from 2010 to 2014 as sales in Latin America's largest economy rise to a record.
The Wolfsburg, Germany-based automaker would use 40 percent of the investment to increase car production, Thomas Schmall, chief executive officer of Volkswagen's Brazil unit, told reporters in Sao Paulo today. "There's a huge growth potential in Brazil."
Volkswagen is following Ford Motor Co., which last week announced plans to increase investments in Brazil to $2.3 billion in the next five years. Companies are boosting spending to expand capacity in the country as vehicle sales head to a record 3 million units this year.
Sales of new cars, trucks and buses rose to 2.6 million in the year through October, 6.1 percent more than in the corresponding period a year earlier, according to the Brazil automakers' association, Anfavea, which estimates automakers would spend $18.1 billion in the four years through 2012 to increase potential output to 6 million.
Schmall expects demand for vehicles in Brazil will rise between 3 percent and 6 percent next year. Volkswagen sales may increase as much as 8 percent, he said.
"It's a joint commitment: if the government cuts taxes, which has a cost, we must do our part," Schmall said.
Tax Cuts
The government slashed taxes on vehicles purchases in December 2008 after sales plunged 30 percent in November and companies including General Motors Co. and Fiat SpA announced production cuts. This week, the finance ministry extended some of the tax cuts through as far as June to help sales of less- polluting cars and trucks.
"We are stimulating consumption to say: Brazil will have a market, Brazil will be the future of the global automotive industry; we have domestic demand," Finance Minister Guido Mantega told reporters yesterday. "What's missing in the Brazilian economy today is to stimulate investment."
Taxes for lower-priced cars were cut to zero from 7 percent under the temporary reduction. Levies on more-expensive cars, which reached as much as 13 percent, were cut by half. Taxes on purchases of trucks have been reduced to zero from 5 percent since July.
Brazil is the world's fifth-largest vehicle market, according to Anfavea. Volkswagen is Brazil's second-largest vehicle maker, behind Italy's Fiat and ahead of GM and Ford.
