Automaker GM sees growing deterioration of Brazil’s business environment

RIO DE JANEIRO, BRAZIL – General Motors’ CEO in South America, Carlos Zarlenga, on Monday, March 8th, made yet another pessimistic assessment of the business environment in Brazil. In reference to Ford’s decision to close its plants, he highlighted that “players’ leaving is evidence of the difficulties in maintaining investments in the country.” In addition, the situation is compounded by the growing shortage of components, which has led to stoppages in several factories.

GM had planned to stop production at the Gravataí plant (RS) in April and May, with the temporary suspension of labor contracts (layoff). But yesterday the company announced that the problem could extend until June. The assembler has not disclosed the number of workers in the plant.

In Betim (MG), 10% of Fiat’s workers (approximately 600 employees) will go on collective vacation for ten days, starting tomorrow. The measure affects second shift workers in one of the three production lines of the assembler, which recently reported a steel and semiconductor supply issue.

Honda will also shut down its second shift at the Sumaré (SP) plant tomorrow due to a shortage of semiconductors, the scarcest item. According to Renault, production at its plant in São José dos Pinhais (PR) was also temporarily interrupted a few days ago due to a delay in the arrival of a ship carrying components from Asia.

Although the lack of components is the effect of disorganization in the supply chain caused by the pandemic, Zarlenga believes that Covid-19 is not the sector’s biggest problem today. According to the executive, the industry is struggling to progress in a country “that continues to discuss problems from the past,” such as taxes and the fiscal issue. “How many years have we been discussing this?”

In his opinion, the problem is not limited to Brazil. “In all of South America, returns certainty are not the same. There is volatility in the exchange rate, in the economy, in politics…” But the main vehicle production base of the whole region is installed in Brazil.

The Argentine executive had very little time to speak yesterday, focusing initially on electric cars. Nevertheless, he managed to present a long list of problems to the audience, mostly comprised of suppliers, at a seminar held by the “Autodata” publishing house.

Zarlenga predicted further price increases for cars this year, mainly due to currency volatility. He pointed out that in 2020 price increases ranged from 15% to 20%. He also said that the shortage of components will not be normalized before the second half of the year.

To make matters worse, according to the executive, the sector does not perceive Brazil as an investment base for electromobility due to this technology’s high cost and lack of infrastructure. This will require Brazil to adapt to a transitional phase until the large-scale introduction of electric cars. But the executive pointed out that even in this intermediary phase, “the technologies prior to electrification require less capital.”

For Zarlenga, even if some companies, such as GM, have preserved investment plans announced before the pandemic, “investment cycles in Latin America will be impacted” in general. “The long-term perspective has changed.”

According to him, companies in the industry took a break at the start of the pandemic, but the resumption revealed a new scenario, which features the effects of problems that were already there. “If someone asked, in October or November, if this [closing Ford’s plants] could happen, no one would say yes,” highlights the executive.

The pessimistic picture drawn by Zarlenga is added to equally negative analyses made by other industry executives soon after Ford announced its decision to discontinue industrial activity in Brazil in January. International sector leaders, such as Luca De Meo and Carlos Tavares, world CEOs of Renault and Stellantis, respectively, also complained about the business environment in Brazil, unfavorable to attracting investments, they said.

A few days ago, Renault announced its decision to reduce the scope of its investments in the country to two years due to the uncertain economic environment. The French automaker programmed to invest R$1.1 billion (US$189 million) in renovating its product line until the first half of 2022. The development of new models was deferred.

GM’s management already knows that its market share will be affected by the long shutdown at the Gravataí plant, as the Onix model, the best selling car in the country, is produced there. Still, Zarlenga believes in the potential to make up for lost time in the second half of the year. “We will have very strong production in the second half of the year,” he stressed.

On the supplier side of the automotive industry, projections suggest that the shortage of components will lead to an increase in the nationalization of parts. “We have to seize this opportunity; we can’t become mere importers,” says Besaliel Botelho, CEO of Bosch.

In his opinion, Brazil is currently paying the price of the impact of restrictions on investments in digital technologies in the 1990s. “Investments turned to countries in Asia,” he highlights.

According to Botelho, the shortage of semiconductors, a worldwide hindrance, comes at a time when this type of component is being increasingly used in cars. He says that embedded electronics represented 20% of a car’s cost in 2000. It increased to 40% in 2020 and it is expected to reach around 50% by 2030.