Brazil Launches Auto Stimulus Program

The Brazilian government has announced an initiative to boost the country's sagging auto industry by cutting vehicle taxes and loosening bank rules to encourage more car loans.

Brazil's central bank will allow banks to use 18 billion reals (€6.9 billion) from their reserves to finance auto purchases. State development bank BNDES has agreed to reduce interest rates on loans for some machinery and industrial equipment.

Sao Paulo has lowered vehicles taxes levied on automakers and car buyers through Aug. 31. The corporate tax relief is expected to benefit local producers Fiat, Volkswagen, General Motors, Ford and Renault.

In exchange, carmakers agreed to refrain from firing workers and cut prices of cars, trucks and buses by 1%-2.5%.

About 70% of passenger vehicle purchases in Brazil are financed by loans. But banks have tightened credit because of rising defaults on auto loans. Car sales fell 11% year over year to 257,900 units last month, according to local trade group ANFAVEA.