While Car Sales Plunge in the US, in Brazil They Are Up

Fiat Brazil Brazil and Germany saw car sales soar in February helped by tax breaks and a cash bonus to scrap old vehicles. In Brazil, Fiat SpA reported its third straight sales increase in February and in Germany sales rose by 22% compared with the same month last year, reaching their highest level in 10 years.

At the other extreme US car sales plunged between 37% and 54% while the world's top auto maker Toyota has requested financial aid from the Japanese government.

Fiat, one of Brazil's top two car makers sold 44,980 vehicles in February, according to in-house preliminary numbers compared to 43,312 cars and trucks in January.

Fiat said it owes the latest round of car sales to the temporary reduction of the IPI industrial production tax. Car companies were already reducing sticker prices to cut back on the number of unsold vehicles sitting on their lots.

These measures coupled with the government tax break, has relaxed new car prices by 10% to 15% according to Fiat. General Motors the other Brazilian top car maker revised its preliminary February numbers higher after having reported sales slightly over 30,000 vehicles with just two days left in the month.

In Germany the main reason for the boom is a 2.500 Euro government incentive for car owners to get rid of their old vehicle and buy a new replacement. A total of 277,800 vehicles were sold in Germany during February - the first time in six months that German car sales have risen.

"This is the strongest level of February sales in 10 years," said Matthias Wissmann, president of the car federation VDA that released the figures.

And he expects the strong sales to continue: "We expect that, in the first quarter as a whole, domestic sales will be above the previous year's level."

The VDA said that registrations of German manufacturers' cars rose 9% to 172,700 vehicles, while those of foreign cars rose 48% to 105,100.

The impact of the government incentive on domestic sales was highlighted by the slump in exports. The number of German cars exported fell by 51%, to 201.900.

In Brazil however industry executives are concerned that when the IPI tax returns on April 1, car companies will either have to pay that tax themselves, or transfer it to consumers. Taking on the IPI will cut into revenue at a time when car sales are already in decline in comparison to last year. Transferring the burden to consumers could easily translate into lower sales starting as early as April.

Brazil's car sales began declining in November when it became apparent that the US banking crisis would have an impact on local credit markets. Banks reacted by raising rates and shortening payment terms and down-payment requirements on new vehicles. Brazilians reacted by staying home.

The situation in Brazil and Germany compares favorably with the United States where Ford, General Motors, Toyota and Nissan reported sharp drops in vehicle sales as consumers remain reluctant to make expensive purchases.

GM's sales plummeted 53% in February from a year earlier, Ford's fell 48%, Toyota's dropped 40% and Nissan's declined 37%. Earlier, Toyota, the world's biggest carmaker, said it was seeking a loan from the Japanese government to help its car financing unit.

Toyota has said it expects to report its first annual loss since 1950.

The Japan Bank for International Co-operation was set up last year to help struggling Japanese businesses.

Japan's Finance Ministry said earlier on Tuesday that it would provide an additional 5 billion US dollars to the bank from its foreign exchange reserves.

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