Volkswagen and Peugeot Making Billion-dollar Investments in Brazil

Volkswagen Up German carmaker Volkswagen AG is negotiating with Brazilian authorities to build a 2 billion-dollar factory in Brazil – the latest foreign automaker looking to raise local output after a tax increase on imported cars. 

Brazil said in September it would raise a tax on autos with less than 65% local content in a move to support local manufacturing jobs amid a slowdown in Latin America’s largest economy.

Several automakers have since confirmed plans for new production in the country, including Nissan Motor Co Ltd and Renault SA and China’s JAC Motors.

Earlier on Wednesday, newspaper Valor Econômico reported that Volkswagen and Brazil’s northeastern state of Pernambuco are finalizing a deal to build a factory there, citing people with knowledge of the situation.

The company wants a 2 billion reais (US$ 1.12 billion), 30-year loan from state development banks BNDES to seal the deal Valor added.

An announcement on the investment is likely on November 8, Valor noted, adding the new facility could produce as many as 200,000 subcompact vehicles a year. The model being considered for the factory is the Up! Sub-compact, which was introduced at a car fair in Frankfurt this year.

Peugeot Doubles

Meanwhile, French auto giant PSA Peugeot Citroen plans to double production in Brazil by 2015, part of a global shift towards emerging economies hastened by the downturn in Europe and the United States.
 
Peugeot aims to produce 300,000 vehicles per year and increase its production of engines from 280,000 to 400,000 per year by then, its head of Latin American operations, Carlos Gomes, announced this week.

“This is a long-term investment, as we believe in the market,” Gomes told reporters. The agreement was signed by Brazilian President Dilma Rousseff and the visiting chairman of Peugeot’s supervisory board, Thierry Peugeot.

Peugeot plans to invest some 240 million dollars per year as part of the expansion, for a total investment of 940 million by 2015. The company currently produces some 150,000 vehicles per year in South America’s largest country, where it is the fifth largest producer, behind Fiat, Volkswagen, General Motors and Ford.

Brazil represents five percent of the company’s world sales and is projected to grow to between seven and eight percent by 2015, Gomes said.

The latest move is part of a broader shift to emerging markets, with sales outside Europe expected to account for half the company’s business by 2015.

The automaker, France’s largest and Europe’s second-largest, had earlier announced an 800-million Euro cost-cutting plan for next year that is expected to include lay-offs amid a stagnating European car market.

Brazil, meanwhile, with 191.5 million people and 30 million vehicles, is the world’s fourth-largest car market, and has recently attracted the attention of a number of leading manufacturers.

Fiat leads the market with a 22.7% share of sales, followed by Volkswagen’s 22.3% and GM’s 19.8%, according to the ANFAVEA association of Brazilian auto manufacturers.

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