Cars are increasingly expensive in Brazil and this is nothing new. The covid-19 pandemic completely changed the market, as production was directly affected by the lack of components and economic ills arising from the restrictive measures at the time. We enter a world from which we will hardly leave.
However, the executive of what is now Brazil’s largest automaker, Stellantis, brought back a theme that had been dormant for some time: that of the popular car. This type of vehicle, dead in Brazil for a long time, could be on the agenda of companies and entities that command the automotive sector.
The executive in question is the Italian Antonio Filosa, President of Stellantis for Latin America. In recent statements, the executive addressed the possibility that Brazil could have popular models again, but that a series of factors would have to occur.
The main one would be a government incentive, that is, a government movement to reduce taxes, construction obligations and open credit for this popular car to get off the ground. According to Filosa, automakers would be interested if this were the case.
But is this even possible? Let’s speculate.
Naked cars?
The equation to form the price of the car also goes through what it delivers. For those who experienced the 1980s and 1990s, the popular cars of the time were very basic, sometimes even without the right side mirror. Everything costs in the production of a vehicle and this, of course, is passed on to the consumer.
Currently, entry-level models in Brazil already leave the factory with a reasonable package of equipment, largely due to obligations. For example: items such as ABS brakes and two front airbags are now standard in all cars manufactured or sold in Brazil. But let’s go further.
Even entry-level compact hatchback models come standard with air conditioning, power steering and power windows. Depending on the model, there is also a radio with Bluetooth, electric windows, stability and traction controls and even a ramp start assistant.
According to Filosa, the Government would need to reduce some of these obligations, but without the automakers making these cars less safe. The account, however, may not close. Soon, features such as daytime running light and the aforementioned stability and traction controls will also be mandatory.
How to create a popular car without such equipment? The answer may lie in the creation of a new category, with vehicles that are even smaller than the Fiat Mobi or Renault Kwid, and that could be good means of transport.
Too much tax, too much greed?
If you go around the internet, you will see a lot of comments about taxes and the “greed” of automakers. The equation for creating a price involves the government’s willingness to seek revenue in some ways and the companies’ willingness to make a profit. There is not such a favorable horizon to change this scenario.
The new federal administration clearly has a vision of raising revenue with increased taxes and fees. We are not going to go into the merits of this and we do not intend to carry out a macroeconomic analysis, but how can we ask for taxes to be withdrawn if there is a movement precisely in another direction?
Regarding automakers, the strategy is very clear: invest in more expensive models to increase the profit margin, since cheaper cars are expensive to be produced today and do not give the same return. There would have to be a huge increase in volume. This, incidentally, is Philosa’s view.
“We are not philanthropists. We have an economic interest in choosing ethanol as the driver of electrification in Brazil, but we also see the advantages for the entire market. In the case of popular cars, there are more ramifications that need to be seen. Everyone has to talk”, said the executive, in a recent press conference in São Paulo.
The market understands that Fenabrave (National Federation of Motor Vehicle Distributors) can lead this movement, as it represents dealerships and distributors, one of the most interested in more sales volume. On the side of automakers, Anfavea (National Association of Automotive Vehicle Manufacturers) will have to coordinate companies and convince them that the best path is to launch cheaper models.
There’s no way to escape. Without a significant reduction in taxes and a readjustment of the profit margin, this popular car may not even go to paper. It is worth remembering that the price of a 0KM car in Brazil has close to 50% tax, according to the Federal Revenue Service.
What would the new popular car be?
Imagining that everything converged to the creation of a popular car, how would it be? If the idea is to have a certain level of comfort, fuel economy and safety, it would necessarily have to be 1.0 and similar in size to today’s subcompacts: Mobi and Kwid. But what if the account doesn’t close?
Perhaps the solution is to create even smaller cars, similar in size to the Smart For Two, but with much less refinement and technology than the Mercedes-Benz group model has.
Anyway, this subject still goes a long way and we have to be careful with emotions. There is no free lunch and the creation of really popular models depends much more on macroeconomic and production chain factors than just pen strokes.
We have to wait.
