DETROIT - Brazil remains a good investment despite the soaring interest rates and plunging automobile sales of recent months, says Volkswagen.
Herbert Demel, president of Volkswagen do Brasil SA, said no automaker has postponed its planned investments in Brazil.
Sales in 1998 will be down about 5 percent to 1,960,000 vehicles, Demel told the Automotive News World Congress last week. They will rebound to 2.1 million units in 2000, he said.
The turmoil on world financial markets reached Brazil in October when the Brazilian stock market plunged. In response, the government increased interest rates dramatically; annual interest on auto loans reached 43 percent.
'Until October, everybody was trying to grow further and further, and then the situation changed abruptly,' Demel said. 'Brazil increased the interest rate to evade an outflow of foreign currencies, taxes went up and fuel prices went up.'
But Brazil is an emerging market that must be viewed as a long-term investment, Demel said.
'For sure, Brazil will stay one of the growing countries, although there might be some distortions for a certain period of time.'
Volkswagen will continue as planned with construction of its third plant in Brazil, a $750 million facility in the southern state of Parana. The plant, to be completed by year end, will produce the Audi A3 and the Volkswagen Golf and Passat.
General Motors, Ford, Fiat and Volkswagen are responsible for more than 95 percent of Brazilian sales.
But the competitive landscape will change within the next three years, Demel said.
'If things will happen as they have been announced to happen, the number of competitors will double,' he said. Joining Brazil's Big 4 with new plants will be PSA/Peugeot-Citroen, Kia's Asia Motors subsidiary, Daimler-Benz and Renault.
Volkswagen expects to invest $3 billion in Brazil during the next three years, he said. Collectively, automakers plan to invest nearly $20 billion there during that period.
If those investments are made, production capacity in Brazil will be about three million units by the end of 2000, he said.