SAO PAULO (Reuters) -- Brazil's auto industry is expecting this year's downturn to be its worst since 1998, according to estimates from the national automakers association Anfavea, which slashed its 2015 outlook for the second time in two months.
Auto production is likely to drop 18 percent from last year, Anfavea said, steeper than the 10 percent drop it forecast in April. The group expects domestic sales to plunge 21 percent this year, a much sharper tumble than the previous forecast for a 13 percent drop.
The downturn in Brazil’s market, until recently the fourth biggest in the world, has hit the profitability of major global automakers in the country, including the market’s top four companies Fiat Chrysler Automobiles, Volkswagen Group, General Motors and Ford.
According to Anfavea data, Fiat remained Brazil's top seller of cars and light commercial vehicles in May, with about 36,100 new registrations. GM held on to second place with 30,600 sales, just ahead of VW's nearly 30,300 registrations. Ford sold about 23,300 vehicles.
Sliding consumer confidence
Sliding consumer confidence and rising interest rates have battered the Brazilian auto market. President Dilma Rousseff has also withdrawn subsidies in a recent austerity push, deepening the industry's crisis and triggering thousands of layoffs.
Carmakers have trimmed payrolls by 9 percent in the past 12 months and they still have plenty of room to cut, Anfavea President Luiz Moan said.
"Automakers clearly have an excess of labor," Moan told journalists, adding that about 25,000 workers are on some kind of furlough, equal to about one in six industry jobs.
The last downturn of this scale was in 1998, when automakers in Brazil cut about 19 percent of their workforce in the midst of a sharp recession. Auto output plunged 23 percent that year and sales fell 21 percent.
May data confirmed that production and sales of cars, trucks and buses had stagnated at about 10,000 vehicles a day, down sharply from recent boom years.
Output in May slipped 3.4 percent from April and sales dropped 3 percent.