Chinese group JAC Motors halts construction of car factory in Brazil

31 July 2012

Tax changes in the automotive sector introduced by the Brazilian government alongside a devaluation of the Brazilian real against the dollar have led Chinese group JAC Motors to halt construction of its factory in Brazil, the company said in a statement issued Monday in Sao Paulo.

According to the Brazilian press this is the second time the Chinese group, which is represented in Brazil by businessman Sérgio Habib who is chairman of the SHC group and of JAC Motors Brasil, has given up on the project. The first occurred not long after the Brazilian government decided to hike up the Tax on Industrialised Products (IPI) by 30 percentage points on imported vehicles.

The factory was to have been built at Camaçari hub, in the state of Bahia, and involved an initial investment of 900 million reals. Production in the first stage was expected to total 120,000 vehicles per year.

One of the reasons for the project to be suspended is the new automotive regime included in the government plan known as Brasil Maior, announced last April. The plan maintains an increase in the IPI tax of 30 percentage points for vehicles imported from outside Mercosur countries and Mexico and for those produced within Brazil that use less than 65 percent of components manufactured in the country.

During construction of the factory the companies would continue to pay a high IPI tax, which would lead to a “tax credit” that could be used when production began, but which would only apply to half the expected production capacity of the project.

The second explanation given by the company for “construction of the factory becoming unfeasible” is that the value of the dollar rose from 1.7 reals last year to 2 reals per dollar this year. (macauhub)