Brazilian government’s new strategy aims at promoting more global manufacturers to set up production facilities in the country. Inovar-Auto incentive programme, introduced in 2012, offers tax sops for automakers sourcing parts indigenously and promoting local product development.
Due to this policy, India’s largest utility vehicle manufacturer, Mahindra & Mahindra (M&M), is planning to build a manufacturing plant in Brazil to tackle the new tariff barriers recently introduced by the South American country. The news comes from Pawan Goenka, executive director and president (automotive business) of M&M.
“Brazil has put in some kind of a taxation on companies not doing enough local R&D and value addition. In some sense, it is a tax barrier and makes our products uncompetitive. Those who have manufacturing plants with a fair level of vertical integration are okay, but those who do not have a plant in Brazil or have a very small level of localisation are affected,” Goenka said.
He added, “Brazil is a good market and something we are seriously looking at. We need to look at how to work with Inovar. For this, we will have to set up local manufacturing in Brazil and we will likely look at other locations. It is not in the immediate plans yet, so there is no decision on it right now.”
M&M’s new strategy for Brazil is still in the developing stage and is yet to be finalised. The new plant is expected to be closer to the major markets of Sao Paolo and Rio de Janeiro in order to also reduce logistical costs.
“We are looking at our options. Right now the business model was around doing local assembly in Manaus. Manaus has it own set of problems because of its location — it is in the middle of the Amazon jungle and the markets are very far from it. In Manaus, we also do not have enough localisation to meet the requirements of the Inovar,” Goenka said.
Installing a new production unit in Brazil will be a costly affair for M&M. However, it will be beneficial for the company in the long term.
Rising fuel prices and increase in the excise duty on SUVs resulted in sales dip in FY14. M&M’s volumes fell 8% to 2.54 lakh units in FY14. Exports in the fiscal, however, were up 23% to 7,599 units.
Source: Financial Times