North America’s largest automaker, General Motors Company (NYSE:GM), may reconsider its decision to invest $1.62 billion in the troubled auto industry of Brazil if the economic and political condition in the country does not improve, the company’s president Dan Ammann said in an interview over the weekend.
Similar to the moves of its peers Ford Motor Company (NYSE:F) and Fiat Chrysler Automobiles NV (NYSE:FCAU), GM too has been eyeing South American markets including Mexico and Brazil that offer lower production costs and sales volumes growth opportunities.
However, a lingering economic and political crisis in Brazil have left the auto industry – once amidst the largest five in the world – stuttering, leading to automakers rethinking major investment decisions.
In the interview to Estado de S.Paulo newspaper, Mr. Ammann said, “I hope to see political and economic advances in the next six to 12 months, which would allow us to stick to our investment plan.” If the situation does not improve meaningfully, he said GM would “re-evaluate” its plans to further invest in the country.
GM, last year, had announced injecting 6.5 billion reais (equivalent to $1.62 billion) through 2019 in Brazil where it already has five manufacturing plants, two of which supply inputs and parts to the other three main production plants.
But a dwindling Brazilian economy has obscured the performance of the auto industry which is naturally more prone to economic downturns. Manufacturing of cars and light weight trucks slipped 29.3% last month, compared to January 2015, according to data from the country’s automakers’ association Anfavea.
The company’s president for South America said Brazil is in need of hefty reforms that improve labor, tax and corporate laws to transform a “terribly uncompetitive” market to a more business-friendly one.
Notably besides GM, other major global automakers like Ford, Fiat and European giant Volkswagen AG still have major operations in Brazil. According to a report from Fortune, almost a third of the workers employed in the auto industry in Brazil are serving time in furloughs as car makers continue to ponder over cost cutting measures without having to undertake across-the-board layoffs.
According to the dealers association ‘Fenabrave’, Brazil’s dealers are expecting 5% fewer registrations this year against the last while automotive production may likely stall despite the touted 8% estimated growth in exports projected for 2016, according to a report from Just Auto.