The economic crisis that began surfacing in Asia a year ago has spread to Brazil.
Interest rates have been hiked to more than 40 percent in a furious effort to defend the real and stop money flowing out of the country.
Unemployment has jumped from 4.8 percent to 8 percent with predictions of further increases.
J.P. Morgan & Co., the international merchant bank, predicts that Brazil's gross domestic product will slow to a crawl this year and decline next year.
The slump has been reflected in vehicle sales, which have dropped 21 percent in the first nine months of 1998 to 1,139,812 units.
The eroding economy threatens the achievements - and highlights the unfinished business - of President Fernando Henrique Cardoso, first elected in 1994.
In the last four years, Cardoso achieved the dismantling of state monopolies. Privatization and deregulation attracted private capital to improve the vital power, telecommunications and transport infrastructure.
Brazil thrived, attracting automotive investments of $17.2 billion in recent years.
What Cardoso has not done is sort out the bureaucracy of government and public-sector finances. With a population of 160 million - many of them living in poverty - it is not going to be easy.
The bulk of the $17.2 billion has been invested in the state of Sao Paulo, but Parana and the southern state of Rio Grande do Sul also have attracted various projects.
Near Curitiba, the capital of Parana, Chrysler Corp. opened its new Dodge Dakota assembly facility in Campo Largo, a sprawling town about a half-hour drive south of the capital.
Now Renault SA and Volkswagen AG are opening new plants, while AB Volvo's truck and bus plant established more than 20 years ago is being modernized. Across the road from Chrysler, Tritec, BMW AG's joint venture with Chrysler to build engines, is taking shape.
Dana South America just opened its latest facility in Campo Largo, to build the rolling chassis for the Dodge Dakota. Dana South America's president, Ruperto Jimenez, describes Brazil as the laboratory of the world's automotive industry.
Volumes per plant might be low, with 18 manufacturers producing 3 million units, but 'everyone wants to be here to test new ways of doing things,' said Jimenez.
The direct automotive investment in Parana of $3.5 billion is a coup for the state governor, Jaime Lerner, an urban planner and architect who took office in January 1995.
He readjusted the state's administration by setting up a planning structure directed at four main areas: administration, infrastructure, professional capability and quality of life.
The state is now expanding and modernizing the port of Paranagua, the country's third-largest exporting outlet, and is carrying out extensive work on the roads and railroads.
The automakers moving into the Curitiba region and their suppliers are creating 12,500 direct jobs. This is how the industry is taking shape there:
Renault is investing $1 billion in a plant in Sao Jose dos Pinhais to build the Megane, Scenic and Clio. Annual capacity is 120,000 units a year.
Volkswagen will build the Audi A3 and the VW Golf and Passat at a new $750 million plant, also in Sao Jose dos Pinhais. A3 production started last year, and annual capacity is 170,000 units.
Chrysler invested $315 million in its Dakota assembly plant in Campo Largo; annual production is currently planned at 12,000.
Volvo is spending some $230 million to modernize and expand its truck plant to build the FH Globetrotter models, which are now imported from Sweden.
BMW/Rover and Chrysler are investing $500 million in a new engine plant in Campo Largo with annual capacity of 400,000 units a year. The plant is due on stream in 2000.
In the northern state of Bahia, Hyundai is spending $700 million in the city of Aratu on a plant to build the H100; capacity is estimated at 10,000 a year.
Asia Motors, the truckmaking unit of Kia Motors Corp., has plans for a $500 million plant in Camacari to build the Towmer and Topic starting next year at a rate of up to 60,000 a year. It is not clear how the pending takeover of Kia by Hyundai Motors will affect that project.
Volkswagen's Skoda unit has plans for a commercial-vehicle plant in Aratu with a modest $250 million investment.
The state of Mina Gerais is attracting $3 billion in investments, including a Fiat engine plant and the Mercedes-Benz A-class facility. In Santa Catarina, GM do Brasil is investing $500 million in a new components facility.
The investment in Parana and elsewhere in Brazil will push the South American country into fifth place in world auto production next year, ousting South Korea. Vehicle output is expected to increase 30 percent by 2001 to more than 3 million vehicles a year.
Brazil's automakers association, ANFAVEA, predicts exports this year could rise by 20 percent to a value of nearly $6 billion, which will help offset slumping domestic demand.
In 1997, Brazil produced 2.07 million vehicles, up 14.6 percent from the previous year.
By 1999, demand is expected to return to 1997 levels. Ford predicts that by 2000, Brazilians will buy 2.2 million vehicles, and growth thereafter will be at a steady 5 percent per year. Between 2000 and 2001, combined sales in Brazil and Argentina should reach 3 million units.
Mike Hammons, Ernst & Young's Latin America specialist, assesses the current state of the main players in Brazil as follows:
Ford: Market share jumped from 9 percent to 18 percent in 1997 on a 60 percent surge in sales, but the company lost money. Ford predicted it would break even in Brazil this year, but sales are currently running 25 percent down in the first nine months, and the company had a disastrous September - just 13,360 sales against 30,344 in the same month in 1997.
But 'with just over 200,000 units in Brazil, or 3 percent of its worldwide sales, Ford's exposure to Brazil is less significant than GM's,' said Hammons.
Ford and its suppliers are investing more than $1.1 billion in the southern state of Rio Grande do Sul to build the new Fiesta in 2002. Capacity at the new plant in Guaiba is 150,000 units a year.
Fiat: Strong exports to Argentina have helped keep Fiat production in Brazil buoyant, although its sales in Brazil fell 26.3 percent in the first nine months of 1998. In 1997, exports were a record $901 million - an increase of 183 percent from 1996. Fiat is investing at least $1 billion in its 178 world car project in Brazil and Argentina.
GM: GM has three plants in Brazil with a current capacity of 400,000 units and is adding its Blue Macaw plant, which will bring another 120,000 units. Some 80 percent of GM's output here is for the Brazilian market, and projected sales of 400,000 units represent 5 percent of global sales.
Latin America is one of GM's most profitable regions, with sales in Argentina and Brazil doubling over the past five years. Like other manufacturers, GM has suffered in Brazil in 1998, although a 12.3 percent drop in sales to 280,019 for the first nine months shows it is not suffering quite as much as its rivals.
Volkswagen: VW posted record sales in 1997 of 303,100 units. Sales fell 28.7 percent in the first three quarters of 1998, although it managed to retain market leadership with 336,250 - down from 471,374 over the same period in 1997.
Renault: The new Curitiba plant is a key element in Renault's strategic plan to begin selling 25 percent of its production outside Europe. The French company is spending $180 million to expand its local dealership network from 30 to 250 by 2002.
Peugeot: The target is to win 7 percent of the Brazilian market over the next five years, up less than 1 percent now. Peugeot exports to Brazil from France, Argentina and Uruguay. The new plant at Porto Real in the state of Rio de Janeiro is a $535 million facility with a capacity of 100,000. It is due to come on stream in 2001.
Toyota: Toyota had expected sales to grow by 38 percent this year to 20,000 units, following growth of 120 percent in 1997 to 14,259 cars and light trucks. The reality: Sales through Sep-tember are off 7.1 percent from a year earlier to 10,951. A new plant in Indaiatuba, Sao Paulo, comes on stream this year and will build 20,000 Corollas a year.
Honda: Honda is investing $600 million over the next decade to produce Civics and Accords in its factory in Sumare, Sao Paulo. Civic capacity is estimated at 30,000 a year. In 1997, the company sold 3,200 units in Brazil, but lack of production this year has badly affected its sales figures.
