Automakers in Brazil had a bad 1998, and soaring interest rates and a sinking currency could make this year even worse.
Sales in 1998 of new cars and light trucks plunged to 1.19 million vehicles, down 28 percent from 1997. Last year was the worst sales year since 1993.
Brazil's government started 1999 by devaluing the real, the country's currency, which quickly slipped about 20 percent against the dollar. The devaluation boosted the price of imported goods and lowered the price of Brazilian exports.
Consumers are among those hardest hit by the downturn.
In the first 18 days of this month, new-car retail prices rose between 4 and 6 percent because of a new tax. On top of these increases, General Motors, with a 29 percent market share in Brazil, is boosting its new-vehicle prices 2 percent to 5.5 percent.
Borrowers who pegged their loans to the dollar saw dramatic changes. These car buyers have to pay 30 percent more in reals to meet their dollar-based obligations. Finance companies have said they are willing to negotiate new rates with these customers. Ten percent of Ford's auto loans in Brazil are dollar-based.
But the shock waves are not limited to consumers.
Volkswagen AG, Brazil's top-selling automaker with a 36 percent market share, last week opened a factory in the southern city of Curitiba. Financing costs for the estimated $450 million project likely will rise.
Ford faces labor unrest at its manufacturing plant in Sao Bernardo do Campo, an industrial suburb of Sao Paulo. Workers there are occupying the plant, enraged after Ford fired 2,800 - one-third of the work force - five weeks ago.
Despite the problems, Ford, which has 16 percent of Brazil's market share, said it will go ahead with plans to build its fourth Brazilian factory, a $750 million assembly plant.
Dana Corp., the fourth-largest global auto supplier, manufactures chassis for the Dodge Dakota pickup at its plant in Curitiba. Dana also makes replacement parts, an important market in bad economic times.
Said Dana spokesman Gary Corrigan: 'In a bad economy like now, replacement parts become really strong.'
Bloomberg News Service contributed to this report