BUENOS AIRES - Car and truck sales in Brazil and Argentina plunged in January, as Brazil's currency devaluation and soaring interest rates sapped investor confidence in both countries.
'The market is paralyzed. Consumers don't know what is going on,' said Jose Carlos Pinheiro Neto, president of the automakers' association in Brazil.
Brazil's car sales fell 19 percent in January from the same month a year ago to 75,015 units. They were the lowest sales for the month since 1995, and sales were little changed from December. Argentina was even harder hit, with sales down 20 percent from January 1998, to 27,949 cars and trucks. Sales fell 12 percent from December.
The automotive industries in Argentina and Brazil, an engine of growth in the region's economies in the past few years, have been slammed by a sluggish economy and devaluation of the Brazilian real.
The real has lost more than a third of its value against the U.S. dollar since the real first devalued Jan. 13. That devaluation pushed interest rates higher, taking Brazil to the brink of a deep recession.
Carmakers also boosted prices as much as 10 percent last month to reflect the higher costs of imported auto components. A tax increase on Jan. 1 - ranging from 2 percent to 6 percent, depending on the model - added to the price increases.
With the real plummeting and interest rates on car loans soaring to as high as 41 percent a year, consumers in Brazil have put off major purchases. In Argentina, concerns about a recession and rising unemployment have slashed sales.
'The problem is the insecurity among consumers. Because they have to take out credit for three years, Argentines aren't buying right now,' said Mario Dasso, a director at Argentina's carmaker association. 'Exports are almost nonexistent.'
The car industries of Brazil and Argentina, members of the Mer-cosur trade group that includes Par-aguay and Uruguay, are coming off dismal performances in 1998.
Last year, Brazilian car sales slumped to 1.42 million units, the lowest sales total since 1993. To the south, Argentine car sales closed the year at about 433,000 units, an increase of 6 percent over 1997 but more than 10 percent below forecasts.
With both Brazil and Argentina now on the brink of recession, the outlook for the industry looks even bleaker. Brazil's recession is expected to lead to a 2.5 percent decline in Argentina's economy, according to J.P. Morgan.
That already has led to layoffs by Ford Motor Co. and Fiat SpA at car plants in both countries. More than 12,000 workers lost their jobs in Brazil last year.
On Feb. 10, Renault SA's Argen-tina unit announced it would suspend 1,200 workers for at least four months. The company cut its daily production by 27 percent.
Argentina's unit of Fiat said in early February that it would lay off 2,450 workers and shift some production to Brazil in a bid to cut costs, while Ford's Argentine unit has kept about 1,400 workers on suspension since September.
Argentina's car association said it's too early to give overall forecasts for the year because the effects of devaluation still are being played out. However, sales are expected to drop from 1998 levels.
Meanwhile, Brazilian automakers have proposed an emergency plan to the government to boost car sales. Automakers would commit themselves not to increase car prices or fire workers for the next six months if the government reduces the value-added tax on cars, said Pinheiro Neto of the Brazil automakers' association.
'If the government raises taxes, we are forced to raise car prices,' he said.
In Brazil, federal and state taxes may account for as much as 55 percent of a car's final price. Last January, Brazilian-based carmakers increased car prices three times.
And Brazilian car companies don't expect to be able to boost sales by increasing exports. 'It's not true that exports can offset shrinking sales in a domestic market,' said Pinheiro Neto. 'We don't produce cars only with Brazilian auto parts, so their prices also increase.'
To be sure, exports actually fell in January, to 12,301 units, down 13.2 percent from December.