Audi May Stop Producing in Brazil if Government Fails to Pay Debt

RIO DE JANEIRO, BRAZIL – Audi Brazil’s CEO Johannes Roscheck said on Thursday that the company will stop producing the A3 hatch in the country in December and will suspend all local production for approximately one year to assess investments in a new model.

However, the resumption of local production depends on the federal government settling the payment of a tax debt outstanding since the Inovar-Auto program, created in 2012 and closed in 2017.

According to the executive, new investments and remodeling of the production line will be required for the production of a new vehicle.

“We have signed a commitment to pay and receive and it is difficult to persuade the German headquarters to invest in a market that is unable to meet its commitments,” he said. The A3 is today the maker’s only model produced locally and this version will be discontinued.

There have been rumors since last year that the company would stop producing cars in the country because the investments to produce the new A3 and Q3 versions would be high. The domestic Q3 left the line in early 2019 and began to be imported and the same will occur with the A3.

However, Roscheck says that the leaders of the Brazilian branch are “prepared to fight for a new project”, but it will depend on the discussions about this pending matter.

According to Audi, Minister of Economy Paulo Guedes said about a year ago that he would accept to pay the debt over ten years but did not discuss the issue again. “Even if the payment is made in the long term, we will accept it, but we need a decision,” says Roscheck. Questioned, the Ministry of Economy failed to comment.

According to Audi, even if there is a settlement, the company will have to keep the plant shut down for at least one year to define and adjust to a new model.

Super IPI

The outstanding balance amounts to R$290.7 million divided among the three German luxury car manufacturers Audi, BMW, and Mercedes-Benz. When it was created, Inovar-Auto established a 30 percentage points increase on the Tax over Industrialized Products (IPI) for imported cars, to encourage local production.

One of the program’s points provided for the return of this extra tax paid on imported models from companies that announced local production projects. The value would be settled from the moment the plant began its operation.

When Rota 2030, the program that replaced Inovar-Auto, was sanctioned in late 2018, the debt issue was not mentioned in the text. Then-President Michel Temer forwarded Bill 10,590 to Congress establishing payment within five years. The bill is pending in the Constitution and Justice Committee (CCJ).

Gleide Souza, BMW’s Director of Corporate Affairs, said that a solution must be found to free up the credit that has been blocked and that the approval of the bill is an alternative. She said that this pending issue generates insecurity among companies and may hinder new projects, although this is not the case for the brand at the moment. Mercedes-Benz reported that “it has a considerable amount to receive and is monitoring the issue.”

The three manufacturers have invested R$1.7 billion to begin operating in the country. BMW built a plant in Araquari (SC), Mercedes in Iracemápolis (SP) and Audi again shared facilities with its affiliate Volkswagen in São José dos Pinhais (PR) in 2015, where it had been producing the A3 between 1999 and 2006.

Along with Jaguar Land Rover, the four premium segment companies have a production capacity of over 100,000 vehicles per year, but claim they have never reached half of this volume due to the successive economic crises.

Source: O Estado de S. Paulo