Auto sales plummet in Brazil; Tens of thousands of workers fired or on mandatory leave

SAO PAULO – Plummeting auto sales in Brazil amid the nation's worst economic crisis in a decade have battered the industry that makes up one-fourth of the country's industrial gross domestic product and has led to widespread layoffs and mandatory leaves.

At least 6,000 workers in auto factories have been laid off since January, officials say, and another 20,000 put on furlough. Those add to thousands of jobs lost last year.

Additionally, Fenabrave, an association of auto dealers, said 250 of the country's 8,000 dealerships have gone out of business this year, resulting in 12,000 lost jobs.

Behind the worst crisis in more than a decade for the world's fourth-largest auto market is the "uncertainty surrounding the country's sluggish economy, reduced access to credit and a drop in consumer confidence," said Rodrigo Baggi, an auto industry analyst at Sao Paulo's Tendencias Consultancy. "Purchases of nonessential durable goods like cars, motorcycles and electrical appliances are being postponed."

It's another sign of the serious trouble facing the Brazilian economy, which is forecast by most economists to contract by more than 1 percent this year, with consumer spending dwindling, unemployment hitting a five-year high and inflation soaring about 2 percentage points above the government's target ceiling of 6.5 percent.

The Brazilian Motor Vehicle Manufacturers Association estimates that vehicle production will drop to 2.6 million units in 2015, about 18 percent less than last year's output as a result of the lower demand, said the association's president, Luiz Moan.

That's a severe blow to automakers, who for a decade have enjoyed booming auto sales in Brazil and consider the nation vital to their overall bottom lines. Carmakers maintain a 10-percent profit margin in the South American nation, as compared to the global average of about 3 percent. But it's also putting stress on a massive supply-chain industry that employs more than 200,000 people.

Moan said that during the last 12 months, roughly 10 percent of the automakers' labor force of 138,000 had been dismissed — many taking early retirements offered by auto companies trying to cut costs.

Marcos Aurelio Prado Araujo, a welder for the past decade at a Mercedes truck and bus chassis plant in the Sao Paulo suburb of Sao Bernardo do Campo, where much of Brazil's auto industry is centered, was given his pink slip in late May.

He said that he and his wife, Erika, who also worked on the bus assembly line at Mercedes, brought home the equivalent of $3,500 a month — enough to buy a used car, put a down payment on a small apartment and enroll their daughter in a private school.

But late last year, his wife was fired and in May he received a telegram from Mercedes Benz saying that he'd lost his job, too.

"I saw my dream crumble," he said. "I started out with a lot of hope and now I am unemployed, in debt and without any hope that one day things will get better. I have put my apartment and car up for sale and my daughter won't be able to study in a private school anymore."

Mercedes-Benz said in a statement that "the sharp drop in bus and truck sales" forced it last month to rescind the contracts of 500 workers who had been furloughed several months earlier.

Workers at General Motors, Ford and Volkswagen also have been forced to take leaves.

Rafael Marques, president of the Metalworkers Union that represents the Sao Paulo area, said he thinks "the worst has already passed and things are beginning to come under control, as we negotiate job stability agreements with Volkswagen, Ford, Scania, Mercedes and others."

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Associated Press video journalist Alexandre Rampazzo contributed to this report.