Setbacks, Yes, But No Recession in Brazil

How will the subsidiaries of multinationals behave in developing markets, like that of Brazil, when some of them are facing complex problems in their country of origin? I have already read, seen and heard terrifying predictions about what will happen if the parent corporations of these companies don’t find a solution to their solvency difficulties. The subsidiaries would simply be forced to close their doors, eliminating thousands of employees—not to mention indirectly affecting the jobs of local suppliers and distributors.

The case of GM is a prime example. According to the most recent news, the Big Three of Detroit (GM, Ford and Chrysler), along with the U.S. government, are now seeking a $34 billion package to adapt to the new circumstances of the American and international markets. Of that amount, $12 billion would go to GM, who is also looking for an additional line of credit worth $6 billion.

Only with the inauguration of President-elect Barack Obama and the renovation of Congress, giving a wide majority to the Democrats, can assistance from the government salvage the industry—and there are those who expect it to do so. There are certain conditions to be met, however, before the Big Three receive that aid, such as the production of more compact cars, a greater volume of hybrids and our well-known flex cars (machines that run on ethanol, alcohol or both), and an imposed limit on executives’ salaries.

It will be hard times for GM in the U.S. and European countries, but it’s a little early to warn of a drastic reduction of operations in Brazil and Latin America. Even this week, the journal Gazeta Mercantil published an interview with Maureen Kempston-Darkes, president of GM’s Latin America, Africa and Middle East division, which was obtained by Dow Jones Newswires. What she said was just the opposite: not only has the company been in Latin America for decades (in Brazil since 1925), but it is here to stay and will fulfill its investment plans.

Kempston-Darkes didn’t touch on the subject, but it is well-known that the subsidiary sent funds to its parent company doing everything it could to help. However, from what can be deduced from her statements, this had no effect on her capacity for investments in Latin America, projected at $1.5 billion. In Joinville, Santa Catarina, for example, $200 million will be invested in a components factory with production expected for the 4th quarter of 2009.

The executive’s statements demonstrate how she has staunchly defended the region. GM is doing badly in the U.S., but not in other countries like Brazil. The parent corporation may not have modernized itself sufficiently to keep up with the evolving demands of the U.S. market, and it may even have to shoulder great burdens due to its pension fund. Nonetheless, GM here in Brazil is faring well among the other three giants, Fiat, Volkswagen and Ford. According to the latest numbers, GM sold 444,000 automobiles in Brazil from January to November. This is a 10.4% increase from the same time period last year. In the light commercial segment, which saw 76,000 units sold, there was an impressive growth of 60% again in the same period. Here, Chevrolet continues to be a respectful brand. Also, like other assembly plants installed in Brazil, flex cars already dominate a substantial part of production at GM. Sales fell in November, as expected, but there is the prospect of recovery in 2009 thanks to the efforts to unfreeze credit. As a matter of fact assembly plants still plan to produce 3.2 million vehicles next year. Furthermore, the president of ANFAVEA (National Association of Motor Vehicle Manufacturers in Brazil), Jackson Schneider, was recently cited in The Economist as stating that the Brazilian automobile industry could become the 6th largest in the world rolling out more than 5 million per year. In other words, multinational subsidiaries in developing countries can be part of the solution to problems troubling the parent companies.

At this point it would be a good idea for executives from other multinationals to give interviews discussing their companies’ plans in Brazil and other developing countries. Perhaps that would relieve the pessimism from those who are mentally importing the recession.

(Klaus Kleber – Opinion Coordinator. E-mail: kkleber@gazetamercantil.com.br)