The Brazilian auto industry in early 1997 seemed capable of cruising to the 2.2 million-vehicle output mark, but in a classic example of why emerging markets are risky Brazil's booming auto economy plunged when Asian economies crashed last year.
The car sales tumble in Brazil began after the government decided to double interest rates as a way to halt speculation against the Brazilian currency and restore confidence in the country's financial system.
That move quickly made credit too expensive for the middle class and caused a commercial-vehicle sales slump. About 70% of all vehicles purchased in Brazil are on credit.
The far-reaching effects of the crisis caused production to plummet and factories to temporarily close. Industry observers say the damage in Brazil will linger through the first quarter of 1998. The Brazilian automotive manufacturers association says it wouldn't be surprised to see quarterly output fall by up to 25% and an overall decline for 1998 of about 4%.
Still, many market analysts believe there remains a sizable amount of unmet demand for vehicles in Brazil. Despite the Asian crisis, a record 2,067,452 vehicles were produced in 1997, a 14.6% gain over record 1996.
A recent survey of automotive executives from South America found that many believe the long-term prospects for the region remain solid.
