DETROIT – General Motors Corp. may have to scrap the third shift at its Sao Caetano do Sul vehicle-assembly plant in Brazil as a result of an industry-wide sales decline, the auto maker’s top official in the region says.

Although Brazilian market fundamentals remain solid and the local government is doing its part to boost new-vehicle demand, first-quarter cutbacks appear likely, Maureen Kempston Darkes, president-Latin America, Africa and Middle East operations, says in an interview at the North American International Auto Show.

“I expect we will (have to cut back to two shifts) in the first quarter,” she tells Ward’s.

The additional shift created 1,600 new temporary jobs at Sao Caetano do Sul last April and increased capacity by 50,000 vehicles annually. GM also operates a third shift at its Valencia, Venezuela, assembly plant in Latin America.

But the workforce was expanded only after GM did what it could to squeeze out additional volume from its manufacturing network through productivity improvements.

“The fact is, we added over 100,000 units of capacity without adding real numbers of additional people,” Kempston Darkes says. “We just simply improved the overall productivity of our operations. And then, when we needed to go beyond that, we put third shifts on.”

But no market has been immune to the effects of the economic crisis that began in the U.S. last year, including Brazil.

Although GM had record sales and the market overall finished at 2.8 million units, up nearly 15% from the previous peak reached in 2007, volumes would have been higher if not for the weak fourth quarter, Kempston Darkes says.

GM took steps to curb production late in 2008, extending holiday shutdowns at some operations.

“Through the first three quarters of the year, the industry was running up 30%,” she says. “We got hit by the global financial crisis for sure in the fourth quarter.”

The Brazilian government is pitching in to help spark demand, having recently cut taxes on vehicles and taking steps to widen credit availability.

“The Brazilian government has done a lot to intercede in the crisis to try to provide support for consumers in terms of making more liquidity available through the banks,” Kempston Darkes says. “It’s also reduced taxes on vehicles to try and spur some more buying and confidence for consumers.

“You do see a very good response from the government trying to build back that consumer confidence.”

The GM executive says the outlook remains unclear, but the Brazilian market could decline in the range of 15%-20% in 2009, with a sluggish first half less than offset by a momentum-building final six months.

“We are going to go through something the way the rest of the world is,” Kempston Darkes says. “But I think we’ll finish up strong and see an industry that will perform at a realistic basis.

“We still have political stability,” she says. And Brazil “has controlled its inflation and taken on a number of hard issues. It’s created a stable base for economic growth.

“However, it will be impacted by the global economic crisis. How could it not when it exports commodities all around the world?”

dzoia@wardsauto.com