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Brazilian Car Industry
Stage 1 – No Home Manufacture
To home market
Small Volume
Sales to rich only,
Few jobs created
Car Kit
Assembly
Import of
Parts
Foreign
Exchange
Brazil
Overseas
Stage 2 – Import Substitution
To home market
Large volume of cheaper
Cars to larger market
Car
Plant
Country’s foreign
earnings drained
so strict import
controls
Parts for car plant
Local Suppliers
Create new jobs
Foreign
Exchange
Brazil
Stage 3 – Home growth & Exports
Large volume of cheaper
Cars to larger market
To home market
Import of
Parts
Car
Plant
Overseas
Import of Parts
Export of vehicles
Exports to N &
S America
Parts for car plant
Local Suppliers
Create new jobs
Export of parts
Production for other industries
Export of goods
Other factories, machines, parts,
glass, plastic etc.
Brazil
Overseas
mainly
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The Car industry in Brazil
Car production in Brazil
(thousands)
1400
1200
E
1000
B
800
600
400
C
200
0
A
1950
1955
B = Credit restriction
A = Oil Crisis
slows demand
D
Year
1960
1965
1970
1975
1980
1985
C = Less growth after D = First rapid
E = Slackening of growth
first demand
growth of industry due to world recession
satisfied
Role of Government & TNCs
Both TNCs and the government played an important role in the success of the car industry in Brazil.
However, governments were more important as they helped to attract industry. At first, the government
controlled imports and so only the rich could afford cars. This also affected industrial growth. The car
industry in Brazil only started when the governments allowed TNCs in and in particular only when the
government allowed cars to be bought on credit. This allowed economies of scale and caused the
multiplier effect to occur. Since then the high production means that some cars can be exported,
improving the economy. TNCs are not as important as local industry has now developed, although they
were crucial at the start.
Governments are able to alter import and export regulations, offer incentives and give grants to help the
car industry, which normal people are not able to do. They can lower taxes to encourage industry to
certain areas or block imports to help their companies.
Buying on Credit
Allowing people to buy on credit was important to the car industry as it opened up the industry to a
mass market. People were able to afford cars and so the ripple effect meant that there was rapid
industrial growth. This meant that companies could use large-scale production and economies of scale
to cut costs. They could also export cars to make larger profits and improve the economy. More jobs
are created, as there are more suppliers for the plant.