(Recasts with comments on competition with Mexico)
By Marcelo Rochabrun
SAO PAULO, May 7 (Reuters) – Automakers in Brazil warned on Tuesday of the threat from cheap imported cars from Mexico, as the end of a cap on bilateral trade in the sector presents a new challenge to the dominance of local manufacturing in South America’s largest auto market.
The Brazil-based arms of global automakers such as General Motors Co, Volkswagen AG and Fiat Chrysler Automobiles NV, whose local plants have long benefited from high tariffs, said through national industry group Anfavea that they struggled to match Mexico’s low production costs.
The Brazilian industry’s warning echoes the concerns of U.S. President Donald Trump and U.S. labor unions about the threat posed by increasingly efficient Mexican factories that are staffed with lower-paid workers.
Brazil and Mexico agreed in March to open trade in light vehicles after years of capping trade volumes between the countries. Mexico has been seeking to diversify trading partners since Trump warned of the possible end to the North American Free Trade Agreement (NAFTA) that has defined Mexico’s economy.
Anfavea officials said they had presented the Brazilian government with a study comparing production costs and tax burdens facing auto plants in Mexico and Brazil to underscore the challenge.
“We have a very modern industry in Brazil,” said Luiz Carlos Moraes, a Mercedes Benz executive who assumed the presidency of Anfavea in recent weeks. “We can tend to our market. That is what we defend.”
Brazil has one of the world’s most closed major economies but the size of the market has lured some of the world’s largest automakers, to set up local production, serving what had been one of the world’s top five car markets before a recent slump.
“We cannot lose our current production volume, or our ability to generate jobs, or our ability to affect the country’s GDP,” Moraes said, citing statistics that were compiled by PwC consultants at Anfavea’s request.
Moraes said the study had concluded that making a car in Mexico was 18 percent cheaper than in Brazil and that importing a Mexican car to Brazil was still cheaper than a locally made one.
He made the comments at a news conference presenting monthly statistics, which showed automobile production in Brazil rose 11.1 percent in April from March, while sales rose 10.9 percent.
Automakers in Brazil produced around 267,500 new cars and trucks last month, while sales totaled about 231,9000 vehicles. Compared with a year ago, auto output rose 0.5 percent and sales grew by 6.7 percent. (Reporting by Marcelo Rochabrun Editing by Brad Haynes and Bill Trott)