Auto makers downsize faced with shrinking sales

The automotive sector is downsizing staff as a response to waning sales. The actions taken by car makers in São Paulo to reduce their labor surplus include lay-off and voluntary redundancy (VR) programs.

According to a local metal workers' union, SMABC, a VR plan ended on March 17 was joined by 600 employees in a Volkswagen plant in São Bernardo do Campo, São Paulo. The union reported the workers were offered between 10 and 15 times their wages based on length of service. Mercedes-Benz, also in São Bernardo, began its own program on that same day. The automaker's bus and truck plant is offering employees $8,900 plus full severance package including vacation and Christmas bonuses.

Some companies are using temporary lay-offs as an alternative for their downsizing policies. In this model, the employees continue to earn their wages – funded partly by Worker Support Fund (FAT) and partly by the employee – while attending professional education and training programs.

Mercedes-Benz says it has a labor surplus of 1,200 employees. Since last year, 750 of these workers have been in a temporary redundancy program which was extended until the 30th of April. Those among them who agree to join the VR program will also receive an additional $2,000.

A Volkswagen plant in Taubaté, São Paulo, put 250 workers on layoff. According to the local metal workers' union, the company is also shutting down for a 20-day blanket vacation starting on March 30. The union reports the plant currently employs 5,000 people.

According to Professor Adriana Marotti, University of São Paulo School of Economics, Administration and Accounting (FEA-USP), market concentration leads automakers to downsize instead of reducing their profit margin to sell more. “In the US market it actually gets to the point of a price war. The profit margin of automakers in other countries is much lower, but here in Brazil they operate on fatter margins,” she explained.

Import restrictions add even further to this scenario, according to Marotti. “The four major makers have nearly 60% market share. While on the plus side this helps protect domestic industry, on the other hand, without imports to add choice, you end up restricting the market to a virtual oligopoly,” she said.

The latest report from the National Association of Vehicle Manufacturers (ANFAVEA) revealed that between February 2014 and February 2015, employment in the automotive sector fell by 8.8%, which is equivalent to 13,800 jobs less.

The layoffs reflect declines in sales and production levels. In the first two months of 2015, sales totaled 439,750 items, 23.1% down from the same period in 2014.

Adriana Marotti believes the situation is unlikely to improve in the coming months because of the economic slowdown and the fiscal austerity policy the government has been pursuing since the beginning of the year. Other factors are a decline in exports, especially to Argentina, and the withdrawal of excise tax exemptions on automobiles.

Translated by Mayra Borges