Originally created 01/19/99

Brazil woes apt to harm automakers



NEW YORK -- Brazil's economic crisis is hitting some U.S. companies harder than others. Automakers General Motors and Ford are sure to receive body blows from the downturn there, but large banks like Citigroup have been able to cut back their exposure in Brazil after the upheavals in Asia and Russia.

A big factor behind Brazil's economic stagnation is the government's policy of keeping interest rates a sky-high 30 percent in order to keep its currency strong and attract foreign investors. The high rates have made borrowing money prohibitively expensive, hurting many parts of the country's economy.

Now that Brazil has abandoned its attempt to prop up its overvalued currency, many are hoping interest rates will come down. In the meantime, however, Brazil's weakened currency could hurt U.S. exports there by making them more expensive to Brazilian consumers.

Brazil's recession and high interest rates already have clobbered sales of big-ticket items, which many Brazilians buy on credit. Sales of autos and household appliances, U.S. industries that have significant operations in Brazil, both declined about 25 percent last year.

"Ford had hoped to make money in Brazil this year, but now they may lose between $100 and $200 million. Likewise for GM," said Maryann Keller, an auto analyst with ING Baring.

Ford Motor Co. recently laid off 2,800 workers at one of its Brazilian plants, but many of those workers have returned to the factory, staging protests and demanding their jobs back. Local media reported Sunday that Ford plans to shut down its plant until Feb. 1 because of the disruptions.

Despite the problems, Ford spokeswoman Caroline Burke says the company remains optimistic about Brazil over the long term and is proceeding with plans for a new vehicle plant, the company's fourth in Brazil, which will cost $700 million.

Some U.S. banks appear to be well prepared for the trouble. Ever since suffering losses in the financial blowups in Asia last year, these banks have been reducing their risk in volatile developing markets such as Brazil.

In contrast, Whirlpool Corp. has seen its sales of refrigerators, clothes washers and air conditioners slump badly in Brazil, but the company may actually benefit from the currency devaluation.

The weak currency makes exporters based there more competitive by allowing them to sell their goods more cheaply overseas. That could help Whirlpool's Brazil-based maker of refrigerator compressors, which is one of the largest in the world.