Opinion – Eduardo Sodré: IPI reduction relieves more prices of higher value cars; check possible discounts

The reduction of the IPI (Tax on Industrialized Products) is starting to reach automobiles, but the impact will actually be noticed in higher value models. In the entry-level segment, discounts will generally be less than R$1,000.

This is the case of the Renault Kwid Zen (R$59,890), which is currently the cheapest car in the country. According to a calculation made by the Bright consultancy, the rate on vehicles with a 1.0 engine fell from 7% to 5.71%. In practice, the change represents a discount of R$ 725.

Federal Decree No. 10,979 was published on Friday (25), and the rule provides for a reduction of up to 25% in the IPI rate. In the case of automobiles, the tax decrease is 18.5%, but there are variations according to energy efficiency, vehicle type and cylinder capacity, among other characteristics.

Automakers have not yet defined their pricing policies with the new IPI table. The exception is the importer Kia Motors, which released a new price list this Thursday (3).

The South Korean brand applied slightly larger rebates than the simple application of the new tax, as it considered the fluctuation of the dollar in its calculation. It’s a choice based on the moment, but one that could change if the US currency is boosted by the war in Ukraine.

The average Cerato 2.0 flex sedan, for example, had its price reduced from R$132,990 to R$130,490.

“At this time of a lot of cost pressure and strong depression of domestic demand for motor vehicles, we understand that the Federal Government was right to reduce the IPI rate”, says, in a note, José Luiz Gandini, president of Kia Brasil. “The reduction can be that beginning of recovery [da economia]alongside other measures that the vehicle import sector is asking for.”

The enthusiasm for the measure can be explained by the difficulties that Kia has gone through in recent years. The brand was one of the most benefited by the constant changes in the IPI during the administration of Dilma Rousseff (PT), but it was also the one that suffered the most from restrictions on imports in the same government.

In 2012, a quota system was created with a 30% IPI surcharge on foreign vehicles that exceeded the volumes stipulated in the Inovar-Auto program. The system was in effect until December 2017.

As can be seen, the IPI has been the main tax element in the composition of car prices, and always raises doubts about the real pass-through to consumers – especially when it comes to reducing values.

But for Cassio Pagliarini, a partner at Bright consultancy, the market moment should make the manufacturers grant full discounts based on the revisions of the rates.

“With the price increases made during the pandemic and the shortage of components, vehicles were being marketed until December last year with full margins, both for automakers and dealers. Within this scenario, it is likely that the reduction of the IPI be fully passed on by automakers and importers to consumers”, says Pagliarini, in a note.

The consultant also states that the tax bodies must authorize the rebilling of vehicles that are stopped in the dealerships’ inventories, which will allow the granting of discounts to try to unlock the sector.

In a note, Fenabrave (association of vehicle distributors) says that it is already requesting rebilling to the Federal Revenue. The entity estimates that there are 83,000 units in stock, and most were manufactured in 2021.

There are, therefore, many cars that are not suitable for the seventh phase of the Proconve (Vehicular Emissions Control Program). Such models need to be marketed by June.

First-quarter sales data are well below manufacturers and dealers’ expectations. The comparison with the months of January and February 2021 shows that there was a 24.4% drop in the licensing of light and heavy vehicles, according to Fenabrave.

The reasons for the pullback pile up. In addition to the impact of the omicron variant on the production and trade of vehicles, the consumer is faced with higher credit prices and above-average inflation for automobiles.

According to KBB Brasil, a consultancy specializing in car pricing, the 10 best-selling models in the country accumulated an average high of 25.4% throughout 2021.

For Cassio Pagliarini, from Bright, the IPI reduction can provide a growth of 100,000 to 150,000 units sold during 2022. The impact on prices and volumes, however, will be far from the movements that accompanied the rate reductions of the past.

These were policies based on stimulating sales in a country that was experiencing the phenomenon of abundant credit and high production scale.

Today in extinction, the popular cars occupied the first places in license plates. Because they were less profitable, they lacked a large volume of sales to justify the investment.

Temporary reductions in tax rates generated records that are unlikely to be beaten. In May 2012, the then Minister of Finance, Guido Mantega, announced a cut of up to seven percentage points, according to the model and engine capacity of the vehicle. At the time, the tax waiver was estimated at R$ 2.1 billion.

Initially, the benefit was supposed to last until the end of August of that year, which generated a rush to the stores. Automakers made promotions like “last units before the increase in the IPI”.

The result: the sum of sales of light and heavy vehicles reached 420,100 units in that distant August, the best monthly result ever recorded. For comparison, the first two months of 2021 ended with 255,800 units registered.

In the end, the measure was extended several times in different versions, lasting until the beginning of 2015, when the economic crisis was already fully installed.

The main demand of the Dilma government when extending the tax waiver was the preservation of jobs. But on the other hand, there was an increase in default, which was already showing worrying signs in 2011.

The current scenario is quite different, with discounts lower than those practiced 10 years ago and automakers working with models with higher added value and lower sales volume. But there is a more challenging time, with war, supply difficulties and more expensive credit.