A new car experience – costs in Brazil

I am not much of a connoisseur of cars. I like any car, as long as it has a good fuel economy and is reliable. The first time I bought a new car, not a used car, was two years back, a beautiful black Siena Fire model 2008 from Fiat.

There was much to like about that car, at least as far as the criteria I suggested earlier is concerned. The fuel economy with Ethanol was almost always around seven kilometres per litre or about sixteen miles per gallon. With Gasoline it achieved about ten kilometres per litre, or about twenty three miles per gallon, under typical city driving conditions, the average speed well within twenty kilometres per hour, and with the air conditioner used often.

I almost always used Ethanol, which cost about one Brazilian Real and seventy five cents circa 2008. Flex cars, as cars that use both Ethanol or Gasoline, or their mixture, are called in Brazil, go about seventy percent the distance with Ethanol, so long as its per litre price is below seventy percent of that of gasoline, it makes economical sense to use Ethanol.

Cars, like most other consumer goods, are pretty expensive in Brazil. The Siena model 2008 made me poorer by about forty thousand Brazilian Reals, over a period of two years. That is about twenty thousand US dollars or eight hundred thousand (8 lac) Indian Rupees. Similar cars cost about half as much in the United States or India.

Of the total cost of the car about nineteen thousand Brazilian Reals was paid over two years, and of that total, fourteen thousand was the principal and five thousand was the interest. That translates to about nineteen percent interest per annum, at that rate you would pay for another car in four years. Car loans need to be avoided like the plague.

Then suddenly, about three days before my thirty-fifth birthday, we suffered a pretty bad traffic accident. Luckily none in the car suffered serious injuries, but the car itself was damaged beyond repair. The only setback was financial, as mentioned before, cars are expensive in Brazil. I have since purchased a beige Fiat Siena model 2010. That car will set my wallet lighter by another forty thousand Brazilian Reals. A similar but better car in India would cost me about twenty five thousand Brazilian Reals.

So why are cars in Brazil so expensive? It is hard to pin-point that, but here are some facts:

  • The federal government taxes the manufacturer at about ten percent for a 1000 cc car, it can be as much as twenty five percent for higher-end cars
  • Most Brazilian states tax consumer goods at twenty percent or higher
  • Almost all transportation happens by trucks over roads that are poorly maintained
  • The total amount of taxes and other costs for hiring an employee can be equivalent to the salary paid

In-spite of it all, the manufacturers themselves earn hefty profits. In these days when manufactures around the world are either in the red or just surviving, most manufactures in Brazil are earning hefty profits.

The Brazilian consumer, obviously, pays for it all.

Written on March 6th 2010


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