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Kia eyes factory in Brazil as new tax hits imports

A worker walks through a parking lot of cars ready for shipping, outside Kia’s factory in Zilina, Slovakia.

PETR JOSEK/REUTERS

Korean car maker Kia Motors Corp. is studying building a new factory in Brazil as a steep tax hike on imported cars has sharply driven down sales in the world's fourth-largest auto market.

Jose Luiz Gandini, the head of Kia in Brazil, told reporters at the Sao Paulo auto show that corporate strategy has given priority to affiliate Hyundai Motor Co. for a major investment for a new factory in Brazil.

Kia expects its local sales to plunge from 77,000 vehicles last year to around 50,000 by the end of 2012 – half its original forecast for this year, due to a tax hike on foreign-made cars of 30 percentage points.

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Mr. Gandini said the new regulations exemplified the unwieldy tax burden that drives car prices in Brazil to as much as twice those in other markets.

"People ask why a car is so cheap in the United States and so expensive here," he said. "It's because in Brazil we're selling taxes."

The new tax rules, aimed at protecting jobs in Brazil's auto industry, have accelerated some investments and scrambled plans for others. The tax hike has hit both imported cars and imported parts in locally made vehicles.

Volvo continues to study plans for a Brazilian car factory that it had shelved amid negotiations of the new tax rules, Paulo Solti, the head of Volvo in Brazil, told reporters.

And Suzuki has completed construction of a plant in the state of Goias, which it announced in 2010, but will not begin production there in light of the shifting outlook in Brazil, the head of Suzuki in Brazil, Luiz Rosenfeld, said.

"The environment changed radically. It became much more hostile," said Mr. Rosenfeld.

Instead, Suzuki will produce its small SUV Jimny at Mitsubishi Motors' Brazilian plant, where Mitsubishi is stepping up efforts to integrate its local suppliers.

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