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Volkswagen cuts Brazil 2013 outlook as economic doubts chill market

Art collector Andrei de Lima poses next to his 1972 Volkswagen Beetle decorated with graffiti depicting a hillside favela, as he looks at Sugarloaf mountain in the background, in Rio de Janeiro, March 12, 2013. A fragile economic recovery, expiring tax breaks and tighter credit have cooled Brazil’s demand for new cars after a consumer boom that doubled sales in five years.

PILAR OLIVARES/REUTERS

Volkswagen AG, Europe's largest auto maker, sharply pared its growth outlook in Brazil for this year, a senior executive said on Monday, adding that the pace of investments in local factories will hinge on sales in the coming months.

Sales of cars and light trucks are likely to expand around 2 per cent in 2013, said Thomas Schmall, VW's most senior executive in Brazil. He had forecast as much as 7 per cent growth just five months ago.

That would be the weakest sales growth in a decade for Brazilian passenger vehicles, highlighting a challenging moment for the world's fourth-largest auto market and a key element of VW's global growth plan. A fragile economic recovery, expiring tax breaks and tighter credit have cooled Brazil's demand for new cars after a consumer boom that doubled sales in five years.

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Mr. Schmall said new regulations to encourage more research and development in the country may boost VW's Brazilian investment plans, but the expansion of factories such as the Taubaté plant in Sao Paulo state will hinge on sales.

"The project (in Taubaté) is a good one, but it depends on the market," Mr. Schmall told journalists at an event introducing soccer legend Pelé as VW's spokesman in Brazil. "I'm not seeing major growth this year … March sales will be a key indicator."

Mr. Schmall also said VW's luxury brand Audi is likely to start producing cars locally again, joining a wave of competitors focusing on Brazil's multiplying millionaires. Audi's A3 is the most likely candidate for local production, given the overlap with other VW platforms produced in the country.

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