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Brazil’s Protectionist Tax Increase Spurs Rally in Car-Parts Manufacturers

Brazilian car-parts makers Autometal SA and Plascar Participacoes Industriais SA (PLAS3) gained in Sao Paulo after the government raised a tax on vehicles with a high content of imported components to protect jobs.

Autometal, the Brazilian unit of Spanish auto-parts maker Cie Automotive SA, jumped 5.1 percent to 13.65 reais at 4:15 p.m. New York time, completing a record 11 percent two-day surge. Plascar climbed 3.7 percent to 2.27 reais, the steepest increase since Sept. 6.

Finance Minister Guido Mantega increased by 30 percentage points the so-called industrial products tax on carmakers that don’t source 65 percent of their parts from the Mercosur trade bloc or Mexico. The measure will raise the cost of imported cars by as much as 28 percent, and force foreign automakers to build key components in Brazil, he said. Carmakers in the country have been hit by a rally in the real, which has drawn cheap imports from China and elsewhere.

“This measure should favor local vehicle production and reduce the threat of imported auto parts,” analysts at Banco Santander SA, including Daniel Gewehr, wrote in a note to clients today. “Autometal should benefit the most.”

Carmakers must meet six of 11 requirements ranging from building of transmissions to the assembly of cars in Brazil in order to avoid the higher tax, Mantega said. The new rules will apply until December 2012, he said. The real hit a 12-year high against the dollar in July and is up 34 percent since the end of 2008, the most among 25 emerging-market currencies tracked by Bloomberg.

The move may still face resistance from Brazil’s vehicle importers or invite sanctions from international trade organizations, according to the Santander analysts.

In a regulatory filing, Plascar separately disclosed that a subsidiary agreed to sell four properties for 125.6 million reais ($73.4 million) to reduce debt.

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos in New York at papadopoulous@bloomberg.net

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