AUTOLATINA: An International Partnership that ended up in a Divorce: Ford – Volkswagen Joint Venture in Brazil Autolatina, a joint venture of Ford and Volkswagen (VW), was created in 1987 in Brazil. The partners created the new company in order to serve the highly protected car markets of Brazil and Argentina from within. In addition, their goal was to create a giant theoretically invincible in the Latin American market. The partners’ strategy was to share the risk of operating in a volatile market and support a wide model range. Soon after the fusion, Autolatina market share reached 60% in the Brazilian market and 30% in Argentina. Of German origin, Volkswagen was originally founded in 1937, with the goal of offering the “popular cars” that anyone could afford. This was best reflected by the Volkswagen Beetle which, at one time, was the world’s best selling car.
Early on, the Beetle became a mascot of Brazil’s economic miracle, accounting for nearly half of Brazilian car sales. Volkswagen launched VW Gol in 1980 please substitute the VW Beetle. It was assembled at Volkswagen do Brazil, which employed more than 45,000 people and was the largest industrial corporation in Latin America. VW Gol has been the best-selling car or in Brazil since VW Beetle. Ford was the first automotive company to assemble in Brazil, and prior to 1939, it dominated passenger car sales. In the 1950s, Ford resisted Brazilian government plans to establish complete automotive operations, including assembly and full manufacturing. Reluctant to share the same vision with the Brazilian government, Ford allowed Volkswagen to capture the Brazilian market. Ford reentered the market in the 1970s and became the second largest automobile producer after VW. Brazil’s car industry, coddled by years of high tariff barriers and other forms of protectionism, has been scrambling to modernize. For decades, imported cars were banned or made prohibitively expensive and foreign parts were not allowed to be fitted to locally made cars.
A symbol of the “Brazilian miracle” of the 1970s, the auto industry became emblematic of Latin America’s “lost decade” of the 1980s. A ban on imports meant that the auto industry did not keep up with technological innovations, and consumers had no choice but to accept the manufacturers’ complacency. Brazil was, at the time, a new potential market for U.S. subcompacts. Autolatina: A Perfect Marriage Ford and VW’s strategy to combine operations reflected the partners’ will to overcome obstacles in the Brazilian market. By the 1980s, Ford and Volkswagen had a total of 15 vehicle, engine, and parts plants in Brazil and Argentina, employing 75,000 people. Their combined annual production capacity was 900,000 cars and trucks, distributed through 1,500 dealerships. Their automotive and credit operations reported sales totaling US$ 4 billion. In a market protected from external competition, Autolatina became highly successful. It offered inexpensive models, including the Escort XR3, Sierra, VW’s Gol, Beetle, and aging midsized Ford Falcons. Autolatina spent $35 million refitting a plant to build Beetles. The growth in this market segment relied exclusively on tax incentives from the Brazilian government.
The products were adapted for a smaller engine. The goal was to manufacture car models at lowest possible cost. Plant operations were organized by size of vehicles. Ford had been relying on VW to build small cars while Ford was supplying the larger Escort and a line of pickup trucks. The two partners even produced shared products. For instance, Volkswagen was producing Ford Versailles (derived from VW Santana), and for those producing VW Logus (derived from Ford Escort). Marketing and sales staff were unified. Specialists and consultants were hired to accommodate the two different company cultures. Production of Autolatina cars rose substantially over time. In 1994, it seemed both companies had succeeded in identifying the key factors contributing to Autolatina’s success: inexpensive, non-competing models, a growing Brazilian market, and sharing of manufacturing and profits. Autolatina enabled both companies to serve an important country from within, and reduced operational costs for both partners.
Developments: New Competition and the Emergence of MERCOSUR During the 1990s, conditions shifted in Brazil, and Autolatina was caught unprepared by renewed economic growth. In addition to the popular car policy, Brazil reduced tariffs on car imports. Over the course of five years, import tariffs fell from 85 percent to as low as 20 percent. In 1991, MERCOSUR (Mercado Comun del Sur, or free trade area of the Southern Cone) went into effect. The creation of the MERCOSUR free-trade area boosted Brazil’s exports to Argentina. Originally a free trade agreement between Argentina, Brazil, Paraguay and Uruguay, MERCOSUR was extended in 1996 to include Chile and, in 1997, Bolivia. With 150 million of MERCOSUR’s 200 million inhabitants, Brazil was ready to become the region’s car-making center. The formation of MERCOSUR, falling tariffs, and the Autolatina’s success, provoked rivals into action. GM and Fiat moved into Argentina and Brazil in a big way, and began producing cars to compete with Autolatina. Brazil became the world’s tenth-largest producer of automobiles