The scenes of depression in this auto town--its empty hangars, its silent production lines, its noon-time soup kitchens--have a peculiarly international tone.
Sao Bernardo, home of Ford and an exit or two down an eight-lane freeway from General Motors, is really not far from Detroit.
When the recession reached here in 1981, about 15,000 workers for Brazil's big three auto makers--Volkswagen, Ford and GM--lost their jobs. Production dropped by 32 percent in a year, and the three companies lost a combined total of $223 million.
Like their parents in the United States and Europe, Brazil's auto makers have found that the crisis has accentuated a move toward a fundamental industry shake-up. But in this southern smokestack landscape, studiously modeled along the postwar lines of the industrialized nations in the North, the features of change are tellingly different.
Tucked into the multiple complexes of Ford Brazil are a sparkling new assembly plant and new painting and parts-stamping shops. Across town, a sign with GM's familiar logo marks a new, high-technol-ogy engine factory that is crating motors for Buicks, Pontiacs and Chevrolets in Europe and the United States.
While the industrialized world has suffered through the recession, the big auto producers have pumped $1.2 billion into Brazilian expansions. Here, there is no gloomy speculation about permanent shutdowns or the slow retraining of workers for new types of jobs.
Instead, auto executives are talking about Brazil as a new base for competition with Japan.
"We are going to use the Brazilian Fords as a Japanese fighter," boasts Robert Gerrity, the president of Ford Brasil. "We are going to send them into the markets where we are losing our share to the Japanese. There's no other country in the world that is as good as Brazil in low-cost manufacturing."
In these declarations, and the heavy investments behind them, is the sign of what has changed for Brazil's basic industries and their once-dominant tutors abroad.
For a generation, auto producers in Brazil have been leaders in a vast expansion of the country's economic power. They have been symbols of a development aimed at consumption and heavily supported by foreign investment, particularly by multinational companies.
Now, like the economy around them, the major auto companies have reached a turning point. As in many developing countries, they began operations in Brazil only after import restrictions and local content laws forced them to. For years they expanded rapidly with the internal market but were inefficient and uncompetitive by international standards.
Brazil's economic crisis and the collapse of the long boom have ended that kind of growth. Meanwhile, the auto makers increasingly have moved to integrate their production with that of factories in the industrialized West and make use of Brazil's advantages in resources, modern equipment and cheap labor.
The result is that Brazil has been slowly redefined in international terms from a supplier of coffee, food and raw materials to a producer of basic industrial goods.
It is a shift that many experts view as decisive in shaping the growth of the country and its future economic and political relationships with established powers such as the United States.
"The nature of dependence among the rich and poor countries is now different," said Fernando Henrique Cardozo, a sociologist and highly respected development analyst. "Here you are seeing the industrialization of the periphery. There has been a real change in the international division of labor."
In autos and in other heavy industries, the beginning of the change can be traced back more than a decade, and in the past several years, trade issues have been increasingly important in relations with the United States and Western Europe.
Within Brazil, the development has had complex effects. By one measure, the country's increasing share in international industry has offered the prospect of more and better jobs for workers, increasing quality of products on the domestic market and more dollars from export sales to repay foreign loans and pay for more imports.
And yet, the kind of changes embodied by the auto industry have appeared only to increase some of the imbalances of past Brazilian growth. More than ever, Brazil's most dynamic sectors are growing dependent on international economic conditions. Increasingly, too, Brazilian leaders are concluding that development good for international trade can have destructive effects inside a poor and populous country.
For many Brazilian analysts, the most significant change represented by the shift in industry and the current recession has been a transformation in how and why Brazilian industry--and thus the surrounding economy--grows.
Until recently, Brazil emphasized an industrial growth based on its urban middle-class workers and consumer goods. Because that market is so large, and was so undersupplied 20 years ago, the strategy ignited one of the developing world's longest and biggest growth spurts in the 1960s and 1970s.
As in the United States after World War II, the expansion was founded most broadly on the automobile. Beginning in the 1950s, Brazilian governments emphasized the highway and the passenger car as the prime means of transportation. Then, Brazilian president Juscelino Kubitschek began a program of requiring gradually higher levels of locally made products in automobiles, while restricting imports.
Major auto companies had no choice but to build assembly plants if they wished to sell to the large Brazilian market. By 1959, the first Volkswagen Beetle was produced in Sao Bernardo, and by 1960, a whole industry had blossomed. The number of auto parts manufacturers grew in three years after 1957 from 700 to 1,200, and fledgling companies produced 321,000 cars.
"It was a historic development," said Gus Diniz, a Brazilian economist who is executive director of the Rio de Janeiro American Chamber of Commerce. "For Brazil, it was like the glory days of NASA in the United States. Whole new industries were born, and there was a tremendous excitement about what was happening."
For a dozen more years--until oil prices began to rise--the auto industry expanded almost exclusively on the strength of Brazil's internal market. As Brazil grew, consumer industries rapidly spawned others and fed on the incomes of a rising middle class created by the boom.
Between 1970 and 1973, at the apex of the growth, Brazilian industrial production grew at 14 percent a year. Autos and consumer goods were dominant. Car production expanded by 25 percent a year and household appliances by 28.
Increasingly, the rapid expansion was influenced by multinational companies. Ford and Volkswagen bought out small producers, and for the past decade the passenger car market has been composed of four large companies--Ford, Volkswagen, GM and Fiat.
Around Brazil, locally produced versions of international brands of other products--Colgate toothpaste, Nike athletic shoes, McDonald's hamburgers--are now omnipresent. At newsstands, Brazilians can buy locally printed, Portuguese-language versions of such magazines as Playboy and Psychology Today.
According to a 1976 study by Brazilian economists, multinational companies accounted for almost 60 percent of the invoices, profits and assets of the 500 largest corporations in Brazil.
The growth has been so fast, and so many firms have entered the Brazilian market, that much of the production has been inefficient. Consequently, the two-year-old recession is producing an important shake-up of multinational companies and Brazilian industry as a whole, analysts say.
"During the boom many more people were getting into each field than was really justified," said Robert Blocher, an investment consultant and former head of the Chase Manhattan Bank's subsidiary in Brazil. "Suddenly Brazil has changed from a seller's to a buyer's market, and there's not enough room for everybody. Some companies are leaving, and you are seeing consolidations and mergers with only the most efficient firms surviving."
Even the auto industry may be consolidated further by the crisis. Some businessmen, including Ford President Gerrity, have said that one of the four producers could be forced out of the market in the coming years.
Before the recession, the car makers, like other major industries, were moving toward a different kind of growth, founded on Brazil's international advantages as a producer rather than the needs of its internal market.
The benefits accruing to multinational auto companies from producing in Brazil are clear. Brazilian auto workers, considered relatively privileged by blue-collar standards here, earn about $4 an hour. That is only a fraction of the cost of labor in the United States and Europe, and permits Brazilian plants to compete with new Japanese and West German factories heavily stocked with robots.
In addition, Brazil has a nearly inexhaustible supply of the natural resources needed for heavy industry, including the largest reserves of iron ore in the world after the Soviet Union. A long-range study prepared by one of the Brazilian auto companies predicts that Brazil eventually will be one of the two major world producers of aluminum and one of the top four in the basic steel industry.
The shift in auto production can be traced to 1972, when producers led by Ford persuaded the government to allow them to import some equipment and parts at low cost. In exchange, they agreed to export $3 worth of products for every $1 worth of imports.
The program soon spread to other major industries, even as car makers began to export on an important scale for the first time. Volkswagen, the largest Brazilian auto company, exported 1,039 assembled and disassembled cars worth $1.9 million in 1971. A decade later, it exported 82,869, and total sales abroad, including 150,000 engines, were worth $405 million. The exports went to more than 50 countries.
For Ford and GM, the breakthrough developments have come in the past three years. Not only did the American corporations decide to make large investments for new plants and equipment; they also both moved to introduce the production of "world cars" in Brazil.
The "world car" is important mainly for its production system. For Ford and GM, it means that factories in different parts of the world are associated in the production of a single model or type of car. Rather than build an engine plant at each assembly site, for example, the companies invest in one or two large factories and then export the motors to other areas.
In the case of both the GM Monza, introduced in Brazil last year, and the Ford Escort, which will go on sale in Brazil in August, the companies decided to produce the costly engines in Brazil, among other places. Both GM and Ford are now shipping engines to Europe and the United States to be put into world cars and some other models.
This production practice, according to the companies, signals an important shift in how the work--and jobs--involved in producing autos around the world are distributed. Traditionally, U.S. companies have shipped parts from Detroit to be assembled into cars in developing countries.
Now, Brazil is shipping engines to be put into some of the cars sold in the United States.
"You can use Brazil as a low-cost manufacturing base to supply parts to the whole world," said Gerrity. "Brazil will be basic."
The auto companies' new practices offer obvious benefits to Brazil in revenues and jobs. But many Brazilian economists and even government officials have begun to worry about the long-term implications of integrating their industries so completely into international markets.
Brazil's big industries, dependent on exports, now cannot afford to be inefficient. The result, many fear, will be practices that will end up hurting the country more than they help--such as automation and the use of robots in the auto plants, despite Brazil's already desperate need to create jobs.
Although the auto companies are attracted to Brazil in part by its cheap and abundant labor, they already have begun to take the first steps toward automation. Volkswagen has installed three robots in its plant.
"We'd like to put a lot of automation in," said GM's president, David Vaughn. "There's an advantage in quality."
These tentative moves have led some officials to believe that at least part of Brazilian industry--if not car producers--will have to be directed back to the internal market because of the country's larger needs. "Brazil has a particular direction socially and economically," said Joubert de Oliveira Brizida, the head of the Brazilian agency governing computer development.
"If you're going to export and be competitive, you have to automate," he said. "In the United States you can say, 'let's go to automation,' when here you can't support that. It creates a real conflict that is going to be very important for the future." Next: The computer revolution