GM warns Brazilian workers against losses and difficult recovery plan

SAO PAULO (Reuters) – General Motors Co (GM.N) warned Brazilian employees that new investments in this country would depend on a difficult plan to restore profits in the country, according to a note consulted by Reuters on Saturday.

In a message posted in Brazilian factories, Carlos Zarlenga, GM's senior executive in Brazil and Argentina, said that after a hefty loss in the past three years, the operation had reached "a critical moment that will require sacrifices of all ".

The memo referred to comments made last week by Executive Director Mary Barra during investor presentations on the challenges facing South America. "We will not continue to deploy capital to lose money," she said in a quote repeated by Zarlenga.

GM spokesmen in Brazil did not immediately comment on the memo, which had been reported for the first time by S.Paulo's O Estado newspaper.

The serious tone shocked some workers in Brazil, where GM overtook Volkswagen AG (VOWG_p.DE) and Fiat Chrysler Automobiles NV (FCHA.MI) to become the industry's sales leader as the economy rebounds slowly after a deep recession.

In April 2018, Mr. Zarlenga touted the merits of a new family of low-cost cars at Brazilian dealerships this year, as part of an interview with Reuters. He said that recession-related cost reductions, including a 35% reduction in Brazilian labor, led to limited profit in South America in 2017.

As the Brazilian economy gradually recovered after the 2015-2016 recession, Argentina fell back into recession last year due to rising inflation and the crater of its currency. Investors are keeping a close eye on whether the presidents of both countries can achieve the hard economic reforms promised.

Zarlenga said the regional leaders had prepared a "sustainability plan" for Detroit's top executives, but that they still needed support from local unions, suppliers, dealers and the government. "GM's investments and our future depend on this plan," he said.

Last year, the Brazilian government granted car manufacturers a package of 15-year tax breaks, extending subsidies to an industry that was struggling to compete directly with production elsewhere.

Economy Minister Paulo Guedes, who took office with a new government this month, said Brazil could not afford to continue subsidizing powerful industries, saying the end of policies protectionists would strengthen the competitiveness of the economy.