By Rogerio Jelmayer 
 

SAO PAULO--Brazilian auto sales plummeted in February as consumer confidence faded and a key tax incentive expired, increasing the chances of another decline in full-year sales.

Vehicles sales including cars, light vehicles, trucks and buses totaled 185,944 units in February, down 26.7% versus January and down 28.3% compared with February 2014, according to auto maker association Anfavea on Thursday. That was the lowest level of sales since November 2008.

"We have a combination of negative factors affecting sales--the increase of the tax on industrial goods, the decline in consumer confidence," and rising interest rates, Anfavea President Luiz Moan Yabiku Jr. said at a news conference.

The sharp drop in sales in February will probably lead Anfavea to cut its forecast for sales for the full year, Mr. Moan said. The current forecast is for no change in sales compared with 2014. If sales do fall this year from last year, it will be the third consecutive annual decline.

In the first two months of the year, vehicles sales totaled 439,747 units, down 23.1% from the same period a year ago, and output declined 22% to 404,931 versus the year ago period.

The combination of weak economic growth, high inflation and rising interest rates is hurting consumer confidence, especially with regard to big-ticket purchases, according to economists.

Brazil's economy was stagnant in 2014, according to economists surveyed by the country's central bank, and the economy is expected to contract 0.58% in 2015.

In the meantime, with official inflation at 7.36%, well above the central bank ceiling rate of 6.5%, the monetary authority is expected to raise its benchmark interest rate even more. The central bank raised the rate to 12.75% on Wednesday, from 12.25%.

After cutting the tax on industrial goods for new-car purchases in 2012, the Brazilian government this year let the exemption expire. Known as the IPI, the levy raised prices 4.5% to 7%, depending on the size of the vehicle, according to Anfavea.

With the drop in sales, some auto makers in Brazil have started to lay off employees and implement voluntary severance programs and force mandatory vacations.

Brazil's auto industry ended February with 142,317 employees, down from 144,163 at the end of January and from 156,133 at the end of Feb., 2014, according to Anfavea.

Vehicle production in Brazil dropped to 200,111 vehicles in February, a decline of 2.3% from January and down 28.9% from February, 2014. Exports rose 31% from January to $860 million, though that was a decline of 15.5% from February 2014.

Exports in the first two months fell 20.8% versus the same period a year ago to $1.5 billion

The largest auto makers in Brazil in terms of sales are Fiat Chrysler Automobiles NV (FCAU), Volkswagen AG (VLKAY), General Motors Co. (GM), and Ford Motor Co.(F).

Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com

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