Will Brazil’s auto industry ever stand on its own feet?

In 1957, then-Brazilian President Juscelino Kubistchek promoted a plan to manufacture cars in Brazil for the first time. More than 60 years later, however, the auto industry in Brazil is still struggling and has had problems adapting to global trends. As a result, carmakers continue to rely on government subsidies, which, with Brazil’s sluggish economy, have become less and less reliable.

Last month, the Ford Motor Company announced it was shutting down its plant in São Bernardo do Campo — an industrial region on the outskirts of São Paulo. While 3,000 people are employed in Ford’s factory, its closure would threaten the jobs of some 24,000 workers, considering the production chain as a whole.

To make matters worse, General Motors was reportedly considering a similar move and could abandon its factories in São Paulo state. In January, GM’s top executive for Brazil and Argentina, Carlos Zarlenga, said the operation has reached “a critical moment that will require sacrifices from everyone.” One week before, Chief Executive Mary Barra said GM would not “keep deploying capital to lose money.”

Ford’s decision to leave Brazil follows the country’s worst recession on record, during which car production halved after peaking in 2013 when 3.8 million units were made. Though the auto industry has managed to recover some of the ground lost in the last two years, idle capacity remains at roughly 40 percent.

To avoid the loss of 15,000 direct jobs, the government of São Paulo has stepped in, announcing cuts of up to 25 percent in state taxes for automakers that invest at least BRL 1bn in his state and create at least 400 jobs. While the financial aid package seems to have been taken from the Dilma Rousseff...