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Problems in Lada Do Brasil

In: Business and Management

Submitted By asmark
Words 1027
Pages 5
Key Issues and Problems in Lada Do Brasil: 1. High inflation rate:
The inflation rate in Brazil was very high despite the stabilization attempts of the government. The government had only managed to bring down the rate of inflation from 1477% in 1990 to 480%in 1991. High inflation rate meant the price of the cars were very high which has affected consumers' willingness to purchase the cars.

According to purchasing power parity theory, the only change happen in prices between two countries is because of inflation. Country with higher inflation rate often experiences the value of their currency depreciates. Whenever in Brazil situation high rate of inflation rate exists and car prices go up and affecting customer willingness to purchase. In this situation to increase the sell, company can offer flexible loan policy or government policy may have positive effect eg. Reduce the tax charges on car. 2. Depreciation of cruzeiro: the economy was still in recession and the dollar value of the cruzeiro kept declining. In November, it depreciated by 26%. therefore the prices for the cars increased by 26% for Lada do Brazil.

As said earlier country with high inflation rate often experiences less strength of their money and depreciates the value of money against other currency. One of the steps to decrease the inflation rate is, government can inspire to export more, which will make demand of Brazilian currency to other country, and the currency price will go up. 3. Declining sales: Due to recession Ladas sales had began to decrease after August 1991 and dropped to 500 cars in December which reduced their profitability.

When recession hits a country, the value of money goes down, as a result the normal commodity prices goes up and people need to spend more money than usual to support their expenses and…...

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