The solution, they said, is to produce more cars, not fewer.

Brazil's automotive production costs soared in response to the rising real which made imports of materials for components, including steel, more expensive.

Despite a healthy surge in automotive production the outlook is clouded by the prospect of higher prices turning customers away.

Brazil's car production is set to grow 13.1 percent in 2010, more than double the expansion predicted earlier. By year's end, Brazil will have produced at least 3.62 million automotive units.

As the real remains high against the U.S. dollar, keeping the current pace of exports has become a challenge, while increased prosperity prompts more Brazilians to choose imported foreign cars instead of vehicles produced at home.

The national automakers association, Anfavea, said Brazilian exporters were having to contend with exports of unassembled vehicles, which were in greater demand than finished vehicles.

"Overseas economies are recovering and they are absorbing more unassembled vehicles from Brazil," Anfavea President Cledorvino Bellini told reporters, adding the exporters would prefer to sell more fully assembled cars.

Brazil exported more than 569,520 cars in the first three quarters of 2010, a 76 percent increase over the comparable period last year but still lower than the exports of 735,000 vehicles in 2008, most of them before the economic crisis.

Analysts said the latest figures showed that Brazil's car exports declined as a percentage of overall sales while imports rose. When compared with Brazil's exports in 2005 the current figures represent about half the previous ratio of total production -- 15 percent against 31 percent that year.

Bellini blamed higher energy and steel costs as well as the strong real for contributing to a decline in Brazil's car exports.

Imports have pushed the automotive industry into deficit, last recorded at $3.8 billion for the first eight months this year but likely to soar to $5 billion because of a continuing surge in imports.

The outlook for exports is worrying economic strategists who expect Brazil's economy to outstrip Italy's by 2011. Brazil, the eighth largest economy, is likely to become the seventh largest next year, IMF said.

An International Monetary Fund report said agriculture and the mining sector would continue to drive Brazil's growth.

Brazil's gross domestic product stands at $2 trillion, compared with $1.5 trillion for Russia and $1.4 trillion for India -- still way behind China's $5.7 trillion.

earlier related report
In China, German minister warns of global trade war
Beijing (AFP) Oct 12, 2010 - German Economy Minister Rainer Bruederle cautioned upon arriving in China Tuesday that a global trade war was brewing, amid wide differences between key trading nations on currency policy.

"The danger of a trade war has appeared on the horizon," Bruederle told reporters travelling with him on his two-day trip to China, which was to include stops in Beijing and Shanghai.

"The danger is that complaints about currency undervaluing lead to retaliatory measures, which could eventually turn into a trade war," the minister said, without specifically naming any country.

Beijing has come under increasing pressure from its trading partners in the United States and Europe to allow the yuan to appreciate at a faster pace. Critics say the unit could be undervalued by as much as 40 percent.

The US House of Representatives last month passed a bill that would expand the Commerce Department's powers to slap tariffs on China for currency manipulation, rather than just outright subsidies.

The legislation must still go through the Senate and eventually be signed by President Barack Obama in order to pass into law.

Bruederle said while China was unlikely to ever have a completely flexible exchange rate, "a bit more flexibility would be desirable".

The spectre of a global currency war dominated the annual meeting of the International Monetary Fund in Washington over the weekend, but no agreements were reached.

"We must not allow the situation to get out of hand, or turn our backs on free trade," Bruederle said, adding that he saw himself as an "ambassador, perhaps even a missionary, for the fight against protectionism".

Bruederle said his talks with Commerce Minister Chen Deming and Zhang Ping, the head of the country's top economic planning agency, the National Development and Reform Commission, focused on "management of liquid assets".

China has the world's largest foreign exchange reserves, which surged to a record 2.454 trillion dollars at the end of June, according to the central bank.

Trade between China and Germany, the world's top two exporting nations, has grown rapidly -- to 91 billion dollars last year, up from 41 billion dollars in 2001, according to Chinese data.

However, in the past few years, the trade balance has tipped decisively in China's favour, with Chinese exports to Germany totalling 55 billion dollars last year, while trade in the other direction amounted to 36 billion dollars.

Bruederle will replace ailing German Finance Minister Wolfgang Schaeuble at upcoming Group of 20 summit in South Korea, where he said he hoped the world's major economies would come up with "reasonable solutions".

After his stop in China, which will include a stop at the World Expo in Shanghai on Wednesday, Bruederle will head to Japan.

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