Brazil eyes moves to revive auto lending reports

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* Auto inventories at 4-year high on weak car loans* Struggling car industry drags on economic recovery* Government may cut tax on auto loans-newspapersSAO PAULO, May 18 Brazil is considering measures to facilitate new car loans and bolster local automakers, newspapers reported on Friday, after slowing vehicle sales pushed auto inventories to their highest levels since the 2008 financial crisis.

The industry's slump has prompted concerns about layoffs and dragged on a weak economic recovery. Brazil's economic activity contracted unexpectedly in March, the central bank said on Friday, after flirting with recession in recent months.

Now the government is looking to boost auto sales by easing the cost of financing. Newspaper Valor Economico reported the finance ministry may cut the IOF transactions tax on car loans. The central bank could also reduce reserve requirements for banks on the condition that those funds go to auto financing, O Estado de S. Paulo reported. Aggressive loan growth in recent years turned Brazil into the world's fifth-largest car market, but rising defaults in the sector have turned lenders more cautious. New auto loans fell in the first quarter from a year earlier.

A quickly expanding middle class has made Brazil a key market for the world's biggest automakers, including Italy's Fiat SpA, Germany's Volkswagen AG and U.S.-based General Motors Co and Ford Motor Co. But Brazilian households are carrying record debt loads after a three-year credit boom, pushing loan delinquency up to 5.7 percent in March.