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American and European car makers are expecting recording breaking sales in Brazil, even as the economic crisis drags on in their home markets.

Thanks to a combination of tax breaks and cheaper credit, Volkswagen (VLKAY), Fiat (FIATY), General Motors (GM) and Ford (F), plus smaller names, are likely to sell 6.4% more cars this year to top around three million vehicles, according to the Brazilian Motor Vehicle Manufacturers Association, Anfavea.

"If we are going to reach that number this year, it's because of better consumer confidence, tax reductions and the return of auto lending have enticed car buyers," said Jackson Schneider, Anfavea's president.

The help first arrived in the form of a government tax break late last year. The so-called IPI industrial tax was cut and car makers took around 7.4% over the sticker price of new vehicles.

With sales mixed in February and down in April, the government decided to extend a tax break to Oct. 31.

Automobile manufacturing is an important segment of any national economy. Not only is it a high wage job, it has an enormous supply chain from auto parts makers to steel companies that depend on demand from car makers.

To keep those companies in the black during one of the worst global recessions since World War II, Brazil's government forced its hand on state and federally owned banks to cut interest rates on new car loans.

Worldwide, the automotive market has required massive government support because of sharp sales declines, especially in the U.S. and Europe. But much of that support has come in the form of bailout money to pay short term loans.

General Motors, the most noted of cases, filed for bankruptcy protection recently and a U.S. federal judge approved the sale of GM's assets to a new government-run company. GM's shares delisted from the New York Stock Exchange.

Privately held Chrysler folded into Italy's Fiat SpA.

The help that didn't come in the form of cash bailouts led to higher sales. Some European countries launched trade-in incentives for old cars, while others gave tax breaks for new, fuel efficient vehicles.

Sales in Germany and France improved through the trade-in plans. Germany sold 22% more new cars in Jan-May 2009 than it did in the same period last year, for a total of 1.6 million vehicles, according to the European Automotive Manufacturers Association, Acea.

France saw sales rise in May by 11.8% to 184,463 units when compared with May 2008, but are still down 1.4% to 896,178 from January to May when compared to the same period last year, according to Acea.

Meanwhile, in Brazil, June car sales hit a monthly record of 300,157 vehicles, up 17.2% from June 2008's record-breaking monthly sales. Local car makers have sold 1.44 million vehicles in the first half of 2009, up 3% from the year before.

"The three million vehicle forecast for Brazil sounds very sustainable," said Alexandre Andrade, an auto industry consultant for Tendencias in Sao Paulo.

Brazil sold 2.8 million vehicles in 2008.

"The government had a big hand in this. First with the tax break and then with lowering credit from government banks like Banco do Brasil. The private banks followed later, but the extra credit and longer loan terms have been just as big a deal to car makers as the tax break," Andrade said.

-By Kenneth Rapoza, Dow Jones Newswires, 5511-2847-4541, kenneth.rapoza@dowjones.com