Brazil Supreme Court Upholds ‘Ferrari Law,’ Maintaining Protected Auto Dealership Model

The Brazilian Supreme Federal Court (STF) has unanimously upheld the constitutionality of the 'Ferrari Law,' validating the highly protective, four-decade-old regulatory framework that governs the relationship between automakers and their vast network of local dealers across the country. The April 23 ruling puts an end to a high-stakes challenge by the Prosecutor General’s Office and solidifies the Brazilian state's role in regulating major industries to promote what the court termed "economic balance."

The statute, formally Law No. 6,729/1979 and named after the former deputy who championed it, establishes a mandatory legal framework for commercial concession in the auto sector, which accounts for a substantial share of Brazil’s industrial GDP and employment. The law's core mechanisms—territorial limits, sales exclusivity, and minimum contract duration—were designed to protect dealers (concessionárias) from the massive economic power wielded by manufacturers (montadoras) like the local operations of Volkswagen, Fiat, and Ford.

The challenge, filed by the Prosecutor General's Office (PGR) in late 2023, argued that these provisions created an anti-competitive system that violated the constitutional principles of free enterprise and consumer protection. The PGR, backed by technical notes from the country's competition authority, CADE (Administrative Council for Economic Defense), contended that the law was a relic of a more state-interventionist era and no longer compatible with the free-market values enshrined in the 1988 Constitution.

However, the STF—Brazil’s final arbiter of constitutional law—rejected the argument. The Justices, led by rapporteur Justice Edson Fachin, held that constitutional economic freedom is not absolute and that the law establishes a legitimate, sector-specific model of state regulation. The Court found that the 'Ferrari Law' did not create a market monopoly but instead served to rebalance a structurally asymmetric relationship defined by the dealers' reliance on the manufacturers for inventory, parts, and brand. The ruling strongly reinforces the view that such regulatory choices are the domain of the Legislative Branch (Congress), not the Judiciary.

The decision grants legal certainty to a system that organizes the sale of millions of vehicles annually and reinforces the business model for thousands of dealerships nationwide. The STF was careful to specify that the law does not exempt the sector from competition oversight, emphasizing that CADE retains its authority to investigate and punish any specific anti-competitive practices or abuses of economic power that may arise.

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What it touches The decision provides a definitive legal anchor for the Brazilian automotive sector’s distribution model, which includes both local and foreign manufacturers, as well as the independent network of dealerships. By ensuring the longevity of the current legal regime, the ruling mitigates the risk of a chaotic disruption to the vehicle sales network that would have resulted from dismantling the 1979 law. This stability affects the operating frameworks for companies engaged in vehicle production and sales in Brazil.