The Brazilian government on Thursday announced fresh tax incentives to spur carmakers to invest in innovative technology and more fuel efficient models.
"We are launching a new system aimed at giving a strong impetus to the Brazilian auto industry," Finance Minister Guido Mantega told reporters.
"The goal is to create jobs and we also want the consumer to have a better, more efficient and more modern product; cheaper and less polluting," he added.
The plan sets a 2016 target of 17.2 kilometers (11 miles) to the liter for gasoline and 11.9 kilometers to the liter for ethanol, a 12 percent improvement in fuel efficiency, Industry and Trade Minister Fernando Pimentel said.
He said authorities want to bring "innovation technology to Brazil and to develop projects here for export around the world."
Home to 194 million people, Brazil currently ranks as the world's fourth largest car market behind the United States, China and Japan.
The industry, which currently employs 147,000 people, contributes 20 percent of the country's industrial GDP.
Brazil is currently the world's seventh largest auto maker, with an annual output of 3.4 million vehicles.
The government said automakers plan to invest $22 billion over the next three years in the sector, with Pimentel noting that German automaker BMW would soon open a plant in Brazil.
A year ago, the government raised by 30 percent the IPI, a federal excise tax applied to imported industrial goods, to boost auto production with a majority of local content or from Mercosur, South America's trade bloc.
That move triggered charges of protectionism, but the plan announced Thursday will reduce by two percent the IPI for automakers investing in technological innovation or in greater fuel efficiency.