Tax breaks and extended credit on car loans helped Brazil register positive car sales in May, even beating May 2008 sales, a time when the industry was on the cusp of a record breaking year.

Brazil's motor vehicle sales rose 5.4% in May to 246,978 vehicles, the National Motor Vehicle Manufacturers Association, or Anfavea, said Thursday. The number is also 2.1% greater than sales in May 2008.

Brazil's all-important automotive industry entered crisis mode last October, when it became clear that emerging markets like Brazil would not decouple from the growing financial problems in the U.S. and Europe.

The Brazilian government reacted by temporarily exempting car makers from paying the IPI tax for industrial production, resulting in as much as 7.5% off the sticker price of new vehicles.

In late April and May, major banks like Bradesco (BBD) increased their credit terms out to 80 months from 60 months, enticing new car buyers with lower monthly payments.

Production of motor vehicles is also on the upswing as demand escalates, rising 6.7% in May to 270,247 units produced.

Even export sales managed to rise 4.5% to around $600 million, according to Anfavea, following a long six month slump.

So far this year, Brazilian auto makers from General Motors (GM) to Fiat (FIATY) have sold 1.15 million cars, down 0.1% from the same period last year.

The number is impressive because at this time last year Brazil's stock market had just rallied to historic highs of over 70,000 points and two major credit rating agencies - Fitch and Standard & Poor's - had just given Brazil government debt investment grade status.

"Given the realities of the market, it is amazing that we are selling almost as much as we sold last year," General Motors do Brasil Ltda. Chief Executive Jaime Ardila said Tuesday during a press conference discussing the GM bankruptcy in Detroit.

General Motors is Brazil's third largest auto maker, selling 40,607 cars in May, up 18.2% on the month, but down 1.1% from May 2008.

Market leader Volkswagen sold 51,233 cars, up 6.1% from April and up 19.6% from May of last year.

Fiat also had a good month, selling 3.6% more cars to 50,609 units. Sales for Fiat are also up 1.7% from this time last year.

Ford Motor Company (F) sales dipped in May, however, selling 5.4% less to 17,778 units. Ford's sales are up 4.2% from May of 2008.

Overall, auto makers are returning to full capacity at many assembly plans thanks to domestic demand. Exports remained a drag on production figures, Anfavea said. January to May production totals were 1.19 million, or 14.2% less than last year because of a 50.8% drop in exports. So far this year, Brazil exported around $2.76 billion worth of automobiles.

Brazil is considered one of the most important markets for Fiat and Volkswagen, and is GM's third largest market after the U.S. and China.

-By Kenneth Rapoza, Dow Jones Newswires, 5511-8812-5961, kenneth.rapoza@dowjones.com

(Rogerio Jelmayer of Dow Jones Newswires contributed.)