Since the mid‐1990s, Brazil has become one of the main recipients of foreign direct investment in the automobile sector. As in the late 1950s and early 1960s, world car manufacturers are investing heavily in the building of new car plants. The renewed interest of car companies in Brazil is a result of the huge and expanding internal market and the relatively stable macroeconomic panorama of the mid‐1990s. However, and in contrast to what happened in the 1950s and 1960s, most new car plants are being located outside the São Paulo metropolitan area, the traditional hub of the Brazilian motor industry. Although some argue that, among other reasons, this is the result of lower labour costs elsewhere in Brazil and of improved infrastructure in the country, this article aims to demonstrate that the recent decentralization of the Brazilian motor industry is basically linked to perverse territorial competition among Brazilian states. This sort of territorial competition – known in Brazil as the ‘fiscal wars’– represents a pure waste of resources, both for the states engaged in them, as well as for Brazil as a whole.