Bloomberg News

Venezuela Ready to Crack Down on Clunker Car Inflation Refuge

January 24, 2013

Venezuela Ready to Crack Down on Clunker Car Inflation Refuge

A woman looks from a car at a mural portraying Venezuelan President Hugo Chavez. Photographer: Hector Retamal/AFP via Getty Images

Venezuela’s government is preparing to crack down on one of the last refuges against the fastest inflation in Latin America -- used cars.

The National Assembly on Jan. 22 approved in a first-round vote a bill that fixes prices for used and new cars as President Hugo Chavez’s administration tries to fight inflation. The bill still needs to pass a second vote.

Automobiles purchased in Venezuela, South America’s largest oil exporter, typically gain in value the moment they are driven off the dealership lot. Facing 20.1 percent inflation and capital controls introduced in 2003 that limit the amount of bolivars citizens may take out of the country, Venezuelans invest in durable goods.

“Cars gain in value instead of depreciating because of a supply and demand crisis,” said Henkel Garcia, an analyst with Caracas-based economic consultancy Econometrica. “In Venezuela we buy cars to protect our wealth.”

Venezuela’s consumer prices last month rose 3.5 percent, the fastest pace in 32 months, the central bank said Jan. 11. Venezuela has the third-highest inflation rate worldwide.

Chavez in 2012 ordered companies to cut prices of shampoo, soap and other personal care products to contain inflationary pressures.

Suspended Sales

Inflation rose after Chavez restricted dollar supplies in a bid to close a fiscal gap widened by spending before elections in October, in which he defeated challenger Henrique Capriles Radonski by more than 10 percentage points.

The lack of dollars has created shortages of goods that range from toilet paper to detergent and extend to automobiles. Suvinca, a Venezuelan state distributor of Chinese-made cars, posted a notice on its website yesterday that said it had run out of cars and suspended sales.

About 70 percent of products consumed in Venezuela are imported or assembled from raw material that is imported, Emilia Peraza, an adviser at the Consecomercio trade chamber in Caracas, said yesterday in a telephone interview.

The law on vehicle sales will set the price of new cars to 2009 levels and make it illegal to charge more for a used car than a new one, Elvis Amoroso, a deputy aligned with Chavez’s socialist PSUV political party, said in telephone interview on Jan. 23. Venezuela last devalued its currency in 2010.

‘Triple the Price’

“The law won’t solve the problem, because it doesn’t resolve the fact that there is still little supply. It won’t reduce demand, either,” Garcia said. “A black market will be created very fast. Instead of solving the problem, it will make it worse.”

A 2008 4X4 Jeep Cherokee purchased in 2008 for 135,000 bolivars ($31,395) can be sold today for 450,000 bolivares, a 233 percent price increase, said Giovanna D’onghia, 35, a Caracas customer who checks prices on Tucarro.com, a used-car website. Inflation over the same period was 209 percent.

Used cars can also cost more than the suggested price of new cars as customers must wait as much as a year to have the vehicle delivered.

Tucarro.com yesterday listed a used 2012 Chevrolet Cruze for 595,000 bolivars ($138,372), while the same family model is listed at 354,000 bolivares on Chevrolet’s Venezuela website.

“Car dealerships convert new cars into used cars and sell them for triple the price,” said Amoroso, who is sponsoring the bill. “It’s a scam. It’s an organized mafia.”

Bolivar, Black Market

The bolivar has fallen 51 percent since January 2012 in unregulated trading to 17.51 per dollar, according to Lechuga Verde, a website that tracks the rate. Venezuelans use the black market when they can’t get access to the central bank’s Sitme exchange, which sells dollars to businesses for 5.3 bolivars, or the so-called Cadivi system that sells dollars at 4.3 bolivars for priority imports.

Car manufactures obtain dollars at the official rate of 4.3 bolivars and then set retail prices using the black market rate, the text of the proposed law says.

The bill was unanimously approved in a first discussion and was supported by opposition lawmakers, said Amoroso. The legislation could be passed within 30 days, he said, adding that he saw no need to increase vehicle production in the country.

“With this law, it will not be permissible to sell a car above the maximum suggested price, and a used car can never cost more than a new one,” Amoroso said. “Notaries will be prohibited from legalizing any transaction that is above the suggested price.”

A total of 104,083 cars were assembled in Venezuela in 2012 compared to 102,409 in 2011, according to Venezuelan car chamber Favenpa.

“The system is sick and it’s making car dealers rich,” Ricardo Villasmil, an economist at the Universidad Catolica Andres Bello in Caracas who advised the opposition in the October elections, said yesterday in an interview. “Because of that reality, it makes sense to regulate the prices so at least you are benefiting the buyers and not the sellers.”

‘Capacity,’ Chavez Delays

Jose Morales, a 37-year-old Venezuelan, said that he signed the papers to purchase a new Chinese Chery car for 110,000 bolivars in February 2012 and is still waiting to get the keys.

On Jan. 21, at the headquarters of Suvinca in Caracas, a company representative said that there were no cars to sell, Morales said in an interview on Jan. 23.

A Suvinca employee told customers that Venezuela hasn’t renewed the agreement with China this year because President Chavez hasn’t been able to sign the accord due to his health condition, Morales said.

Calls placed to Suvinca’s headquarters in Caracas yesterday were not answered.

Chavez, a 58-year-old former paratrooper, hasn’t been seen or heard from since stepping off a plane last month in Cuba to undergo a fourth operation for an undisclosed type of cancer.

To contact the reporters on this story: Corina Pons in Caracas at crpons@bloomberg.net; Nathan Crooks in Caracas at ncrooks@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus