Venezuela auto industry collapses

May 12, 2014 - 1:53:01 am
An empty car concessionaire store in Caracas.

CARACAS: Venezuelans, who enjoy free highways and dirt-cheap gas, are struggling to buy cars as production falters thanks to a lack of foreign currency to pay for imported parts.

Vehicle assembly plants are facing their worst year in the oil-rich Opec nation, producing five times fewer vehicles than last year due to the lack of imported supplies amid an economic crisis that began last year.

Most economic experts blame the South American country’s problems on a decade of rigid currency and price controls, as well rising debt, dependence on imports and stagnant economic growth. Four of the seven assembly plants in the country — owned by Chrysler, Ford, Iveco and Toyota — have gradually stopped production since February.

Foreign carmakers must go through a complex bureaucratic process to obtain dollars. 

Venezuela is only providing the US currency at the official rate of 6.3 bolivars to the dollar to importers of designated priority goods such as food and medical supplies. Others who need dollars to pay overseas bills have to buy them at a higher rate at government-run auctions. Many companies have complained that Caracas is not providing them with enough hard currency. 

The currency controls, in place since 2003, have led to shortages of a wide range of basic necessities, and fueled an inflation rate hovering just under 60 percent.

So far this year, government data shows that the auto sector has received less than one percent of foreign exchanges granted to importers, at a time of high inflation, and shortages of food and medicine.

Consequently, auto production saw a sharp drop of 82.6 percent so far this year compared to 2013, according to Venezuela’s Automotive Chamber. 

A total of 104,000 units were produced in 2012. Last year that number fell to 72,000 units and, during the first quarter of 2014, only 3,990 were produced. The industry has been halved in five years.

Faced with this crisis, President Nicolas Maduro’s government summoned this week local representatives of Chrysler, Ford, General Motors and Toyota to address their factories’ currency settlements, estimated at almost $2.8bn.

Although the government announced that GM would not close its plants this year, union leaders had previously said that the company’s two factories would stop production in May because they had no input.

The crisis of vehicle production and supply is nothing new. Dealerships across the board have almost no units to sell, and many only keep their doors open to provide maintenance services. Customers often have to wait a full year to obtain a vehicle they have ordered.

The middle and upper classes have turned in recent years to buying cars as a way to hedge against inflation, currently four times the interest rate on bank deposits. But as demand exceeds supply, many have to resort to the used car market, where vehicles are more expensive than new ones, whose prices are controlled by the government. AFP

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