Wednesday, May 06, 2009

Venezuela: the used car man's paradise?

Venezuela inflation rises to 28.3 percent in April, Forbes.Com
Venezuela Used Cars Out-Price New, BBC.Com

Venezuela may be the one place used car vendors are thriving these days. With all the gloom and doom news about auto industries around the world during the global economic downturn, Venezuela stands as an anomaly. In Venezuela, every car that rolls out of a showroom immediately increases in value, which makes used cars more valuable than new ones. This is because the waiting list for a new auto in Venezuela can be up to two years long. A year ago my car cost me 54,000 bolivars (around $25,115) and I can already sell it for over 65,000 ($30,230)," says a happy Hernando Camacho, who drives a Renault Clio. As one busy car salesmen explained, “We don’t have to chase down customers anymore!” Car sellers’ phones are ringing non-stop with customers looking for a way to avoid the long waitlist for cars.

One reason for the high demand for cars in Venezuela is the incredibly high inflation rate of around 30%, the highest in Latin America. That rate eats away at savings rapidly, making an appreciable car (yes, only in Venezuela do cars seem to appreciate) a comparatively good investment. Another reason for the increased demand for cars is the new found wealth Venezuela has experienced since the 2007 oil boom. While oil is not nearly as valuable today as in 2007, much of the wealth from the recent boom is still circulating in the country. Finally, imports have been restricted since last year, when the government limited car imports in an effort to stimulate the local auto industry. Unfortunately, the Venezuela auto sector has seriously lagged behind demand for the cars for several reasons, primarily because the foreign currency needed to pay for imported car parts is tightly controlled by the government. Most manufacturers are forced to import on credit. As a result, the industry's debt with its international suppliers has risen to some USD 671 million. Also, as in so many car manufacturing companies, union demands have also played a large role in the state of the country’s car industry.

Discussion:
What is the best way the Venezuelan government can help the local industry? Does the restriction on car imports seem to be working? Whom does the restriction benefit and whom does it burden?

1 comment:

mikehickom said...

wow... found it interesting... hope it'll be beneficial for me and my friends...
Used Cars