Reuters Busted for Indecent Exposure: The Automobile Industry in Venezuela

In their report, “ANALYSIS-Venezuela car industry gridlock as dollars run out,” Reuters pays another shill to tell another half-story about Venezuelan affairs. In this “analysis” they shamelessly expose their indecency as a major news broker in western media. I’m writing this critique for Axis of Logic to call Reuters on what they pass off as journalism and help clarify what is really happening in the auto industry in Venezuela.

In 2009 there were approximately 5.6 million vehicles in Venezuela. From 2005 to 2007 new car sales were 1.15 million units with a further 350,000 being sold in 2008/2009. Thus, the number of vehicles on Venezuela’s roads increased at least by 30% in five years, even allowing for cars being put out of service. This is the reason for heavy traffic congestion in the cities and not necessarily due to cheap gasoline.

The consumption boom in all sectors from 2004 – 2008 was not only due to rising oil prices but also due to the fact that oil revenues came into the economy instead of being spirited away to off shore banks. Local banks were obliged by the government to grant car loans at 17% which is a real bargain in Venezuelan loan terms.

At the same time the private sector was booming and its growth outstripped the state sector (including oil) during these years. The economic and consumption boom, fueled by easier consumer credit and a proliferation of credit cards in the market, encouraged more people to buy new vehicles, most of which were imported using preferential dollars by the car dealers. Unfortunately for the consumer all sorts of tricks began to be played out to fatten up the dealers’ profits.

The first step back in 2005 was when there were many cases of customers buying a new vehicle and then not being able to take delivery…..unless you paid a cash premium of anything from US$2000 – US$5000 to the dealership. You would then have your car the next day. In other words, the customer bought and paid for the car but the dealer held it as ransom until the customer paid him a bribe for delivery.

In 2006 the dealers began to ration cars by hoarding them in huge parking lots and telling customers that there were no cars available since they had not received the preferential dollars from the government Exchange Control Commission CADIVI.

At that time, for example, the official price for a Ford Explorer on the Ford Venezuela web site was around Bs. 105 million (in old bolivares), or US$49,000. Not too far removed from the selling price in the US. However, with the “policy” of hoarding vehicles prices began to escalate and the vehicle in this example was selling for up to Bs. 250 million or US$116,000. In other words a total rip off but people were desperate and naïve enough to fall into this game.

The whole scheme was a mafia type operation between the dealers, banks and insurance companies. The bank would give you a loan for more than the official value of the vehicle and the insurance company would insure it at the inflated selling price.

The public lost and the dealers, banks and insurance companies cleaned up by fleecing the public. It was been estimated that excess profits made from this scheme in just over two years (2006 and 2007) amounted to more than US$20 billion not including the role in this scam played by the banks and insurance companies.

As you can clearly see, the “price distortions” referred to by Reuters have nothing to do with the official exchange rate. These have been caused by the dealers selling vehicles over and above list price. The second hand market has just followed the lead of the dealers.

In 2006, at a meeting at CADIVI’s headquarters, the main sectors of Venezuelan industry were present including car dealers. In 2007, 37% of the preferential dollars granted to importers went to the automotive sector for new vehicles and spare parts. The dealers and spare parts sales companies took the dollars, imported at the preferential rate and then sold the products at the black market rate to the public. Thus, the US$20 billion in excess profits was even higher bearing in mind that these “businessmen” made a fortune off the exchange rate as well.

I bought a set of new tires for a Chevy Corsa in January 2008 and paid Bs.F. 550.000 including balancing and tracking. Three months ago in February 2010, two tires cost Bs.F 750.000! Sure, Venezuela has a high inflation rate due to increasing money supply but not 68% per year unless this is being fueled by price speculation.

The Reuters “analysis” talks about the woes of the car dealers and falling sales. Let’s face it, the market is now sold out with more than a million new vehicles on the road. The dealers lay the blame on CADIVI for not offering more preferential dollars, but the government is nobody’s fool. Why should CADIVI do this when the automotive sector has acted like a mafia, in cahoots with the banks and insurance companies, to fleece the public?

The vehicle assembly plants are another case in point. Having abused the preferential dollars available for many years, they do not want to pay up by buying dollars on the parallel market since their profits from exchange rate speculation would disappear.

In any case, do we, in Venezuela, want many more vehicles here? My answer is no. The money for this corrupt sector should be dedicated to improving public transport and financing the national railroad program and not used to subsidize the car-addicted middle classes who are better off than at any time in Venezuelan history in material terms.

This year the government is importing 60.000 new vehicles to be sold at fair prices and not at speculative prices by the private car dealers. Part of the money should also be used to set up a penal commission to investigate all car and spare parts sales since 2006 and bring the speculators, banks and insurance companies to justice in the context of the Law against Speculation and Hoarding which carries big fines and jail terms of 2 to 6 years.

The threat of jail time in the hell hole of a Venezuelan prison works wonders to bring such cheats back on the straight and narrow.

The recent case of 47 butchers being arrested and charged with price speculation on meat sales in Caracas should be set as an example for the car dealers, who should also be arrested and made either to repay their ill-gotten gains or spend time in a Venezuelan prison.

The Deputy for Aragua State, Elvis Amoroso, has been trying to get a law implemented to do just this but it has not made its way through the legislative process so far. Let’s hope that there are no vested interests in the National Assembly in this billion dollar scam against the Venezuelan people.

“By the end of February we had accumulated more than $2 billion in debt,” said Enrique Gonzalez, president of the Venezuelan Automobile Chamber (Cavenez). If this is not hypocrisy I do not know what is. How many millions or billions of dollars did your members make illegally in the last years, Mr. Gonzalez?

It would be a refreshing change for Reuters to look more in depth into the same which have been perpetrated against the Venezuelan people by the automotive crooks instead of lending a sympathetic ear to the complaints of those involved, such as Mr. Gonzalez. But we expect no such thing from a corrupted corporate media with an agenda to destroy the reputation of the Venezuelan government … by any means necessary. Armed with the facts presented above, take a look at the Reuter’s report at the business end of this critique and judge their “journalistic integrity” for yourself.

ANALYSIS-Venezuela car industry gridlock as dollars run out

By Eyanir Chinea

CARACAS, April 30 (Reuters) – Every rush hour, Venezuela’s cities come to standstill as gas-guzzling SUV’s crawl along the traffic-choked highways of South America’s top oil exporter.

Yet despite the jams, the absurdly cheap subsidized fuel, and Venezuelans’ well-known love affair with the automobile, new vehicles have become increasingly scarce in the recession-hit and dollar-short OPEC member country.

Since producing a record 172,418 units in 2007, Venezuela’s car industry has reached near gridlock, with just 111,554 cars assembled in 2009. About 10,000 fewer cars were produced in the first quarter than the same period last year.

With local production falling, customers have to wait for at least eight months or more, leaving many showrooms empty.

In a typical auto dealer scene, a saleswoman at a Hyundai outlet kills time, listening to music on a computer.

‘We don’t have anything to sell, not one car,’ she said in Caracas. ‘The factory is at a standstill and we still don’t know anything about when the cars will arrive’.

Car sector leaders complain they are receiving far too few dollars from the state foreign exchange agency for assembly plants’ imports, and financing sources are drying up.

‘By the end of February we had accumulated more than $2 billion in debt,’ said Enrique Gonzalez, president of the Venezuelan Automobile Chamber (Cavenez).

‘The lines of credit are running out. That means assembly lines will stop and models will disappear.’

Demand for cars remains red-hot, fueled by gasoline which sells for about 0.097 bolivars (2 U.S. cents) a liter, or about about 8 U.S. cents a gallon.

But President Hugo Chavez offered little hope on Sunday of easing shortages. He acknowledged the fall in car-related imports could help keep Venezuela in recession in 2010 for the second consecutive year. For more see.

But he said replenishing Venezuela’s showrooms with cars was low on his list of priorities.

‘What does that have to do with socialism?’ he said.

Car sector woes mirror complaints of businessmen, who say Hugo Chavez’s socialist drive is wrecking entrepreneurship.

Major brands like Ford, Toyota, Chrysler and General Motors which manufacture the parts abroad for assembly in Venezuela in partnership with local plants , generating over 10,000 jobs.

The sector’s decline has come amid a recession that saw the economy contract by 3.3 percent in 2009 following a plunge in oil prices in 2008. Manufacturing fell 6.4 percent last year.

Many analysts believe it may shrink again in 2010, making it harder for private industry to claw back production levels.

FOREIGN EXCHANGE DEMAND

Chavez in January devalued the bolivar by 50 percent, which had been pegged at 2.15 to the dollar since 2005.

The new value of 4.3 bolivars to the dollar, with 2.6 for essential foodstuffs and medicines, has given Chavez’s government more bolivars to spend on social projects but less dollars for private industry to import raw materials.

The car industry, like many private businesses, is forced to turn to a semi-legal market for its dollars when it cannot obtain foreign currency through official channels.

Since the January devaluation the bolivar has plunged to a record low of 7.50 to the dollar.

In the last quarter of 2009 the car sector recuperated briefly after the state’s foreign exchange commission Cadivi supplied just over $2 billion. That relieved a dollar shortage for the car sector, as Cadivi cut back dollar allocations economy wide after the price of oil, Venezuela’s main export revenue earner, began falling in the latter half of 2008.

But car sector business leaders complain that in 2010 the flow of dollars for the sector has once again dried up to just 5 percent of what is needed.

Labor disputes have compounded the problem by paralyzing assembly lines. MMC Automotriz, which assembles Mitsubishi and Hyundai cars in Venezuela, was shut down for six months of 2009 while the company negotiated salaries with workers.

The plant only switched its assembly lines on again last week following a further two month-long strike this year. Workers at the Hyundai plant were angry that a shift was canceled while the factory attempted to comply with energy rationing measures imposed by the government during an electricity crisis.

Chavez in January 2008 began imposing restrictions on foreign new car imports in order to boost local production. But recently he acknowledged the car shortage in Venezuela by signing deals for the state to import thousands of cars from political allies such as Argentina, Uruguay, China and Russia.

As production stays slow the lucky few to get their hands on a new car can make a killing in resale . Secondhand cars have also become a valuable commodity, appreciating with age as Venezuelans see them as investments.

Venezuelans prefer to spend cash in buying cars rather than see it lose value in bank accounts where interest rates are lower than 25 percent yearly inflation.

‘If you are lucky enough to be given a car it’s as if you have won the lottery. You can sell it on the secondary market for more than you bought it because of the distortions brought about by having an official dollar that is cheaper than the dollar on the street,’ said Henkel Garcia, an analyst with local financial firm Investment Vision.

(Writing by Charlie Devereux, editing by W Simon ) Keywords: VENEZUELA CARS/

Sources:

1. Venezuela National Radio

2. TeleSur

3. Venezuela TV

4. Various news sources