Used cars cost more than new ones in Venezuela

The anomaly, many economists say, is the result of President Hugo Chavez's controls, which have turned the economy upside-down and produced shortages of basic supplies such as sugar and cornmeal.

Venezuela may be the only country in the world where a new car becomes more expensive the instant it's driven off the dealership lot. Ariana Cubillos / AP Photo
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CARACAS // Venezuela may be the only country in the world where a new car becomes more expensive the instant it is driven out of the dealership.

Buying a used 2012 Ford Explorer SUV means coughing up 1.2 million bolivars, the equivalent of about US$60,000 (Dh220,000) at the street exchange rate and double the cost of a new car, according to the country's leading used-car website. Late-model used Jeeps and Ford Fiestas also cost double the price of what a new model would cost.

The anomaly, many economists say, is the result of President Hugo Chavez's socialist-orientated controls, which have turned this country's economy upside-down and already produced shortages of basic supplies such as sugar and cornmeal. The policies have dried up the inventory of new cars, and Venezuelans who manage to buy one often resell it quickly at a profit.

For people such as bank manager Luis Villamivar, that has transformed auto shopping into an odyssey.

"It's frustrating. I have the money I need to buy one, but there are no cars available," said Mr Villamivar, who has been hunting for a car for more than five months.

Even as the country sits on the biggest proven oil reserves in the world, its auto market has been rocked by a snowballing of government restrictions and their unintended consequences.

Trying to stem capital flight, Mr Chavez's government has for the past decade maintained currency exchange controls, which have made buying dollars difficult and produced a black market where much higher rates are paid for greenbacks. At the same time, the government has cut back on US currency being sold through an official exchange agency to businesses, creating a shortage of dollars available for imports.

As a result, fewer autos are rolling off ships at the country's ports. And production at auto assembly plants in Venezuela has dropped, worsening the shortages and pushing used-car prices even higher.

The currency shortages have also fuelled inflation, topping an annual rate of 20 per cent, but dealers have been reluctant to raise their prices too much for fear of being accused by government officials of price speculation, which might jeopardise their access to cheap dollars through the official exchange. Inflation has raised demand further, as many Venezuelans buy cars, as well as apartments and appliances, as an investment to prevent their savings from being eroded by inflation.

Russell Dallen, a securities trader at Caracas Capital Markets, predicted an official devaluation that took effect last Wednesday would spur even greater demand for cars as people try harder to shield their earnings from inflation.

"Clearly, the prices will go up and the waiting lists for new cars will continue to get longer," he said.

Pro-Chavez lawmakers have introduced a bill aimed at controlling both new and used auto prices while accusing many car dealerships of price speculation.

"There are numerous mafias that must be eradicated," said congressman Elvis Amoroso, who introduced the bill. "There are irregularities among the plants and the dealerships, and in the end it's the consumer who must pay exorbitant prices who is the loser."

Steve H Hanke, a professor of applied economics at Johns Hopkins University in Baltimore, warned that trying to control prices was likely to worsen the shortages.

"They can establish price controls, but if they are below the free-market price, there will be more shortages," Mr Hanke said.

Mr Villamivar had his heart set on an SUV and spent hours visiting showrooms, travelling by bus and hitching rides with friends to check dealerships in other cities.

Everywhere he went, sales managers told him they did not have any vehicles in stock, although some said they would put his name at the top of their waiting lists if he paid them. He refused.

"This is like dealing with the mafia," Mr Villamivar complained as he left a dealership with no cars and not even place on a waiting list.

Car imports have been dropping since November 2007, when the government restricted the amount of dollars distributed to importers in an attempt to increase production at local assembly plants.

A year after the restriction was established, Venezuela imported 135,499 vehicles, down 59.7 per cent from 2007, according to the Venezuelan Automobile Chamber. The country imported just 17,680 vehicles in 2011 and 25,296 last year.

Domestic production has also declined, from 172,418 vehicles in 2007 to fewer than 105,000 vehicles last year, said the auto chamber. Manufacturers with plants in Venezuela include Ford, Toyota and Mitsubishi, as well as Chinese newcomer Chery.

For an auto dealer, negotiating the country's unusual currency exchange rules means applying to a government commission for an allotment of dollars to buy cars at the official exchange rate of 6.3 bolivars to the dollar. If the dealership receives only a portion of the dollars it requests, the owner can stock fewer cars or turn to the black market, where dollars cost more than three times as much in Venezuelan currency.

The result is list prices for new vehicles that, if calculated at the official rate, seem astoundingly high. For instance, a new Toyota Fortuner SUV was recently advertised with a dealership price tag of approximately 530,000 bolivars, the equivalent of more than $84,000 at the official exchange rate. Calculated at the black market rate, that price comes in at less than $27,000.

The high sticker prices are offset to some degree by government subsidies of the world's lowest petrol prices, equivalent to 1 US cent per litre.