Reply #185: Reuters Busted for Indecent Exposure: The Automobile Industry in Venezuela

[Judi Lynn]

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.

More:
http://venezuelanalysis.com/analysis/5357