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Economic policies roil Venezuela car market

Saturday - 2/16/2013, 3:34pm  ET

In this Feb. 1, 2013 photo, a couple looks at the price of a new vehicle that has already been sold, parked next to other already sold cars on display at a Volkswagen salesroom in Caracas, Venezuela. 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. The price reversal, many economists say, is the result of President Hugo Chavez’s socialist-oriented economic controls. New cars have become so scarce that many showrooms sit nearly empty and would-be buyers must sign up on long waiting lists. (AP Photo/Ariana Cubillos)

CHRISTOPHER TOOTHAKER
Associated Press

CARACAS, Venezuela (AP) -- 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.

Buying a used 2012 Ford Explorer SUV means coughing up 1.2 million bolivars, the equivalent of about $60,000 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. That runs counter to the trend elsewhere in the world where new cars lose value as soon as they're sold.

The price reversal, many economists say, is the result of President Hugo Chavez's socialist-oriented controls, which have turned this country's economy upside-down and already produced shortages of basic supplies such as sugar and cornmeal. In the auto market, those policies have dried up the inventory of new cars, and Venezuelans who manage to drive one away from a car lot often resell it quickly at a profit.

For people such as bank manager Luis Villamivar, that's 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 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, Chavez's government has for the past decade maintained currency exchange controls, which have made buying dollars difficult for Venezuelans and produced a black market where much higher rates are paid for greenbacks. At the same time, the government has cut back on U.S. 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 overall at auto assembly plants in Venezuela has dropped, worsening the shortages and pushing used car prices even higher.

The currency shortages have also fueled inflation topping an annual rate of 20 percent, but dealers have been reluctant to raise their prices too much for fear of being accused by government officials of price speculation, which might jeopardize their access to cheap dollars through the official exchange. The inflation has further spiked demand, 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 on 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," Dallen said.

Pro-Chavez lawmakers in the National Assembly 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 is likely to worsen the shortages.

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

"There will always be a black market," he added. "They will not be able to control it. They would have to hire a lot of price control police."

Villamivar had his heart set on an SUV, such as a Jeep Cherokee or a Ford Explorer, 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 didn't 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 rejected those offers.

"This is like dealing with the mafia," Villamivar complained as he left a Volkswagen dealership with no cars and not even a space on a waiting list. A dozen cars that remained on the showroom floor had already been sold.

"I'm wasting a lot of time and spending a lot of money by continuing to look," he said, straightening his tie as he prepared to trudge off to a subway station. "As time passes, prices are increasing."

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