Abstract
The Venezuelan government’s intervention in the domestic auto industry
has created havoc for both
vehicle sales and production this year. BMI
finds in this Q409 Venezuela Autos Report that the
introduction of price
controls on vehicles could further add to these woes and, in fact, go on to
distort
market demand and supply in Venezuela.
The market demand has
already been constrained by the ongoing import restrictions on vehicles,
resulting
in locally-based carmakers reducing production by 15.3%
year-on-year (y-o-y) to 62,755 units in H109.
This resulted in a
short-supply of cars and longer waiting times, thereby fuelling demand for
used
vehicles in the market. In total, only 81,131 units were sold during
H109, 57.5% fewer than in the same
period in the previous year.
In
theory, shortage in supply leads to an increase in the price of vehicles, and
in Venezuela, vehicle prices
have been reported to be nearly three times
higher than those of equivalent models in the US or Europe.
This prompted
the government to approve a bill that proposes vehicle prices to be based on
the production
cost, taxes, foreign exchange rate and fixed profit margin.
The government believes that such a control
will help put a cap on the
maximum price that carmakers and dealers can put on a vehicle.
BMI
believes that the new regulation is unlikely to be welcomed by carmakers in
the country, most of
whom have already been facing losses due to a
shortage in the supply of US dollars allocated by the
government for
vehicle parts import. This has prompted the market leader, General Motors, to
suspend
production for three months, starting from June. BMI forecasts
that such shutdowns could limit
Venezuela’s total auto production at
98,900 units this year, down from 135,042 units produced in 2008.
With
increasing regulation, we do not expect much growth in 2010, when production
could fall further to
97,900 units.
Meanwhile, the domestic demand
will be affected by the deep and prolonged recession in the economy.
Indeed, the recession will be even more prolonged, as we expect a 5.6%
contraction in economic activity
this year. This could take vehicle sales
down by nearly 33% y-o-y in 2009, to be followed by a further fall
of 6%
y-o-y in 2010.
The difficult operating environment has also resulted in
Venezuela losing its position of fifth (it has
moved down to sixth) in
BMI’s Business Environment rankings for the autos industry in America.
With a
3.1 point fall in its score, Venezuela now lies much lower than the
other key Latin American markets of
Brazil, Mexico, Argentina and Chile.
We believe that its regulatory environment may, indeed, prove to be
a
major deterrent to new investments into the country going forward.
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