The New Dark Age

13 May, 2010 — Venezuela Analysis – Axis of Logic

Reuters pays another shill to tell another half-story about Venezuelan affairs.

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.

(See: Venezuela car industry gridlock as dollars run out, The Guardian, 30 April, 2010)

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.