FEATURE-First oil, now auto crisis in Venezuela

www.forbes.com Reuters, 03.20.03, 1:49 PM ET By Ana Isabel Martinez

CARACAS, Venezuela, March 20 (Reuters) - Gleaming in showroom display windows across Venezuela, thousands of new cars are awaiting a buyer. But many will go unsold.

Battered by last year's 9 percent slide in the oil-rich nation's economy, Venezuela's automobile industry is bracing for plummeting sales after a two-month political opposition strike pushed the country even deeper into recession.

Industry representatives are forecasting a 30 percent decline in sales for 2003. A major factor, they say, will be a lack of dollars following the government's introduction of currency controls, which have cut off access to greenbacks for two months and paralyzed the import-reliant economy.

In the last year, car sales had fallen 40.7 percent as the local bolivar currency collapsed 46 percent against the dollar, inflation topped 31 percent, and interest rates climbed.

"Sales could fall this year as much as 30 percent, mostly in the first half. We might see an eventual improvement in the second half, if we manage to export more units assembled here," Roberto Madero, director of Venezuela's automobile business chamber, told Reuters.

Sales fell about 77 percent in the first two months, compared with the same period a year earlier, mainly due to the opposition strike that began in early December. It failed to unseat leftist President Hugo Chavez, but severely disrupted the nation's vital oil industry.

"It has been chaotic. The few people who come here just turn right around when they start talking about prices," said Jose Vicente Fossi, who sells Chryslers in an exclusive showroom in eastern Caracas.

The cheapest vehicle on the market -- with two doors and no air-conditioning -- costs 9 million bolivars ($5,625) in this poverty-ridden country, where the minimum salary is equal to $120 a month.

Fossi smiled as he recalled selling 100 to 120 units a month during 2001 -- a year that saw record sales of 217,000 units -- and the 50 cars a month he sold last year. This year he has been selling only seven cars a month.

In 2002, 128,623 vehicles -- 41 percent of them imported models -- were sold in Venezuela.

"It has been really ugly," said the salesman, who spends long hours surfing the Internet while waiting for customers.

FLIGHT FROM HIGH PRICES

Madero said he hoped interest rates on car purchases would drop from the roughly 50 percent range to stimulate demand. But growing unemployment and weakened consumer purchasing power meant Venezuelans were unlikely to keep buying top model cars and trading them in frequently as they did in the past, he said.

In a nation where petrol is cheaper than mineral water, the two-month opposition strike hit car-loving Venezuelans hard by disrupting gasoline supplies. Drivers were forced to wait for hours in long lines outside filling stations.

Madero underscored the negative impact of the lack of access to dollars for a sector that relies on imports for 60 percent of its products. The bleak market outlook has been compounded by a steep rise in prices as the local bolivar currency lost ground against the dollar.

The bolivar fell 24 percent from the beginning of the year until the government closed currency trading in late January to prepare for its new foreign exchange controls.

The Venezuelan currency stands at 1,600 bolivars to the dollar since the government implemented controls and a fixed exchange rate -- an appreciation of 16 percent from the last day of trading. But on the black market, the greenback is already trading at 2,300 bolivars.

Jorge Garcia Tunon, director of a Chevrolet concession, managed to sell 410 cars in one month in 2001. His tally for this year: no cars in January, 70 in February, 20 in March even with the discounts, preferential interest rates and special offers on the cheapest cars on the market.

"We really worried because we made huge investments to establish this concession, and now those plans are paralyzed," he said.

CRISIS HITS EVERYONE

The used car market also saw sales slip dramatically.

"We have never seen the market in such bad shape," said Carlos Padron, a veteran of 20 years in the business. "Before, you could sell about 12 to 15 cars a month. Now it's more like two or three -- if you are lucky."

Most sales representatives are feeling the pinch because they live on commissions; many have even sold their own cars because they need the cash.

Inmaculada Torres, a Ford saleswoman, bites her lip nervously as she talks about her future and the market on which she is so dependant.

"I rent my home, and we are thinking of moving to a cheaper place. I had to sell my car and buy an older one to cut costs," she said on the verge of tears. "I'm father and mother to my teenage kids."

For others, the crisis means the end of a family business and an introduction into the growing ranks of the unemployed.

Venezuela's jobless rate is 16 percent, according to government figures.

"We're getting squeezed. If this doesn't improve soon, we'll be closing down bit by bit," said Luis Miguel Sanchez, the owner and director of a family business selling Japanese cars. "We've given ourselves until April 30. What can we do?"