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Where old cars cost more

Inside Venezuela's booming used-car market.

Girls sit on an old car at the "Pinto Salinas" neighborhood during a hip-hop performance in Caracas April 21, 2006. (Jorge Silva/Reuters)

CARACAS — When it comes to cars, Venezuelans hold age in high esteem. 

Take, for example, Antonio Gil, a taxi driver from Caracas. In 1990, Gil bought a Chevrolet Monza for $750. More than a decade later he resold it for $1,850. Now, Gil has a Nissan Sentra that he bought two years ago for $17,000. When he decides to sell this car, he believes it could fetch between $23,000 and $28,000.

Like many Venezuelans, Gil has benefited from an extraordinary situation: Cars in this nation appreciate in value as they age. With gas prices low — here in Venezuela, it costs just $1.50 to fill a tank with gas — it seems that this South American petro-state would be a paradise for car lovers.

But for Venezuelans wishing to buy a new car, circumstances are far from ideal. At a Toyota showroom in the Caracas neighborhood of Los Palos Grandes, waiting lists for some new cars run up to two years, a dealer said. New cars are so scarce that buyers don’t even get to choose their preferred brand or color.

This undersupply is partly due to legislation — which went into effect in early 2008 — that set quotas on car imports in order to boost the national car manufacturing industry, said Antonio Martinez, president of the Venezuelan Automotive Chamber (CAVENEZ). While Venezuela doesn't have car brands of its own, it is home to several factories that assemble cars for international brands such as Ford, General Motors, Toyota and Hyundai.

Martinez said that CAVENEZ supported the government’s bid to stimulate the national car manufacturing industry. But labor disputes and restrictions on imports of raw materials prompted a decrease in automobile production in the country: In 2008, production was down 12.4 percent over 2007. 

With all the various restrictions and disputes, new car sales plummeted last year. Sales slumped from 449,549 vehicles in 2007 to 252,375 in 2008, a drop of 43.9 percent. Demand in Venezuela, meanwhile, is for 600,000 new cars a year. 

Due to the shortage of new vehicles, used cars are in high demand. And because there's so much demand for a limited number of used vehicles, the prices go up.

“It doesn't make sense, but it's a reality of the Venezuelan economy and if there were normal conditions it would not occur,” Martinez said. “Cars deteriorate, but as there isn't a real situation of supply and demand, or where people can save, that creates a situation where you can buy a car today and sell it for 30 percent more tomorrow.”

The other factor contributing to this counterintuitive phenomenon is Venezuela’s high inflation rate, which ended the year at just under 31 percent, explained Robert Bottome, editor of Veneconomia, Venezuela’s leading business magazine.

“When there's inflation there's a tendency to buy physical assets — that's a fact,” Bottome said. “A car is a bit of a status symbol here, but it's also very practical.” Inflation is almost double the interest rates set by the Central Bank of Venezuela, which leaves little or no incentive to save, he added. 

The situation is affecting individuals such as Manuel Cajide, who runs a used car business in Sabana Grande in central Caracas. He currently has just seven cars for sale in his lot next to one of the city’s main highways, and he bemoans the fact that individuals with the right connections are making healthy profits from selling their nearly brand-new cars. Websites such as tucarro.com are awash with cars barely off the production line that sell for up to 50 percent more than cars in official dealerships.

These individuals “have the contacts to obtain new cars,” Cajide said. “They buy them and sell them on and make good money. To me that doesn't seem ethical but neither is it illegal. It's supply and demand.”

Venezuela’s chronic shortage of available cars is likely to worsen, given the government's plans to further restrict the import of cars from abroad.

But there may be one benefit to the current state of affairs: Many Venezuelan cities are traffic-chocked, with rush hours that seem to last nearly all day. The recent crisis may at least prevent traffic from getting much worse. “If they can restrict imports for five years it might solve the traffic problem!” Bottome said.  

http://www.globalpost.com/dispatch/venezuela/090114/where-old-cars-cost-more