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Venezuela: where used car salesmen are king?

Currency shortages and insufficient car supplies mean in some cases used cars sell for more than new ones. Venezuela's National Assembly has sought to throw the brakes on soaring car costs.

By Andrew RosatiCorrespondent / September 24, 2013

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, Feb. 1, 2013. New cars have become something of a rarity in Venezuela.

Ariana Cubillos/AP/File

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Caracas, Venezuela

For the past nine months, Luis Medina, a building caretaker, has scoured new car listings, searching for a light truck or SUV. Despite having the cash in hand, he's regularly turned away from dealerships due to years-long waiting lists.

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"At this point it's whatever's available," he says.

New cars in Venezuela have become something of a rarity, yet many like Mr. Medina balk at the thought of buying used. "They're far too expensive for what they're worth," he says.

The premise may leave car enthusiasts in other parts of the world scratching their heads, but vehicles actually gain in value in Venezuela – as soon as they're driven off the new or used lot. Shortages and government-mandated currency controls have led to higher preowned car prices, as many consumers are desperate to find a vehicle. 

On TuCarro.com, a popular used car website, a secondhand 2012 Jeep Grand Cherokee is more than double the price of a new one. Similarly, five-year-old Ford Fiestas and Explorers easily match factory sticker prices.

But in a move to protect consumers, Venezuela's National Assembly has sought to throw the brakes on soaring car costs. Last month, a bill was passed that, if signed into a law by President Nicolás Maduro, would attempt to regulate both new and used car prices, levying hefty fines and even jail time on venders who don't comply with government-approved prices. 

"This law confronts speculation, hoarding, [and] usury directed at Venezuelan families, who – with their hard work – want to buy the vehicles that are being practically stolen away from them," said National Assembly Vice President Dario Vivas, upon the bill's passage. 

Despite lawmakers rallying against rampant price gouging, industry observers point to sky-high inflation and a series of strict import controls imposed by the government of the late Hugo Chávez as the culprit for insufficient supply and inflated costs.

"It's a sign of shortage," says Garel Rhys, former professor of Motor Industry Economics at the Cardiff University Business School in Britain. "When the used car price goes over the new car price, that is always a sign that there is huge excess demand."

Economic protection?

For General Motors, Mitsubishi, Nissan, regardless of the make, vacant showrooms in town and country are the rule rather than the exception. "Everything's sold a year before it reaches the floor," says Giovanni Rubino, the manager of an empty Ford dealership in eastern Caracas. "And our waiting list," Mr. Rubino laughs, "is infinitely long."

Authorities began curbing imports starting in 2007 with an aim to boost national production, yet automobile sales have since tumbled from 499,899 in 2007 to 130,553 in 2012, according to the Venezuelan Automobile Chamber, CAVENEZ.

"There are many factors, but the major cause of the fall in production is the lack of available dollars to bring in parts and supplies from abroad," says Agustín Díaz, head of economic studies at the Venezuelan Confederation of Industries, Conindustria.

After more than a decade of currency controls, greenbacks have become increasingly hard to find for both carmakers and consumers alike. The short supply of dollars is not only undercutting motor vehicle production, but is also upping preowned prices as consumers scramble to hedge themselves against the loss of value of the local currency and spiraling inflation, says Barclays analyst Alejandro Arreaza.

"With high inflation, it's a way to protect oneself economically," Mr. Arreaza says. Last month, inflation in Venezuela stood at one of the world's highest, at just over 45 percent. 

Arreaza says that tough controls on foreign goods have only heightened consumer demand. "Indirectly, consumers are purchasing dollars" in order to shelter themselves from hard economic times, he says, pointing out that electronics and other durable goods also hold their value in Venezuela.

While the auto bill awaits presidential signage, analysts remain skeptical that the statute will do much to control the overall car market crunch.

The used car market would seem even more to difficult to regulate, since historically, consumer demands have managed to circumvent government controls. 

"Even during the dark days of the Soviet Union, the price of Ladas [cars] going second-, third-, fourth-hand was not the price the government wanted to be paid," Mr. Rhys says. 

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