The Venezuelan economy seems to be heading for a hard landing, as is the country’s automotive industry, according to BMI’s latest Venezuela Automotives Report. Although the ongoing global crisis is to blame to some extent, the fall in the automotive industry is largely due to excessive government intervention with regard to auto imports in the country.

The Chávez government’s policy of restricting auto imports to a maximum of 219,000 vehicles in 2008 was aimed at promoting domestic production in Venezuela. However, after almost nine months of its imposition, the industry seems to have shrunk to 212,699 units sold, down by a massive 38.5% year-onyear (y-o-y). On the back of the slowing demand and the import restrictions, BMI expects vehicle sales to reach just over 326,000 units by the end of 2008. A slight recovery may take place by the end of 2009 when we expect sales to be close to 350,000 units. Nevertheless, a complete recovery to 2007 levels is unlikely to be achieved until 2012 at the earliest.

The import restrictions have also proved detrimental to localised auto manufacturers such as General Motors (GM) which faced severe delays in the supply of spare parts as the Foreign Exchange Management Committee (Cadivi) failed to allocate the amount of US dollars required for the normal operation of GM’s plant. The disruption cost the manufacturer a drop in monthly average production from 8,000 to 3,500 vehicles in July this year. With other manufacturers facing similar constraints, overall production fell to by almost 21% y-o-y against 256,133 vehicles sold during the same period last year.

Needless to say, the industry has been struggling under the weight of these restrictions, prompting BMI to forecast production of 146,336 units by the end of 2008.

The intervening nature of the Venezuelan government has discouraged market leaders; GM has already threatened to close down its operations in Venezuela. These factors place Venezuela in last place in BMI’s regional ratings system for Latin America where Venezuela scores a low 36.7 points (out of a possible 100).

In terms of market share, GM has remained the dominant player with sales totalling 73,055 units (34.3% market share) in the first nine months of this year and imports accounting for as much as 41.5% of total sales. Ford occupies second place over the same period selling 32,314 units (15.1%), followed by Toyota finishing third with 31,739 units (14.9%). However, the industry may soon be joined by two Russian manufacturers, AvtoVAZ and Sollers, which are currently looking to enter the Latin American market jointly through Venezuela. If successful, the venture will be assembling Lada and UAZ vehicles to supply the region.