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Cablegate: Venezuelan Auto Industry Stalls

VZCZCXRO0970
PP RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHNG
RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #0535/01 1081825
ZNR UUUUU ZZH
P 171825Z APR 08
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 0971
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUEHBO/AMEMBASSY BOGOTA 7756
RUEHLP/AMEMBASSY LA PAZ 2726
RUEHPE/AMEMBASSY LIMA 1002
RUEHQT/AMEMBASSY QUITO 2817
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
RUMIAAA/HQ USSOUTHCOM MIAMI FL

UNCLAS SECTION 01 OF 02 CARACAS 000535

SIPDIS

SIPDIS

HQ SOUTHCOM ALSO FOR POLAD
TREASURY FOR MMALLOY
COMMERCE FOR 4431/MAC/WH/MCAMERON

E.O. 12958: N/A
TAGS: EAGR ECON PGOV VE
SUBJECT: VENEZUELAN AUTO INDUSTRY STALLS

REF: 2007 CARACAS 2181

1. (SBU) Summary: After doubling over the last few years, US
auto exports to and production in Venezuela are sharply
declining. Venezuelan auto imports, which doubled over the
past two years, have consumed a significant portion of
Venezuela's dollar holdings. In response, the BRV decided to
sharply limit the number of imported cars in 2008. Within
Venezuela the Big Three are plagued by labor issues,
difficulty in obtaining dollars, and a chronic shortage of
car parts. These three issues have led to a near paralysis
in Venezuelan auto manufacturing. The BRV made the current
situation even more difficult for car manufacturers in
Venezuela with October 2007 announcements of unrealistic
dual-fuel and local content requirements. End Summary.

BIG THREE TROUBLES WITH EXPORTS, PARTS AND LABOR
--------------------------------------------- ---

2. (SBU) In 2007, 81 percent of the vehicles sold in
Venezuela were imported. The BRV set a limit on assembled
vehicle imports of approximately 220,000 for 2008. This
represents a sharp decline from the 336,400 vehicles imported
in 2007. The BRV will limit the US share of imports to only
66,004 vehicles, representing a decline of 48 percent from
last year's exports which were valued at USD 1.35 billion.
GM's quota was cut almost by 50 percent, Chrysler's by 50
percent and Ford's by 62 percent. The market is already
experiencing the effects of the reduced import quota with a
drop in overall vehicle sales of 19.7 percent in the first
quarter of 2008. Sales of imported vehicles fell 30.9
percent in the same period.

3. (SBU) Venezuelan Ford, Chrysler and GM assembly plants can
make up only a small portion of reduced vehicle imports with
increased local production. Ford and Chrysler can add
shifts, and GM has considered expanding its plant, but these
measures will take time. At current levels of production,
local suppliers already cannot manufacture enough components
to enable the assemblers to meet local content requirements.
Additionally, difficulties obtaining dollars and uncertainty
over the new Venezuelan requirement that every vehicle must
be able to use natural gas act as disincentives for increased
investment in the Venezuelan market (reftel.)

4. (SBU) Labor problems also plague the industry. Ford
suffered a strike earlier this year, as did Goodyear. Of the
Big Three, Chrysler has been the most severely affected by
parts and labor issues. It sent home most of its workers on
March 28, with instructions not to return until mid-May. In
a conversation with Chrysler on April 7, they told the
Commercial Officer they were operating at very low levels.
Ford told the Commercial Section on April 10 that while they
were still operating at more or less full capacity, they may
have to halt production in May. GM is operating normally for
now, but reported they may be forced to halt production by
the end of April.

BIG THREE SHORT ON DOLLARS
--------------------------

5. (SBU) In 2007, Venezuela's auto industry consumed more
foreign exchange than any other sector; this holds true thus
far in 2008 as well. Most of the more than 30 car brands
sold in Venezuela are imported rather than assembled
in-country. Even cars that are assembled in Venezuela are
composed mostly of imported components. Most assemblers had
trouble meeting Venezuela's 2007 34.6 percent local content
requirement as the local parts component industry is limited.
Local component manufacturers rely on imported inputs as
well and also face issues with obtaining dollars.

6. (SBU) The BRV is determined to reduce the foreign exchange
drain from the auto industry in order to concentrate on
imports of essential products such as food and health
care-related items. It has set a limit of USD $3.2 billion
for the auto sector for 2008. According to local media, 75
percent of foreign exchange authorizations thus far this year
in the auto sector have not been liquidated. CADIVI
reportedly owes General Motors approximately $1 billion, Ford
$700 million, and Toyota $500 million in dollars it

CARACAS 00000535 002 OF 002


authorized but has not released.

UNREALISTIC DUAL-FUEL AND LOCAL CONTENT REGULATIONS
--------------------------------------------- ------

7. (SBU) The BRV's new auto decree sets a quota system for
sector imports, requires that all vehicles sold in Venezuela
be dual-fuel (equipped with natural gas converter kits), and
mandates far more stringent local content requirements,
including local assembly of motors. The decree was to have
taken full effect on January 1, but the dual-fuel requirement
was delayed until July 1. Talks between industry and the BRV
on implementation of the decree continue.

8. (SBU) US assemblers told Embassy officers it will be
impossible to meet the local assembly of motors and dual-fuel
goals. The BRV won't be prepared for the July 1 dual-fuel
deadline either since it is impossible to develop the
infrastructure necessary to supply natural gas to the market
in such a short period of time. Negotiations currently
underway indicate the government will agree to implement the
dual-fuel requirement in phases with public and mass
transport vehicles converting first. Automakers also believe
the goal of local motor assembly by 2010 is unreachable.
Meeting the goal would require much more local investment
than local parties are capable of and more investment than
multi-nationals are prepared to commit to a smaller and
unpredictable market like Venezuela's.
DUDDY

© Scoop Media

 
 
 
 
 
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