In 2015, sales and production of vehicles in Venezuela will improve slightly compared to their weak 2014 amounts but volumes will remain far below their pre-2013 levels. Production will remain stymied by bottlenecks in the supply of imported components owing to the restrictions on currency exchange in the country. These currency restrictions will also hold back sales volumes owing to dealers' inability to address the shortfall in production by ramping up imports.
BMI holds a considerably bearish outlook for vehicle production in Venezuela following the dramatic fall in oil prices in late 2014 which has drastically lowered Venezuela's revenues from oil exports and, as a result, has severely cut the country's supply of hard currency. This has meant the country's multi-tiered exchange rate system has become untenable with widespread capital restrictions and rationing of hard currency now limiting automotive manufacturers' ability to pay foreign suppliers for vital component import orders. As a result, production will be increasingly furloughed and extensive worker lay-offs will continue.
The significant extent of parts and currency shortages as well as rising operating costs are such that we now believe that some major automakers may well make the decision to abandon manufacturing operations in the country completely. We highlight that Ford Motor represents the most likely company to exit the country having already hinted that it is considering filing for bankruptcy in 2016 and having lost much of the financial support from Ford's global headquarters.
Like output, we also remain bearish in our outlook for sales volumes in the country. The current crisis in car sales is the result of supply side factors in the industry whereby the supply of vehicles has dried up owing to the drop in output of local manufacturers and currency and import controls significantly limiting importers' ability to substitute falling output with imports of completely built-up vehicles.
If local manufacturers were able to increase output, or if imports increase, we believe there would more than sufficient demand to absorb these vehicles. With inflation rates above 60%, the highest in the world, demand for new and used vehicles in the country has soared as consumers seek to protect their wealth by purchasing tangible assets such as cars rather than keeping their savings in liquid cash assets. As a result, waiting lists for new vehicles have grown dramatically and the price of used cars has soared upwards. The rise in demand for new vehicles has also forced the government to implement strict price controls on new cars, which is placing further strains on dealerships' and automakers' profits.
BMI has long maintained that in order to see sustained growth in vehicle production, the regulatory environment in Venezuela needs a complete overhaul, particularly in the issuance of assembly permits, access to foreign currency and a relaxation of price controls. This does not look likely, however, and Venezuela continues to rank below the regional average of 41.9 on BMI's Risk/Reward Index with a score of just 38.0.