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