Crash dummy policies

Juan wrote a great article today with some really appalling numbers. 817 cars produced in February. January wasn’t great either. The first two months Venezuela produced 1,539 cars. But let’s not weep too much: for much of the last decade and a half, Chávez’s radical-castrocommunist policies created a kind of heaven for these transnationals.

CADIVI was the apogee of rent sucking technology ever devised by human kind. And we loved it while it lasted. From airlines to raspacupos, there hasn’t been a golden era like Chávez’s era for the ta’ barato dame dos set. The key technical improvement to our rentist mechanism is the incorporation of corporations, particularly foreign, into it with a direct, streamlined hose.

Let’s see how those poor car companies have done.

it seems like the car companies flipped Venezuela in 2007

it seems like the car companies flipped Venezuela in 2007


That’s the data available at CAVENEZ at the publication date.

To complement this data I have a couple more appalling numbers. Do you know who was the number 1 beneficiary from CADIVI between 2004 – 2012? Let me tell you. General Motors. General Motors received $5,910,439,377. Toyota was number 4 and Ford was number 5. Let me show you how car companies divided the cake:


In fact, the companies that make up CAVENEZ add up to $$16,360,039,765 which is roughly 9.2% of the total amount of cash dispensed by CADIVI. The total number of vehicles sold in that period by those same companies is 1,411,729. If you divide by the total amount of money you get an average per vehicle cost of $11,589. Of course, sold at a market prices, these car companies wrecked the cash in. But how much of the actual cake is this?


I don’t buy it that car companies didn’t know this was coming. They did their cost-benefit analysis I the numbers looked leafy green.

Yes, they played by the rules. I know that, you know that. Those who created the rules are to blame for this. Not the car companies. Not you, not me.

One thing is clear. Car companies are not the victims here, they surely benefited.

All of us, living in Venezuela, saw our oil revenue subsidizing foreign car companies instead of supporting schools, hospitals and roads. We are the victims here.



58 thoughts on “Crash dummy policies

  1. Same thing with airlines and ticket prices. They knew this was coming and that is why a ticket to Venezuela cost what it cost. They are just are just pricing the risk of a delayed payment, nothing else. They are not dumb, they know what they are doing. Everyone priced the risk.
    Everyone played the game of looking somewhere else when this was happening. Now, la vaca lechera esta seca and the “poor” transnationals are been f’ed? No way, they knew it all the time and got incredible profits while it lasted. I think it would be interesting to do an exercise of how much they won and really loosed to measure the real profit of doing business here.
    This happened to all the economic segment of the society, so from my point of view we are all responsible for what happened. Por accion o por omision.


  2. Not just car companies, we should take a look and see how manylarge corporations took advantage of this system for over-sized profits.


  3. Great post Rodrigo. I wonder what would be the right direction to solve the automobile crisis in Venezuela? SICAD 2 ? How many minimum salaries should I pay to get a Toyota Corolla at SICAD 2?


    • The problem isn’t the price. The problem is our salaries.

      Any professional, anywhere in the world, would struggle to buy a car living with a monthly salary of USD 200-300, and that is how much the average Venezuelan professional is making.


  4. Interesting. I guess the losers are Venezuelans. Those are good, high skilled jobs down the drain. Not everyone can work for the Consejo de Derechos Humanos, or whatever that new aberration is called.


  5. Two doubts: First, $11,589 is the price of CKD only; it doesn’t include assembly, local parts and other expenses. So we really don’t know what the profits were. Second, car companies weren’t the only beneficiaries of the huge subsidy. Car buyers were, too.


    • Car buyers only benefited if the corporations transferred the saving to their consumer. As I am sure you know that will only happen if you are in a very competitive market. So no, those who benefited are not the buyers, but the sellers. At least not 1 to 1.

      How do you think DAKA made gazillions? Half a billion in cash over the years from CADIVI, sold a prices that the market could muster that gave them 10X profits.

      Indeed the average is just a reference. But take 2007, multiply that by official rate then. It is going to be pretty damn obvious that they were wrecking it.

      The point is, that is not the car companies, is not us, it is the whole system creating perverse incentives.


      • The car companies did have to transfer most savings to the consumers, especially after ~2009. So the big winner were the buyers who got their hands on new cars, who in turn could sell them on the secondary market for 2x-4x the price. People working in car dealerships got nice kickbacks from this too. But the carmakers themselves had limited profit margins and, as Miguel says, they weren’t able to repatriate earnings in any case.

        Everyone is a victim and everyone is a victimizer. Trying to break things down to a simple case of “I’m right, you’re wrong” is part of why Venezuela is so polarized.


  6. In a way, this is “normal”. Riskier bonds carry higher interests than safer ones. In the same way, riskier countries have to offer investors higher profits than safer countries. If you’re going to invest in Switzerland, you’re probably happy with 5% returns per year because you know the Swiss aren’t going to steal them. In Venezuela, if there’s a 50% chance that the profits just vanish, you’re going to want 10% returns to make up for that risk. Without the enticement of cheap dollars, but WITH the possibility of official or de-facto expropriation, who would ever invest?!


  7. OK, the Cadivi $/vehicle are $11,589. What is the estimated total production cost per vehicle, including the 100-or-so man department to get the Cadivi $, 30%+ bribes to get them, 25%+ labor absenteeism, imported parts, assembly/production, administrative, depreciation, etc.? And what is the average net selling price/vehicle available to the manufacturer, in order to see what real “unconscionable” profits were made, which weren’t really made anyway over the past few years, since their repressed Bs. in Venezuela have been devalued way down by the Govt. renegging on its promise to allow their repatriation at Cadivi rates.


  8. As I said in the previous comment, going from this line of thinking to regulating profit margins is just a skip and a jump. Who are you, Rodrigo Linares, to say that the car companies benefitted greatly just because they got a lot of dollars? Manufacturing cars is very expensive, more so than importing toilet paper. That’s why the toilet-paper-importing companies (DIOSDADO, C.A.?) don’t figure heavily in Cadivi’s list.

    The fact that they got a lot of Cadivi dollars doesn’t mean they repatriated their profits. You would have to also look at how much they imported and how much they sold inside the country.


    • Hey! I am fine with huges margins when margins represent value. I can only say what’s valuable to me when I buy a good at a certain price.

      What annoys me is the fact that we subsidized and industry that gave us very few benefits.

      I am not annoyed about the car industry. I am annoyed that CADIVI ever existed an that so little value was created. Because as other comments said, car companies had to put a 100 people into corruption handling departments than to make cars better, safer and cheaper.

      And now, instead of shifting their efforts towards that we see the industry asking for “gradualism, preferential dollars, etc”.


      • We have still not shown that Venezuelan-made cars earned extraordinary profits. A simple price comparison is not enough.


      • Mr. Linares, I can assure you that there are no such things as “100 people corruption handling departments” in US Transnational Corporations, e.g. GM., ever since the “Foreign Corrupt Practices Act” of 1977. (
        I am not saying that corruption has been eradicated in this business segment, but if caught, fines are draconic and employees (mostly Directors and up) face possible jail time.


        • Nonetheless Mike, in spite those laws, there have been a lot of scandals in regards to US corporations. Walmart in Mexico for example.

          GM is going through an issue where the company decided not fix a fatal failure calculation the cost of settlements due to loss of a life vs the cost of fixing the issue. Ethics is not really their strong suit.


    • You’re right, JCN.. The purpose of a money making business is not just to make money, but to make as much money as possible. If a government fails at its goals, which include ensuring a competitive, free, fair environment, and social safeguarding, then consequential behavior of the businesses within the bounds set by law are not the fault of the businesses, especially when the government makes the rules so obscure.

      The problem is that government should not even have the power to cause this situation. Yet, the system allows for the gobierno de turno to do precisely that. How do we fix this? We must start by changing the system. We must kill the petrostate…



  9. I guess I will concede that *maybe* these companies made a killing in Venezuela, and I understand us not feeling sorry for them. As Quico pointed out, I wrote a version of this post a few months ago. But we should be clear here – even though the companies may have benefitted from Cadivi, the government’s refusal to honor their commitment is still theft.

    BTW, chavismo didn’t invent this. Back in 1983, when the Viernes Negro happened, Lusinchi did the same. And then CAP (I believe) did the same when he devalued – correct me if I’m wrong.


    • Is devaluing legally “theft”? I know devalue means “taking value”…but that is, theoretically, in relation to another currency. And yeah, we know inflation will then do the same to the local currency…still: is that legally theft?


        • Do we know if the debts the government will pay here are really “retro-active”? I mean: what does the contract say? If the contract says “government will give dollars for the debt according to the rate in which company got debt abroad”, it is probably theft…but what if the contract was something fuzzier on this? Like “government will pay for the debt the company got abroad”?

          Another question, but this for Rodrigo: is the share of the Chinese cars completely negligible here? I don’t see that.


          • I don’t think Chinese cars are made in Venezuela (BTW Rodrigo, your graph needs a title)

            I think that if the government tells you “please invest, I will allow you to import at X rate, your prices will be Y, and you will be able to repatriate profits at said X rate” and then you go and invest, and import, and then you can’t repatriate at X but at X*300000, then yes, I think that’s a breach of contract, even if it was verbal.


          • The car industry in Venezuela is interesting for a number of reasons. There are models available that are available nowhere else, like the Toyota “Terius” which we bought. I’m assuming it is not available anywhere else because it does not conform with international safety standards and can be built much more cheaply than an equivalent like the Rav4, but that is just an assumption. What I don’t see are these models in other Latin American countries that I have visited.


            • They use older chassis, Kia, Hyundai, Ford, GM sale older versions of the same cars they sell in other countries in Latam. Cadivi is paying Car Companies to sell themselves their junk.


              • I wouldn’t necessarily speak about “junk”, but there’s certainly some truth in the argument that the development cost of most models sold in Venezuela has long been amortised by other markets. Since we don’t have a car (no pun intended) with antisocialist luxuries such as emission norms, crash test ratings, and so forth, manufacturers can get away with selling older models at new car prices. Phase-out tooling (casts, molds, sheet metal stamping dies), usually a significant part of a car’s cost equation, can thus be handily given a second life, with zero new investment.

                But, hey, we’re the only ones to blame here. Venezuela has some of the laxest automotive standards in the world (especially when compared with other countries at our GDP level!), which GM and co. then duly apply.


            • Toyota has several “sales” divisions worldwide, or so, divvied up something like:

              South America, North America, Europe, Asia & Oceania, Africa (includes some Middle East).

              Certain models are for sale in certain markets, and even across a few markets but not in all. Toyota, as well as other manufacturers actually have policies in place to actively discourage dealers from bringing in “out of market” vehicles into their markets. In some cases they have even threatened dealers with withdrawing their right to sell Toyota vehicles if they keep it up.

              I know this because a relative of mine makes a decent living providing “grey market” cars to buyers worldwide.

              The Terios is, as someone pointed out, actually a Daihatsu product re-badged. This is not uncommon as you may think, Mazda and Ford being notable in this category, as were at one time Mitsubishi and Dodge.



        • In the past, after a devaluation, the pending transactions occur at the rate when the transaction occurred.

          For airlines, the government tried to get them to take the 11 Bs/$ rate and they refused. Their debt will be paid at 6.3 Bs/$.

          So the jury is still out if they made a killing or not. By the way. I focused on figures between 2004 – 2012 which have been paid in full. For those years they made a killing.


    • Not Lusinchi, Luis Herrera created first Forex controls Recadi in Feb 1983… then it was Otac with Caldera II around 93-94, and the Cadivi in Mar 2003, which by the way has lasted the longest …


  10. OK, I just re-read my airlines post, and I have decided to recant it. I disagree with what I wrote.

    My post was based on the premise that the airlines were actually repatriating their large profits – and in that case, it’s crystal clear they were making a killing because flights to/from Venezuela are comparable, and priced way differently outside the country than inside it, not the case with Venezuelan-made cars.

    My quote:

    “In other words, thanks to Cadivi, airlines get to inflate their prices by at least 100%, and they get priority access to subsidized dollars.”

    Now we know that airlines DID NOT get access to subsidized dollars, and in fact had their profits stranded in Venezuela until the government expropriated them. That situation is much different than the one I described in my post. Fin del comunicado…


    • An excellent point! It may have been the same with the car companies . Yup. Their ‘profits’ could then only be made known so long as you had access to their books and understood where the money went.


    • I think the repatriation thing is a moot argument. Most US-based MNCs are simply not that interested in actually repatriating their profits for ETR reasons. Otherwise, they’d have simply written down and moved on long ago.

      What they DO care about is cash holdings/AR that they can list on their balance sheets. As long as they don’t have to devalue their cash-valued assets, they are happy because they don’t have to include that little tidbit in the 10Q/K.

      I think the real issue for these companies is that 1) holding cash in Venezuela sucks. 2) Its not really an FDI environment conducive to ongoing development. 3) What cash they can extract is limited, if any.

      So, really, they want guarantees simply to be able to convert at the 6.3 rate and as long as they hold to that, they can list the dollar equivalency. CADIVI/SICAD/SICAD2:TehReckoning screws all of that up.

      For example, from AA 2012 10K:
      As of December 31, 2012, approximately $527 million of the Company’s cash and short-term investments balances were held in foreign bank accounts, of which $413 million is held in Venezuela. On February 8, 2013, the Venezuelan Government devalued its currency from 4.3 bolivars per U.S. dollar to 6.3 bolivars per U.S. dollar. Subsequently, the Venezuelan Government decreed that for applications of foreign exchange related to international air transportation operations filed with the Venezuelan Government on or before February 8, 2013, the rate of 4.30 bolivars per U.S. dollar would be applied. As a result, the Company does not expect to recognize a material loss related to the currency remeasurement in February 2013. The Company does not expect any significant ongoing impact of the currency devaluation on its operations in Venezuela, but there can be no assurances to that effect. As further discussed in the Risk Factors included under Item 1A, currency is subject to risks including exchange controls, changes in foreign exchange rates and currency devaluation.

      Granted, it was a year ago, but at the time they were holding out for the 4.3 rate as guaranteed by the country and listed their cash holdings in dollars converted at the value. Likewise, they adjusted the rates forward from 2/8/12 to recognize the new devaluation.

      Imagine if you ran a publicly traded MNC and had 500,000,000 bolivars in a very simple tax scenario. At the 6.3 rate, that’s about $80mil. However, you repatriate that and you walk away with $51.3mil assuming you are profitable elsewhere and you are nailed at the 35.3% corporate marginal tax rate. At 11.3 bolivars, you walk away with around $41mil because the write down from a devaluation gives you a juicy tax offset. The inflection point of taxes on profits versus the offset is, unsurprisingly around 12.6. However, even at the 51.3 rate, you still walk away with just under $31 million because even though you only repatriate $9 million from your bolivars, you get to write down $70 million in losses. However, as long as you do nothing at all, you show almost $80 million in foreign currency holdings. Note: this is an extremely simplified version of how the deferrals play out, and doesn’t include Venezuelan taxes (which would add to the loss side of the ledger as a tax expense) on remittances, but still not that far off how it sits

      Now, as a shareholder generally ignorant of the widely distributed funds of the MNC, which would you rather see? $80, 51, 41 or 31 million dollars?

      As seen above from the AA 10K, they have $413 million (equivalent) dollars in cash holdings that haven’t been repatriated. Would you care to guess at what rate they calculated it at? They do this and then add a very small footnote under business risks indicating that there is currency risk in Venezuela. As long as it is a business risk , it is calculated in the manner they want; they change it when it becomes a business reality.

      Incidentally, at last count, there’s something like $2 trillion in unremitted foreign earnings for all US based MNCs. Of the Forbes 500, at least 60% of them are sitting on various cash holdings overseas. The majority of them are not for day to day operational cash flows, but rather they don’t want to pay the taxes in the US. The rather high corporate tax regime in the US also pushes up FDI elsewhere.


  11. Disclaimer. I don’t care if airlines, car companies or toilet paper companies are making a ton of money.

    What is central here, is that the Venezuelan system turned private enterprise, foreign and national into rent-seeking, sclerotic companies that are little to no good for any real development.


    • IMO what is the central theme here is how the policy making nomenclature, used oil windfall revenue to create a financing mechanism for all rent seeker segments of society, effectively choking competitiveness and killing the golden goose.
      in other words, policy making puppets, used treasury funds to corrupt all hands and break up the nation.

      Now they can control an impoverished society with managing the racionamiento policy.

      From raspacupos, to multinationals, to empleados publicos, to misiones beneficiaries, to military purchasing rings, etc.
      EVERYONE got a “free lunch” paid up by the 1.5 + trillion dollars of exceptional oil windfall, and now all groups are walking up from the pea and finding themselves broke!!!!

      Can you guess who took the biggest slice of the pie?
      the puppet masted of course.
      i.e. Los piratas del caribe.


  12. The rule in business is to charge whatever price a market will bear , if that means you rake in a huge profit so much the better , years ago the now nearly defunct musical record companies looked into the possibility of reducing the standard price for new records , they could do it and still make a healthy profit, they thought if they reduced the standard price, record sales would go up and they would have even healthier profits . Turns out that the study showed that if they reduced prices sales would remain more or less the same , so they naturally decided to keep the standard prices the same .

    Traditionally Venezuelans have high consumption patterns even when prices are comparatively higher than elsewhere , so sellers of goods to Venezuela set their prices at what the market will bear and charge more than they would charge for an identical transaction elsewhere . As a well traveled bookaholic I noticed again and again that book prices in Venezuela were higher than their price in other places .

    A couple of years ago I saw an interview in NTN24 to the head of the Colombian meat trade Association explaining the effect of Chavez decision to cut commercial ties with Colombia after his tiff with Uribe . The effect had been devastating because Colomian meat exporters had become so accostummed to Venezuela paying the highest prices that they had neglected their own home market ( which coulndt pay the same prices) and had also allowed their production costs to rise to a level where they where no longer capable of competing in the international markets nor go back to prices which allowed them to reconquer the domestic market . The high prices Venezuela paid had made them insensitive to the production costs increases which they could easily recoup exporting meat to Venezuela . This is to show that not only airlines or carmakers , everyone for years has known that in venezuelan consumption habits allow them to charge more than needed to obtain what in other places would have been reasonable profits in a competitive enviroment.

    Because the high oil prices ultimately allowed the Venezuelan govt , its agencies and the many people indirectly benefiting from the govt largesse to pay for everything without worrying that much about the price , weve always paid more than almost anyone else for what we purchase .!!

    We are wastrels , have always been , even very poor people pay high prices for things that can be bought cheaper if you only shop arround , the chavez regime has been a champion wastrel , it overpays for everything beside the special transaction costs we all know about . Easy oil money has made us big spenders , look at the kind of whisky that people drink here , at the extravagant cars people purchase .

    If on top of that you add the distorted exchange rate system the result is .. what these article is all about.

    I have friends who work in international retail chains, or in other international businesses, they tell me that their best business is in Venezuela as compared to similar sales sites in Colombia , Brazil , Mexico because here the sales have been until quite recently huge , this despite the fact that working conditions are here among the most challenging and difficult because of labour regulations , government policies etc. Venezuelan have always been big spenders and that means the possibility of charging the highest profits .

    Exchange rate chaos has certainly added to the distortions we see in Venezuela , but other factors such as our Consummerist habist have also contributed to the peculiar business climate that Venezuela has always shown .


  13. What’s the point? You show the peak of sales in 2007, precisely the year that companies stopped receiving dividends to repatriate. So they have lots of Bolivars as useless as the paper the Constitution is written on. That’s about it. Fake profits. Again, they are not the victims, but they are not the winners either. And if you think they benefited, then you really dont understand the problems.


    • Octavio, I see where you come from. I really do. The goal of any company is to make profit. That’s why companies hate to compete. Right? Competition lowers margins. You have to work harder. At the end that increases overall welfare. As a society we want competition.

      My beef with car companies is that what they want is a CADIVI that pays on time. The don’t want free market, they lobby hard for A, not for B. When Rodriguez et al killed RECADI companies, national and foreign lobbied to be exempt! for gradualism!

      The car companies loved the system while it lasted (til 2007?). When it started to get riskier, their approach was not to change the system for something that allow more freedom, but to lobby for their own shortsighted and limited benefits. Which was also Juan Nagel’s key take away when he told the airlines, enjoy it while you can.

      If you think the car companies didn’t see this coming, and acted rationally on it, then you really don’t understand the problem.


      • Look, manufacturers in Venezuela had no clue what was coming to them (yes, some like PG left the country, smart cookies), but the rest NEVER imagined that the Government would not honor repatration and they were caught in the middle, if you think they were somehow taking advantage of the situation or even believing they could, then you need to spend sometime in any of these companies. You keep taking it to those that had investments in Venezuela, the money was in those that had no investments and were just trading, the manufacturers or even the airlines go screwed. I dont think the airlines will be paid. The cars manufacturrers are f…, their Bolivars will be exchanged at 50, not 6.3, to think they knew or benefit is truly naive and maybe a sign of how clueless people are is that they think these companies somehow knew what would happen and they benefited from it.The system was really scred up, to look for blame elswhere is naive in my mind. .


      • What do you mean there are no free market conditions for the Venezuelan car market? There have been since the early 90s. It may not be the case now and for the past few years, with the government clearly benefiting Chinese and Iranian car manufacturers in order to enter the Venezuelan market, while not caring for their CADIVI obligations to the other, more legitimate, manufacturers, those than have been in Venezuela much longer than Chavismo itself. Free car market in Venezuela? Before this whole CADIVI mess started and from the early 90s on, any car maker could enter the Venezuelan market, either through importation, or less likely, through local assembly, and many did. And the ones that sucked left. From the late 70s to the early 90s no imported cars were allowed and yes, that was a sort of market protection for the ones that manufactured locally, but still, those local manufacturers, who had been in Venezuela since many years before that period, helped create jobs and develop an auto and supplier industry in Venezuela, so it wasn’t such a bad deal either. Certainly much better than what we have now. So yes, maybe you’re right after all. The Venezuelan car industry should also fight for free market conditions, if only to end the government’s unfair preference for some Chinese car companies and a certain Iranian maker.


        • There isn’t a free market when there is no free exchange of currency. It creates an uneven field.

          Car makers lobbied for making the field tilt in their favor, instead of making the field flat.


  14. Remember that almost 40% of the price of a new car is taxes … No sales and Seniat gets screwed also … Imported material for new cars in some cases has lead times of 4 – 6 months; unless you have imported material sitting in a tax-free locations – Inbond Customs – in docks (paying huge fees for storage…) waiting to be nationalized when Cadivi dollars are released, it will take a long time after the dollars are released by Cadici (ALD´s) new material to arrive


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