Ferrari Is To The World What Toyota Is To Venezuela

893 words - 4 pages

Venezuela is considered a single-product economy at which petroleum represents the 97.8% of Venezuelan exportations; therefore, Venezuelan economy is highly dependent on the oil market. This high dependency is caused by the lack of incentives from the government to expand the production spectrum of Venezuela´s economy, plus the implementation of a currency exchange control since 2003. As a result of the country´s singular production, and the limited and scarce internal production of goods besides oil, Venezuela depends on importations to supply most of the goods needed by the population. Furthermore, because the Oil industry is managed completely by the government through the state-owned company PDVSA (Petróleos de Venezuela S.A.), the supply of dollars is provided mostly by the state.
Many sectors of production has been affected tremendously because of the strict regulations implemented by the government to import and export, in addition to the bureaucracy required to obtain dollars in order to fulfil international trading.
One of the most affected and damaged markets is the automotive market because it has lost production capacity as a result of difficulties such as obtaining dollars to buy auto´s parts, shipping the parts to Venezuela and then assembling the vehicles within the country. In addition to these problems, a law called “Luxury Law” approved in 2010, closed the Venezuelan market to imported cars, presenting the excuse that trading cars with other countries would destroy the internal production; consequently, Ford Motors Company, General Motors of Venezuela, Toyota de Venezuela, Mazda de Venezuela, Hyundai Motors Corp, Mitsubishi Venezuela, Chrysler Venezuela, Venirauto Industry, Chery Venezuela, Renault de Venezuela, Volkswagen Venezuela, and Fiat de Venezuela are the companies who have to supply a market which demands 132.500 cars per year. Nonetheless, the government limited production to 50.000 cars per year distributed within those twelve companies mentioned above. Because the quantity demanded is higher than the quantity supplied by the market, the market for cars in Venezuela ends up with a shortage of 82,500 units per year, which means that 62.62% of the demand is not covered by these twelve companies.
Because supply and demand together determine the price and quantity of a good sold in a market, it is predictable how the low supply of highly demanded products such as cars, will result in an increase on the price of cars; however, the Venezuelan government intervenes to disrupt the regular flow of the market. The government determines the price of different cars according to their brand, model, and category and...

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