BMWs Gaining Bitcoin-Like Appeal as CPI Hedge: Argentina Credit

Photographer: Victor R. Caivano/AP Photo

A luxury car is parked in the wealthy Puerto Madero neighborhood of Buenos Aires, Argentina. Close

A luxury car is parked in the wealthy Puerto Madero neighborhood of Buenos Aires, Argentina.

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Photographer: Victor R. Caivano/AP Photo

A luxury car is parked in the wealthy Puerto Madero neighborhood of Buenos Aires, Argentina.

Argentines are buying more BMWs, Jaguars and other luxury cars as a store of value as inflation decimates their deposits and pummels the nation’s bonds.

Purchases of cars from Germany’s Bayerische Motoren Werke AG (BMW) and Jaguar Land Rover Automotive Plc, owned by India’s Tata Motors Ltd. (TTMT), jumped the most in April among brands sold in Argentina. The sales were part of a 30 percent surge in car sales from a year earlier that was the biggest increase in 20 months, according to the Argentine Car Producers Association. While used-car prices rose in line with inflation last year, or about 25 percent, peso bonds tied to consumer prices fell 13 percent. The drop was the biggest in emerging markets.

Car sales in Argentina increased by the most in almost two years last month as a ban on buying dollars made Argentines turn to vehicles to protect savings against the fastest inflation in the Western Hemisphere after Venezuela. Luxury models are becoming more attractive because they are imported at the official dollar rate, said Gonzalo Dalmasso, vehicle industry analyst at Buenos Aires research company Abeceb.com. Argentines with savings in dollars are able to purchase cars at half the cost by trading in the unofficial currency market.

“I’m seeing a lot of people buying high-end cars for the first time, trading Minis for middle of the market models,” Ignacio Monteserin, a salesman at BMW’s Mini Cooper dealership in Buenos Aires’s Libertador Avenue, said. “It’s become very convenient to own luxury cars in general because of the big gap in the exchange rates and you get to have a quality good that will preserve the value of your money with time.”

Surging Sales

Car sales in Argentina surged 30 percent in April from a year earlier to 88,323 units, the fastest increase since August 2011 and the second-highest on record, according to a car association known as Adefa.

Argentines have bought 1,588 BMWs so far this year, more than double the amount they purchased in the same period last year, according to Argentina’s Car Dealers Association, or Acara. Jaguar and Land Rover sales increased by 200 percent and 278 percent respectively, the data show.

Mini Cooper sales rose 54 percent in January to April from a year earlier. A Mini Coupe costs 194,000 pesos, or $37,072 at the official rate of 5.2380 per dollar. It costs $19,400 at the parallel rate at 10 pesos per dollar, cutting the price in half for Argentines who have savings in dollars and go to the black market to sell them for pesos. The same model in the U.S. costs $22,150.

Bitcoin, Gold

Argentines are buying cars, gold and even virtual currency such as bitcoin as they look for ways to preserve their savings as the peso is forecast to fall 17 percent this year.

The peso in the illegal currency market, known as the blue market locally, weakened to a record 10.45 pesos per dollar last week. This means Argentines with peso salaries who buy dollars in the black market to protect against a weakening of the local currency and 25 percent inflation lose about half of their money.

Inflation-linked bonds don’t protect against rising prices because they’re tied to the official price index, which at 10.6 percent is less than half the estimates of independent economists. They have dropped 3.4 percent this year after losing 13 percent in 2012.

Argentina’s official price index has been questioned by economists since 2007, when then-President Nestor Kirchner changed staff at the National Statistics Institute. The International Monetary Fund in February censured the country for not improving its inflation measurement.

Bond Losses

Argentina’s dollar-denominated bonds aren’t a better alternative as a U.S. legal dispute on repayment of the nation’s defaulted debt caused average yields to soar to 13.92 percent, almost three times the average in emerging markets, according to JPMorgan Chase & Co.

The notes have plunged 10 percent his year.

The rate banks pay for 30-day deposits of more than 1 million pesos was 15.38 percent on May 10.

“The government takes away their salaries and deposits through inflation and negative interest rates,” said Jorge Remes Lenicov, a former Economy Minister from January 2002 to April 2002, when the country abandoned a decade-long peso peg to the dollar.

The extra yield investors demand to hold Argentine government dollar bonds instead of U.S. Treasuries narrowed 20 basis points to 1,171 basis points at 1:27 p.m. in Buenos Airs, according to JPMorgan’s EMBI Global index.

Default Swaps

The cost to insure Argentine debt against default within the next five years through credit default swaps rose 107 basis points to 2,770 basis points, according to data compiled by CMA Ltd.

While inflation and a gap in the exchange rates is fueling sales, the same reasons are also deterring investment in the car industry, said Cristiano Rattazzi, President of Fiat Auto Argentina SA.

“There are no certainties,” Rattazzi, who is also head of the car makers association, said in a phone interview in Buenos Aires. “It’s a very unstable environment. What if they devalue? What if there are multiple exchange rates? All of these questions and high inflation are putting a big break on investment.”

The Argentine government in March 2011 ordered car importers to match their imports with exports or investment of equal value to boost the trade surplus.

‘Enjoy It’

The decree prompted BMW to export rice and Porsche Automobil Holding SE to begin exporting olives and Malbec red wine. Shizuoka Subaru Motor Co. agreed to export chicken feed, Hyundai Motor Co. began sending soy flour to Vietnam and Mitsubishi Motors Corp. (7211) started shipping peanuts.

As Argentines continue to lose purchasing power, cars and other durable goods are temporary solutions to the region’s fastest inflation after Venezuela, said Lenicov.

“There’s nowhere to put your money in,” Lenicov said. “The reasoning is you lose money almost anywhere because of inflation, so if you buy a car, at least you get to enjoy it.”

To contact the reporters on this story: Camila Russo in Buenos Aires at crusso15@bloomberg.net; Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

To contact the editors responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net; Michael Tsang at mtsang1@bloomberg.net

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