By exploiting Argentina’s illegal currency market, buyers are extracting 39 percent discounts on luxury imports such as the Porsche 911 Carrera S sports car and creating the biggest foreign auto boom in five years.
It’s also exacerbating the fastest drain on the nation’s dollar reserves in a decade, sparking a government clampdown as it tries to preserve the primary source of cash for creditor payments. Argentines who buy a car valued at more than 350,000 pesos ($58,600) will now be required to justify the transaction with the Financial Information Unit, the nation’s money-laundering watchdog, according to a Nov. 11 decree.
Argentina, whose reserves dropped below those of Angola, Lebanon and Romania this year, is boosting its currency controls as consumers faced with 25 percent annual inflation turn to everything from luxury cars to gold and bitcoins as a store of savings. Surging demand for premium models from Volkswagen AG’s Porsche and Bayerische Motoren Werke AG is fueling a 33 percent jump in automobile imports this year.
“It’s clear that the government is keeping an eye on luxury cars because sales are rising at very high rates while the economy loses foreign currency,” Gonzalo Dalmasso, vehicle industry analyst at research company Abeceb.com, said by telephone from Buenos Aires. “It won’t make a big change, but at this point the objective is just to contain the situation.”
To lock in the discount, Argentines sell dollars in the black market, where the U.S. currency fetches 9.8 pesos, and use the proceeds to buy vehicles imported at the official exchange rate of 5.9762. As the gap between the two rates has swelled over the past two years, the number of Argentines seeking to exploit it by buying imported vehicles has grown, Dalmasso said.
The government measure is aimed at discouraging these buyers by forcing them to disclose information including bank account details and tax returns, he said.
Car imports accounted for 9.2 percent of the total $56.3 billion of imports as of September, up from 7.7 percent in the same period last year, according to the latest data from the National Statistics and Census Institute.
Dealers sold 87,014 cars in October, 24 percent more than a year ago and a record for the month, according to the country’s dealer association, Acara. Sales are headed to a record 930,000 this year, the Nov. 4 report said. Imported cars accounted for 60 percent of sales.
Sales of luxury cars are rising the most this year, with purchases of Tata Motors Ltd.’s Land Rover brand jumping 170 percent, the biggest increase out of the 40 brands in the Acara report. Alfa Romeo, BMW and Porsche were next, with gains in sales of 139 percent, 96 percent and 76 percent, respectively.
“It’s been our best year in a long time,” said Martin Gerona, a sales executive at a BMW dealership in Avenida del Libertador in Buenos Aires. “People come in with their minds set on buying. They don’t think about it too much. They just come and leave with a new car because it’s become a very good deal with the gap in the exchange rates.”
BMW dealers sold 390 cars in October and 3,699 this year through October.
For would-be Porsche enthusiasts, the 911 Carrera S costs about 1.4 million pesos in Buenos Aires, or $234,000 at the official exchange rate. A prospective buyer can purchase the same car by exchanging just $143,000 in the black market, resulting in a 39 percent discount.
The most expensive 911 Carrera S listed on New Country Porsche of Greenwich, Connecticut, costs $124,365, according to the dealership’s website.
The surging demand for imported cars, along with an increase in energy imports and spending by Argentine tourists abroad, contributed to a $10.6 billion drop in reserves this year, the fastest rate since 2002, a year after Argentina defaulted on $95 billion of debt. The current level of $32.7 billion is the lowest since January 2007.
The government had sought to compensate dollar demand from car importers by forcing companies to export national products. This prompted Porsche to ship wine, Mitsubishi Motor Corp. to export peanuts and imported Subarus were matched by sales of chicken feed to Chile.
While the latest measure will probably cause sales to slow, it won’t be enough to contain the fall in reserves, according to Camilo Tiscornia, a former economist at the central bank who currently runs C&T Asesores Economicos in Buenos Aires.
“The boom will cool a bit because it’ll make the process more bureaucratic and people who are going to the black market may find it hard to justify where they got the funds,” Tiscornia said in a telephone interview. “But this alone won’t be enough to contain dollar outflows.”
Argentina started using reserves to pay debt in 2010 and plans to draw $8 billion of the funds through the end of the year. Its borrowing costs of 11.2 percent are almost double the average for emerging markets, according to JPMorgan Chase & Co.
South America’s second-biggest economy still has almost five times the dollars it needs to pay $6.8 billion of principal and interest due on its foreign currency government bonds next year, according to Economy Ministry data.
While Argentines see investing in cars as a good alternative to holding pesos that have weakened 20 percent in the last year, luxury models are especially attractive. Unlike cheaper options built locally or in the Mercosur trade block, BMWs and Porsches are imported with prices set at the official rate, making them relatively cheaper, Dalmasso said.
Cars tend to drop about 15 to 20 percent when driven off the lot and then appreciate at about 18 percent a year due to inflation, according to an Abeceb.com. In comparison, the benchmark deposit rate, or what banks pay on 30-day deposits of more than 1 million pesos, was 19.19 percent on Nov. 11.
“In Argentina, used-car prices increase, which might seem strange to countries with no double-digit inflation,” Dalmasso said. “You won’t make money with a car but you’ll hedge against inflation and at least it’ll be more enjoyable than keeping the money in the bank.”