* Government squeezes dollar supply to local assemblers
* Some automobile models may have to be suspended
* Car sector accumulates $2 billion in supplier debt
By Eyanir Chinea
CARACAS, April 30 (Reuters) - Every rush hour, Venezuela's cities come to standstill as gas-guzzling SUV's crawl along the traffic-choked highways of South America's top oil exporter.
Yet despite the jams, the absurdly cheap subsidized fuel, and Venezuelans' well-known love affair with the automobile, new vehicles have become increasingly scarce in the recession-hit and dollar-short OPEC member country.
Since producing a record 172,418 units in 2007, Venezuela's car industry has reached near gridlock, with just 111,554 cars assembled in 2009. About 10,000 fewer cars were produced in the first quarter than the same period last year.
With local production falling, customers have to wait for at least eight months or more, leaving many showrooms empty.
In a typical auto dealer scene, a saleswoman at a Hyundai outlet kills time, listening to music on a computer.
"We don't have anything to sell, not one car," she said in Caracas. "The factory is at a standstill and we still don't know anything about when the cars will arrive".
Car sector leaders complain they are receiving far too few dollars from the state foreign exchange agency for assembly plants' imports, and financing sources are drying up.
"By the end of February we had accumulated more than $2 billion in debt," said Enrique Gonzalez, president of the Venezuelan Automobile Chamber (Cavenez).
"The lines of credit are running out. That means assembly lines will stop and models will disappear."
Demand for cars remains red-hot, fueled by gasoline which sells for about 0.097 bolivars (2 U.S. cents) a liter, or about about 8 U.S. cents a gallon.,
But President Hugo Chavez offered little hope on Sunday of easing shortages. He acknowledged the fall in car-related imports could help keep Venezuela in recession in 2010 for the second consecutive year. For more see [ID:nN2516742].
But he said replenishing Venezuela's showrooms with cars was low on his list of priorities.
"What does that have to do with socialism?" he said.
Car sector woes mirror complaints of businessmen, who say Hugo Chavez's socialist drive is wrecking entrepreneurship.
Major brands like Ford
The sector's decline has come amid a recession that saw the economy contract by 3.3 percent in 2009 following a plunge in oil prices in 2008. Manufacturing fell 6.4 percent last year.
Many analysts believe it may shrink again in 2010, making it harder for private industry to claw back production levels.
FOREIGN EXCHANGE DEMAND
Chavez in January devalued the bolivar by 50 percent, which had been pegged at 2.15 to the dollar since 2005.
The new value of 4.3 bolivars to the dollar, with 2.6 for essential foodstuffs and medicines, has given Chavez's government more bolivars to spend on social projects but less dollars for private industry to import raw materials.
The car industry, like many private businesses, is forced to turn to a semi-legal market for its dollars when it cannot obtain foreign currency through official channels.
Since the January devaluation the bolivar has plunged to a record low of 7.50 to the dollar.
In the last quarter of 2009 the car sector recuperated briefly after the state's foreign exchange commission Cadivi supplied just over $2 billion. That relieved a dollar shortage for the car sector, as Cadivi cut back dollar allocations economy wide after the price of oil, Venezuela's main export revenue earner, began falling in the latter half of 2008. http://www.cadivi.gov.ve/divisas/sector.html.
But car sector business leaders complain that in 2010 the flow of dollars for the sector has once again dried up to just 5 percent of what is needed.
Labor disputes have compounded the problem by paralyzing assembly lines. MMC Automotriz, which assembles Mitsubishi <7211.T> and Hyundai <005380.KS> cars in Venezuela, was shut down for six months of 2009 while the company negotiated salaries with workers.
The plant only switched its assembly lines on again last week following a further two month-long strike this year. Workers at the Hyundai plant were angry that a shift was canceled while the factory attempted to comply with energy rationing measures imposed by the government during an electricity crisis.
Chavez in January 2008 began imposing restrictions on foreign new car imports in order to boost local production. But recently he acknowledged the car shortage in Venezuela by signing deals for the state to import thousands of cars from political allies such as Argentina, Uruguay, China and Russia.
As production stays slow the lucky few to get their hands on a new car can make a killing in resale . Secondhand cars have also become a valuable commodity, appreciating with age as Venezuelans see them as investments.
Venezuelans prefer to spend cash in buying cars rather than see it lose value in bank accounts where interest rates are lower than 25 percent yearly inflation.
"If you are lucky enough to be given a car it's as if you have won the lottery. You can sell it on the secondary market for more than you bought it because of the distortions brought about by having an official dollar that is cheaper than the dollar on the street," said Henkel Garcia, an analyst with local financial firm Investment Vision. (Writing by Charlie Devereux, editing by W Simon )