GM latest company to have assets seized in Venezuela
Apr. 20, 2017 - General Motors became the latest corporation to have a factory or other asset seized by the government of Venezuela, and the Detroit automaker faces an uphill battle to recover any damages.
GM said Thursday that its only factory in Venezuela was confiscated a day earlier, as anti-government protesters clashed with authorities in a country that is roiled by economic troubles. GM said assets such as vehicles were taken from the plant, causing the company irreparable damage.
The seizure is the latest in a long string of government confiscations of factories and other assets that have been a staple of the so-called 21st century socialist revolution in Venezuela started by the late Hugo Chavez two decades ago. Venezuela is currently fighting claims of illegal asset seizures at a World Bank-sponsored arbitration panel from more than 25 companies, making it one of the most-frequently targeted nations in the world.
In March, a World Bank arbitration panel determined that Venezuela did not have to pay $1.4 billion to Exxon Mobil Corp. for confiscating company assets during a wave of nationalizations.
Auto production in Venezuela has nearly ground to a halt amid the country’s economic collapse. The cash-strapped government has choked off car companies' access to dollars needed to import parts and repatriate profits. GM's factory in the industrial city of Valencia has not produced a single car since 2015. Nationwide, car makers assembled just 2,849 cars last year, from a peak of 172,218 vehicles in 2007.
Despite Venezuela’s grim outlook, many car makers have decided to stay put and avoid the drastic step of shutting down operations to avoid losing market share in case the economy dramatically improves or a more business-friendly government takes power.
GM has about 2,700 workers in Venezuela, where it’s been the market leader for over 35 years. It also has 79 dealers that employ 3,900 people, and its parts suppliers make up more than half of Venezuela’s auto parts market, the company said.
The factory seizure arose from an almost 20-year-old lawsuit brought by a former GM dealership in western Venezuela. The dealership had been seeking damages from GM of 476 million bolivars — about $665 million at the official exchange rate, but just $115 million on the black market where many Venezuelans are forced to turn to sell their increasingly worthless currency. GM said it was notified this week that a low-level court ordered an embargo of its plant, bank accounts and other assets in the country.
Hundreds of workers desperate for information about their jobs gathered at the plant on Thursday to meet with government and military officials, as well as representatives of the dealership that brought the lawsuit.
The Venezuelan government had no comment about the GM factory.
In July of last year, the government took control of a factory belonging to Kimberly-Clark Corp. after the U.S. personal care giant said it was no longer possible to manufacture in the crisis-wracked nation due to a lack of materials. President Nicolas Maduro accused Kimberly-Clark of participating in an international plot to damage Venezuela’s economy.
Kimberly-Clark joined Bridgestone, General Mills, Procter & Gamble, Ford Motor Co. and other multinational corporations in scaling back operations in Venezuela. Ford suspended operations at its Valencia plant in December due to slumping sales. Toyota said its lone factory in Cumana, Venezuela, continues to operate normally.
If the government permits it, GM workers at the Valencia plant will get separation benefits “arising from the termination of employment relationships due to causes beyond the parties’ control,” the GM statement said.
Dealers will continue to service vehicles and provide parts, the company said.
GM’s Venezuelan operations have been a drag on earnings for several years. In the second quarter of 2015, the company took a $720 million charge for currency devaluation and asset valuation write-downs as the economy faltered.
South American operations, which include Venezuela, account for a relatively small portion of GM’s earnings and sales. Last year the company lost $400 million before taxes in South America, but as a whole the company made a pretax profit of $12.5 billion. GM sold just over 583,000 vehicles in the region last year, about 6 per cent of its total sales.
The company recently said that its South America region “remains challenged from macro-economic and political standpoints.”
Shares of General Motors Co. rose 59 cents to $34.38 in afternoon trading.
Goodman reported from Caracas. Dee-Ann Durbin contributed from Detroit. More Associated Press reporting on Venezuela’s problems can be found at www.ap.org/explore/venezuela-undone.
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