GM Ceases Venezuela Operations After Government Seizes Plant

April 21, 2017

April, 19 2017

General Motors Co. shut down operations in Venezuela after authorities seized the automaker’s plant and took its vehicles, the first nationalization of a major company’s facilities in the country in more than two years.

GM’s factory was “unexpectedly taken,” according to a statement from the Detroit-based automaker. The company “strongly rejects the arbitrary measures taken by the authorities and will vigorously take all legal actions, within and outside of Venezuela, to defend its rights.”

The plant shutdown took place as protesters flooded the capital city of Caracas in the biggest show of opposition to President Nicolas Maduro’s government in months. The auto industry has collapsed, with sales plunging 92 percent in March, as a shortage of dollars has rendered vehicles too costly for all but the wealthiest Venezuelans.

Under Maduro’s socialist government, Venezuela is experiencing the worst recession in decades. Gross domestic product plummeted 10 percent in 2016, according to the International Monetary Fund, as revenue from oil that accounts for 95 percent of foreign-currency earnings has tumbled along with prices. With the country short on cash for imports, citizens wait in long lines to find scarce household items.

The U.S. State Department is reviewing the details of the case involving GM and is calling for authorities to ensure it’s resolved quickly, spokesman Mark Toner said.

“A fair, predictable and transparent judicial system is critical to implementing the essential economic reforms critical to restoring growth and addressing the needs of the Venezuelan people,” Toner said.

Clorox Co. halted operations in Venezuela in September 2014 after inflation and government-mandated price freezes made business unprofitable for the seller of products ranging from bleach to salad dressing. Maduro’s government took over and reopened the Clorox sites.

GM’s Costs

After 69 years in business in Venezuela, GM said it plans to pay separation benefits to local workers. The automaker has 2,678 employees and its 79 dealers in the country employ another 3,900 people.

“The company is confident that justice will eventually be served, and looks forward to continue leading the Venezuelan market,” GM said in its statement. Dealers will continue to provide aftermarket service and parts for customers, according to the company.

Currency restrictions have plagued automakers in Venezuela despite an agreement first reached with Ford Motor Co. in 2015 that allowed the automaker to sell some models in dollars.

Under the deal, Venezuelans pay dealers dollars for production materials imported from abroad and bolivares to cover the costs of assembling vehicles locally. The government followed suit last year and allowed GM, Fiat Chrysler Automobiles NV and Toyota Motor Corp. to sell vehicles in dollars.

Read more: Venezuela’s collapsing car industry

Operating in Venezuela has been a costly endeavor for years. GM reported charges of $720 million in 2015 and $419 million a year earlier related to currency devaluation and asset impairment in Venezuela. While the automaker hasn’t built vehicles at its plant in Valencia since 2015, it used to build the Chevrolet Aveo Cruze, Orlando and Silverado models there.

GM had said in its annual report filed in February that it was closely monitoring the environment in Venezuela to assess whether it would no longer maintain control of its local subsidiaries. If such a determination was made, the company said it could incur a charge of as much as $100 million.

Foreign companies operating in Venezuela have been beset by disruptions stemming from goods shortages, strikes and police raids. Coca-Cola Co. halted production of sugar-sweetened beverages last year due to lack of raw materials.

Ford remains in possession of its plant in Valencia, though the factory hasn’t been operating because of the economic crisis, according to Kelli Felker, a spokeswoman. Toyota’s operations have not been affected, while Fiat Chrysler is maintaining its production plans in the country, company representatives said.