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GM Ceases Venezuela Operations After Government Seizes Plant

April 20, 2017
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.

General Motors Co. (IW 500/3) shut operations in Venezuela after authorities seized the automaker’s plant and took its vehicles in the first nationalization of a major company’s facilities in the country in more than two years.

GM’s factory was “unexpectedly taken by the public authorities, preventing normal operations,” according to an emailed statement. The Detroit-based automaker said it “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% in March, as a shortage of dollars has pushed new car prices beyond the means of all but the wealthiest Venezuelans.

Venezuela is experiencing the worst recession in decades, with gross domestic product plummeting 10% in 2016, according to the International Monetary Fund. Revenue from oil, which accounts for 95% 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.

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.

Separation Benefits for GM Workers

GM plans to pay separation benefits to the workers according to Venezuelan law, the company said. The automaker employs 2,678 workers and has 79 dealers in the country with more than 3,900 workers.

Currency restrictions continue to plague 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 would 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 with GM, Fiat Chrysler Automobiles NV and Toyota Motor Corp.

A Costly Endeavor

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.

GM said in its annual report filed in February that it was closely monitoring the environment in Venezuela to assess whether changes meant it no longer maintained 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, following disruptions to Kraft Heinz Co. and Clorox.

By David Welch and Nathan Crooks

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Licensed content from Bloomberg, copyright 2016.

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