GM Ceases Operation in Venezuela
General Motors said yesterday that it would immediately halt operations in Venezuela after its plant in the country was unexpectedly seized by authorities. GM described the takeover as an “illegal judicial seizure of its assets.” The automaker said the seizure showed a “total disregard” of its legal rights. It said that authorities had removed assets including cars from company facilities. “GM 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,” it said in a statement.
Venezuela was once among the most lucrative markets in Latin America for foreign businesses, a country oozing in oil and blessed with an emerging middle class hungry for everything modern, from new cars to disposable diapers. But the good times are long gone. The seizure came amid violent street protests against the government of President Nicolas Maduro and a deepening economic crisis fueled by Venezuela’s heavy foreign debt and retreat of world oil prices, which have slashed the country’s main source of income.
GM said the seizure was triggered by a provincial court embargo in favor of a former local dealer who sued the company for about $370 million in 2000 over contract disagreements. The company’s decision to immediately quit the country after 70 years following the court embargo shows just how big a liability Venezuela’s collapsing economy has become for the few multinational firms still operating there.
GM’s Venezuelan plant hasn’t produced any cars since 2015, according to the local car industry association Cavenez. Company managers in Venezuela said they haven’t been able to obtain hard currency to import parts through the country’s labyrinthine currency controls for years. Meanwhile, the company had to continue paying its 2,700 staff. “These companies are characterized by production done at a loss,” said Richard Obuchi, management professor at Caracas’s IESA business school and author of a book on Venezuela’s state controls.
Many companies have de-consolidated their Venezuelan operations in the past two years, including the tire-maker Goodyear, which took a $646 million charge for its Venezuelan business last year. Bridgestone and Pirelli announced similar measures, with Bridgestone writing off $360 million and Pirelli $614 million. The move against GM comes as Venezuela’s auto industry has nearly ground to a halt amid the political instability, currency issues and economic failure that have led to the violent protests across the nation.