General Motors Co.’s decision to immediately cease operations in Venezuela after government authorities seized its lone factory there is the latest example of the automaker’s retreat from global markets and unprofitable regions.
Wednesday’s move follows decisions over the past few years to concentrate on boosting profits in such markets as North America and China. GM earlier this year opted to sell its chronically money-losing Opel and Vauxhall brands and surrender its annual 1 million-plus European sales to French automaker PSA Group.
The Detroit carmaker also has opted to leave Russia, cease manufacturing in Indonesia and Australia, and restructure in Thailand. Just before GM CEO Mary Barra took charge in early 2014, the automaker said it would largely pull the Chevrolet brand from Europe, leaving only a few performance models like the Chevrolet Corvette.
GM builds a small number of vehicles in Venezuela, and its sales there are miniscule compared to the 10 million vehicles it sold worldwide last year. Pressured by a lagging share price and investor skepticism, GM’s leadership in recent years has focused on returning value to shareholders and growing in profitable markets instead of maintaining a presence in all of them.
The Valencia plant in Venezuela was confiscated Wednesday as anti-government protesters clashed with authorities in a country roiling in economic troubles such as food shortages and triple-digit inflation. The country is highly dependent on oil; as oil prices have fallen in recent years, so has its economy.
GM had not built a vehicle in the Valencia factory since 2015, according to some media reports. For more than 40 days, the Valencia plant had been shut down by an aggressive takeover by members of a union, a GM representative told the New York Times. GM asked the Venezuelan government for help, but instead the government took over its facility.
Miguel R. Tinker Salas, a professor of Latin American history at Pomona College in California, believes the government likely seized the plant because of labor disputes and because GM stopped building cars there. Production from GM and other automakers is so small, he added, that the industry is not an active part of the Venezuelan economy.
Auto production has come to a near halt as the cash-strapped government has choked off car companies’ access to dollars needed to import parts and repatriate profits. Last year, not even 3,000 vehicles were produced in Venezuela, down from some 170,000 in 2007, according to the Associated Press.
The Detroit automaker said in a statement Thursday that assets such as vehicles were illegally taken from the plant: “The seizure was granted and enforced in total disregard of (General Motors Venezuela’s) right to due process, causing irreparable damage to the company.” GM says it will defend itself legally inside and outside of Venezuela.
A GM spokeswoman Thursday declined to provide specifics on how many and what vehicles it sells in the country. But financial market research firm Evercore ISI wrote in a note to investors Thursday that GM was only expected to produce about 735 vehicles in Venezuela in 2017, “hence any lost production is unlikely to prove material.”
GM, which began operations in Venezuela in 1948, has about 2,700 workers in the country, where it’s been the market leader for more than 35 years. It 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. Dealers will continue to service vehicles and provide parts.
GM’s Venezuelan operations have hurt overall profits in recent years. In the second quarter of 2015, the company took a $720 million charge for currency devaluation and asset valuation write-downs and in 2014, it took a charge of $419 million related to Venezuela.
In 2015, GM cut 13 percent of its workforce in the country and for half of 2014 had essentially no production there.
GM vowed to defend itself legally but getting compensated could be difficult. Under the late Hugo Chavez, Venezuela seized some Exxon Mobil assets. The oil giant sought compensation of $16.6 billion. The company won a $1.4 billion judgment, but earlier this year the arbitration panel determined that Venezuela had to pay only $180 million.
GM can seek compensation and damages for its lost plant in several different international venues, said Nigel Blackaby, a lawyer at the Freshfields Bruckhaus Deringer law firm, which has battled Venezuela in several high-profile cases in international courts. The venue depends on what treaties, if any, govern the investment, he said. While Exxon’s case was heard by the World Bank panel, Freshfields has successfully pursued claims against Venezuela’s government before a United Nations panel.
The Venezuelan government had no comment about the GM factory.
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, but that was only about 6 percent of its total sales.
Companies have been cutting operations in Venezuela as a result of runaway inflation and strict currency controls. Last May, tire-maker Bridgestone sold its business there after six decades of operating in the country.
Ford Motor Co. in early 2015 said it would take a one-time $800 million pretax charge for Venezuela after regulations in the country stopped the automaker from exchanging U.S. dollars for bolivars. Ford has an assembly plant in Valencia employing about 2,500, but it has not produced vehicles since December as it balances production with demand, a Ford spokeswoman said. It opened in 1962 and produces the Ford Explorer and Fiesta.
Fiat Chrysler Automobiles NV and Toyota Motor Corp. also have factories in Venezuela. Toyota has about 1,200 employees at a plant in Cumaná that builds vehicles including the Corolla. A Toyota spokesman said the company’s operations have not been affected, though it is “monitoring the situation closely.”
Fiat Chrysler has an assembly plant in Valencia that employs about 880; they build the Jeep Grand Cherokee and Dodge Forza. The company said Thursday it is maintaining its production plans there.
GM’s stock closed up Thursday nearly 1 percent to close at $34.11 a share.
Detroit News Staff Writers Ian Thibodeau and Jim Lynch and the Associated Press contributed.
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