How two car deal­ers seized an auto fac­tory

Kuwait Times - - ANALYSIS -

Venezuela’s gov­ern­ment has seized as­sets from dozens of for­eign cor­po­ra­tions in na­tion­al­iza­tions by the late Pres­i­dent Hugo Chavez and the em­bat­tled cur­rent gov­ern­ment of Nicolas Maduro. The man be­hind the con­fis­ca­tion of Gen­eral Mo­tors Co’s $100 mil­lion as­sem­bly plant in April is a much more ob­scure fig­ure: Kaled Kansao, the owner of two long-de­funct GM deal­er­ships. Kansao con­vinced a court to seize the plant as the rem­edy for a rel­a­tively small-time busi­ness dis­pute - over GM’s ter­mi­na­tion of his fran­chises - that mush­roomed into a 17-year court bat­tle.

The le­gal fight that pushed GM out of Venezuela of­fers a unique case study in the strug­gles of for­eign cor­po­ra­tions to keep oper­a­tions afloat - much less turn a profit amid the OPEC na­tion’s eco­nomic and po­lit­i­cal chaos. The seizure stands out be­cause it stems from a dis­pute with pri­vate cit­i­zens rather than the gov­ern­ment, high­light­ing yet an­other risk of do­ing busi­ness in Venezuela - the specter of de­bil­i­tat­ing le­gal judg­ments, said Fran­cisco Martinez, pres­i­dent of Venezuela’s main busi­ness or­ga­ni­za­tion, Fede­ca­ma­ras.

“It would be im­pos­si­ble to say that the le­gal pro­ceed­ings against Gen­eral Mo­tors had any le­gal logic,” Martinez said. “Venezuela does not pro­vide even the most min­i­mal guar­an­tees with re­spect to in­vest­ment or pri­vate prop­erty.” Venezuela ranked 187 out of 190 coun­tries in the World Bank’s 2017 Ease of Do­ing Busi­ness re­port, which eval­u­ates coun­tries’ reg­u­la­tory sys­tems. Only Eritrea, Libya and So­ma­lia scored worse.

Un­der Chavez, the so­cial­ist fire­brand who died in 2013, some as­set seizures fea­tured gun-wield­ing sol­diers and live tele­vi­sion broad­casts. The GM case had its own less pub­li­cized drama, in­clud­ing du­el­ing al­le­ga­tions of court­house mis­deeds; re­cusals by judges cit­ing se­cu­rity con­cerns; a dis­pute over 158 ve­hi­cles that GM says “van­ished”; and mys­te­ri­ous dam­age cal­cu­la­tions award­ing the deal­ers thou­sands of cars.

GM stopped pro­duc­ing ve­hi­cles here in 2015 amid a lack of ac­cess to sup­plies. But the judg­ment ap­pears to have doused any re­main­ing hopes that it will pro­duce cars again in Venezuela any­time soon. The com­pany ter­mi­nated the plant’s 2,700 work­ers after the de­ci­sion. In its ini­tial an­nounce­ment in April, GM did not con­nect the plant seizure to the deal­ers’ law­suit, say­ing only that the fa­cil­ity was “un­ex­pect­edly” seized by “pub­lic au­thor­i­ties”. In re­sponse to in­quiries from Reuters, the com­pany pro­vided a de­tailed his­tory of its frus­tra­tions with the pro­ceed­ings, which it called “ab­surd” and rife with “ir­reg­u­lar­i­ties”. In the end, a civil court in the west­ern state of Zu­lia granted the deal­ers’ re­quest to at­tach GM as­sets worth up to about $115 mil­lion. Venezue­lan law re­quires the court to auc­tion off the fac­tory to sat­isfy the judg­ment. In the mean­time, it or­dered GM to pay the deal­ers to pay an “oc­cu­pa­tion fee” that at the time equated to about $36,000 a month - in ef­fect, rent on its own plant. “The il­le­gal and out­ra­geous seizure was the fi­nal act of a se­ries of un­for­tu­nate events be­yond GMV’s con­trol,” GM told Reuters, re­fer­ring to its Venezuela sub­sidiary.

GM did not re­spond to ques­tions about whether it had any in­ten­tion of pay­ing the court judg­ments or try­ing to re­gain con­trol of the fac­tory. In a May press state­ment, Kansao and his busi­ness part­ner, Elena Ro­driguez, ac­cused GM of per­jury, in­flu­ence traf­fick­ing, and vi­o­la­tion of the United States For­eign Cor­rupt Prac­tices Act, with­out of­fer­ing ev­i­dence. GM has ig­nored court rul­ings be­cause it be­lieves “might is right as a law”, Kansao told Reuters.

Idled Work­ers Col­lect Salaries

Back in 2000, Kansao and Ro­driguez op­er­ated two GM deal­er­ships that had orig­i­nally been founded by Kansao’s fa­ther. In an in­ter­view, Kansao said GM ar­bi­trar­ily stripped him of his fran­chise, which he said brought “tragedy and calamity” on his fam­ily. GM said it ter­mi­nated the agree­ment for a range of reasons, in­clud­ing the deal­ers’ fail­ure to meet a min­i­mum monthly sales av­er­age of 25 ve­hi­cles.

Nearly two decades later, the deal­ers’ hopes of col­lect­ing on the judg­ment now hinge on whether a cour­tordered auc­tion at­tracts a buyer - an un­likely prospect in a na­tion where the auto in­dus­try has all but col­lapsed. Chronic short­ages of hard cur­rency have left au­tomak­ers un­able to im­port parts, while triple digit in­fla­tion has left would-be cus­tomers strug­gling to buy basics like food and medicine.

In 2016, out­put at Venezuela’s seven big­gest auto plants had dropped be­low 3,000 cars, down from a peak of 172,000 ve­hi­cles in 2007 - 79,000 of those from GM, ac­cord­ing to auto in­dus­try group Cavenez. La­bor laws dic­tate that the deal­ers would also have to wait be­hind GM work­ers - who con­tend they are owed sev­er­ance pay­ments - to col­lect any pro­ceeds from a fac­tory auc­tion. GM did not re­spond to ques­tions about work­ers’ sev­er­ance. The au­tomaker had agreed with union lead­ers to con­tinue pay­ing work­ers after the plant stopped mak­ing cars, said Adan Tor­tolero, one of sev­eral union lead­ers at the de­funct plant. GM tried to shed that obli­ga­tion last year by of­fer­ing buy­outs of about $3,500 per worker, Tor­tolero said, but work­ers spurned the of­fer be­cause it seemed small in com­par­i­son to the pay and ben­e­fits the work­ers had pre­vi­ously en­joyed.

One lu­cra­tive perk was the right to buy two fac­tory cars ev­ery year at gov­ern­ment-reg­u­lated prices that were well be­low their ac­tual mar­ket value. The reg­u­lated prices were the­o­ret­i­cally avail­able to any­one, but be­cause de­mand for cars far out­stripped sup­ply, most buy­ers had to get wait­ing lists - which usu­ally re­quired large un­der­the-ta­ble pay­ments. GM em­ploy­ees had been among the first in line to buy the cars at reg­u­lated prices, which al­lowed them to sell the ve­hi­cles at a steep pre­mium.

9,725 Cars

In 2007, the Zu­lia court or­dered the au­tomaker to com­pen­sate the plain­tiffs with 9,725 ve­hi­cles, ac­cord­ing to the de­ci­sion, which of­fered no ex­pla­na­tion for that num­ber of cars. It did re­quire the plain­tiffs to pay GM for the ve­hi­cles, but only after they were sold. Asked to pro­vide ev­i­dence that the pro­ceed­ings had been cor­rupted, GM pointed out that six judges and two court em­ploy­ees had re­cused them­selves, with most cit­ing “threats and per­sonal se­cu­rity con­cerns”.

It also said that the court failed to en­force an or­der prevent­ing the deal­ers from sell­ing 158 cars that they seized dur­ing the dis­pute. GM said those ve­hi­cles later “van­ished”, and the deal­ers never paid for them. Kansao and Ro­driguez did not re­spond to ques­tions about the 158 cars. The case bounced through dif­fer­ent courts for the next decade un­til April 4 of this year, when the Zu­lia court au­tho­rized the plain­tiffs to en­cum­ber GM as­sets worth up to 477 bil­lion bo­li­vars - at the time worht about $115 mil­lion - as lever­age to col­lect a cash judg­ment of half that amount.

The court based the com­pen­sa­tion on the full value of the 9,725 cars - rather than the much smaller profit the deal­ers would have made sell­ing them, GM said. But the le­gal vic­tory may have lit­tle pay­off in re­al­ity, just as GM’s losses may be largely sym­bolic - given that it hasn’t pro­duced or sold cars in Venezuela since 2015. Asked what sort of buyer the fac­tory might at­tract in a gov­ern­ment auc­tion, Kansao re­sponded: “Only God knows that.” — Reuters

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.