Northwest Arkansas Democrat-Gazette
After plant seized, GM charts Venezuela exit
Reasons factory grabbed unclear
General Motors Co. announced Thursday that it is pulling out of Venezuela after authorities there seized one of its auto plants, a fresh sign of the turmoil gripping the country as anti-government protests spread.
The plant in the industrial city of Valencia was confiscated by the government Wednesday as anti-government protesters clashed with security forces and pro-government groups in a country battered by economic troubles, including food shortages and triple-digit inflation.
Three people were killed, and hundreds were arrested in the deadliest day of protests since the latest unrest began three weeks ago.
GM called the confiscation of its factory “an illegal judicial seizure of its assets” and announced that it would cease operations in the country, where it employs nearly 2,700 people. The move against GM could further strain relations between Venezuela’s leftist government, led by President Nicolas Maduro, and Washington.
The company is not the first foreign firm whose assets have been confiscated by Venezuelan authorities, but those actions typically have been preceded by repeated public threats from the socialist government. Venezuela is currently fighting claims of illegal asset seizures at a World Bank-sponsored arbitration panel from more than 25 companies.
GM vowed to legally defend itself, 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 legal damages for its lost plant in several 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 been successful in pursuing claims against Venezuela’s government before a United Nations panel.
Venezuelan officials offered no explanation for its seizure of the GM plant. Some analysts saw it as part of a pattern of confrontation between Maduro’s government and manufacturers as the economic situation deteriorates.
But the timing of the move also led to suspicions that Maduro may be looking to escalate tensions with the United States and blame his government’s struggles on a brewing confrontation with President Donald Trump’s administration. Maduro claims that his opponents are colluding with U.S. authorities to overthrow him.
“It fits a broader pattern, in the sense that the government’s response to surges in opposition activity tends to be the deepening of the revolution,” said Phil Gunson, a Venezuela- based analyst for the International Crisis Group, using the government’s term for its socialist makeover of Venezuelan society. “There are those at the top, including Maduro himself, who appear genuinely to believe that this is a revolution and the ultimate goal is the replacement of the capitalist economy with one that is entirely state-run.”
On Wednesday, a Venezuelan court in the western state of Zulia ordered the American company’s assets frozen and its property seized, deciding against GM in a suit filed by a former GM dealer in 2000, according to Venezuelan news accounts. Why the court issued the ruling 16 years later, at the peak of anti-Maduro protests, was unclear.
The automaker said the judicial order was “arbitrary” and “in total disregard of [GM’s] right to due process, causing irreparable damage to the company.”
Hundreds of workers desperate for information about their jobs gathered at the plant Thursday to meet with government and military officials as well as representatives of the dealership that filed the lawsuit.
In Washington, the State Department said in a statement that it was reviewing details of the factory seizure and called on Venezuelan authorities to resolve the case “rapidly and transparently.” The statement said a fair judicial system is critical to economic overhauls that would restore growth, but it made no mention of any action the U.S. government might take.
Auto manufacturing virtually has come to a halt in Venezuela in a broader economic collapse under Maduro. The economy contracted by an estimated 18 percent last year, as the country faced one of the world’s highest inflation rates and suffered widespread shortages of food and medicine.
Once one of Latin America’s wealthiest nations, the oil- rich country has witnessed a broad, painful withering of industrial activity.
Protests against Maduro continued Thursday. Police fired tear gas at demonstrators, and the crowds appeared to be smaller than during Wednesday’s marches.
In its statement denouncing the takeover of its factory, GM said it has operated in Venezuela since 1948. The Detroit automaker explained that vehicles and other property were “illegally taken from its facilities.”
Production at the GM plant in Valencia had nearly stopped because of government import restrictions and shortages of raw materials. Union leaders at the plant said in February that GM had not assembled any new vehicles in Venezuela since 2015 and that it was limiting production to replacement parts.
Other foreign companies have been targeted by the Venezuelan government.
Last year, authorities seized a plant owned by U.S.based multinational KimberlyClark, renaming it after a 16th- century indigenous leader who rebelled against Spanish colonial rule. But diapers, sanitary napkins and other health products manufactured at the plant remain scarce in Venezuela because of acute shortages of raw materials.
In recent years, Bridgestone, General Mills, Procter & Gamble, Ford Motor Co. and other multinational corporations have scaled back operations in Venezuela. Ford suspended operations at its Valencia plant in December because of slumping sales. Toyota said its lone factory in Cumana, Venezuela, continues to operate normally.
GM’s Venezuelan operations have been a drag on earnings for several years. In the second quarter of 2015, the company took a $720 million charge for currency devaluation and asset valuation write-downs as the economy faltered.
South American operations, which include Venezuela, account for about 6 percent of GM’s total sales. Last year, GM lost $400 million before taxes in South America, but overall it made a pretax profit of $12.5 billion.
GM shares rose 31 cents to close at $34.10.