By on December 30, 2013
Ford Motor Company assembly plant in Valencia, Venezuela.

Ford Motor Company assembly plant in Valencia, Venezuela.

Ford Motor Company announced last week that instead of making money in Latin America this year, it will likely lose $350 million in the region because the government of Venezuela devalued its currency, the bolivar, by 44%. Ford is currently holding more than $700 million in bolivars that it cannot exchange or repatriate. The Venezuelan government is trying to conserve its hard currency reserves and it will not give Ford dollars for bolivars. FoMoCo, which has built vehicles in Venezuela since 1962 and currently operates an assembly plant in Valencia, really doesn’t have any options other than to write down the loss. The car company can’t very well try to exchange currency on the black market. Other international companies, including Toyota, face similar situations with their operations in Venezuela.

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The 44% devaluation in the bolivar is the second this year, following a 32% devaluation in February. Currency controls in place for the last decade have made dollars scarce in Venezuela. Foreign reserves were reported to be at a nine year low this month. With a weak domestic currency and shrinking reserves of hard foreign currencies, companies in Venezuela have had a difficult time arranging imports, resulting in shortages of imported good ranging from meat to tires.

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One reason analysts give for Venezuela’s currency issues has been growing government deficits. Government revenues from exporting oil have gone down as the country’s oil fields experience natural decline. The deficits are exacerbated by the government subsidizing the price of gasoline so consumers only pay about 5 cents per gallon, a subsidy that is reported to be phased out to bring the price up to about $1.60/gallon..

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53 Comments on “Ford’s Profits in Latin America Wiped Out as Venezuela Devalues Currency by 44%...”


  • avatar

    I’ve read elsewhere that the government has been milking the nationalized oil company for cash, and when employees complained about insufficient investment they were overruled and often replaced. So they have underinvested in their oil company and let go some of their most capable people and as a result it has become less capable of producing oil.

    Seems pretty straightforward to me.

    D

  • avatar
    bfisch81

    sounds like the revolucion is chugging along nicely! what a shame. if I was Ford or another car manufacturer, I’d consider just pulling up stakes and moving to a country less likely to descend into anarchy. if they can close down plants in the US then why not there?

  • avatar
    morbo

    At least that plant (if it isn’t burned to the ground) will make a good base of operations in 10 years after the coming civil war / anarchy. Till then, it’s a complete loss unless Ford can produce local, bolivar-paid suppliers.

  • avatar
    Lorenzo

    Here’s another case of an oil-rich, mostly first-world country turned into a third-world country by Marxism. The performance never matches the slogans, but it takes awhile for people to notice the slogans are empty words and those speaking them are power-hungry incompetents.

    • 0 avatar
      RobertRyan

      No , it was just as bad under the ruling families as it is now. Venezuela is a bit of a basket case. Ford is going to add this to the increasing losses they have had this year.

    • 0 avatar
      Athos Nobile

      Venezuela has never been a 1st World country.

    • 0 avatar
      FreedMike

      Venezuela has never been a first world country…not by any stretch of the imagination. And, yes, Marxism doesn’t work. Neither does pure capitalism. Both are hopelessly utopian.

      Either way, Venezuela is NOT a purely Marxist country – not by a long shot. No such country has ever existed, and unless we have some kind of “Star Trek” style technological revolution in which all raw materials enjoy unlimited availability, no such country will ever exist. As far as unlimited capitalism is concerned, it won’t work either. Our country came as close as any has come to that, probably about 130 years ago, and the result was a system in which poor peoples’ lives weren’t worth a plug nickel. We rejected that a long time ago.

      In any case, Venezuelans voted themselves their government, so it’s their problem. It’s their country.

  • avatar
    SCE to AUX

    Time to bail, Ford.

    This latest exercise in Marxism will play out quickly, as Venezuelans will find shortages of everything very soon.

    • 0 avatar
      marjanmm

      How is this different to the American banks causing the financial crises thus depriving the auto companies of market thus removing their profits/revenue? Extreme capitalist experiments, Marxist experiments, all the same to me.

      • 0 avatar
        CJinSD

        Capitalism is a synonym for freedom, used by its enemies to disguise their ambitions.

        • 0 avatar
          LALoser

          In socialism, man takes advantage of man…with capitalism, it is the other way ’round.

          • 0 avatar
            thelaine

            You are a fool

          • 0 avatar

            @LALoser

            LOL. Capitalism = socialism…. I chuckle so hard that I’m about to cry.

          • 0 avatar
            CJinSD

            There are good reasons he didn’t feel compelled to call himself LAWinner.

          • 0 avatar
            RobertRyan

            I suppose you argue about the definitions Socialism/ Capitalism. Socialism is : Welfarism?, another name for Communism; Government regulatory environment and Industry protection; bailing out Bankrupt companies?

            Capitalism is: Freedom for the market to regulate all economic choices; Certain large companies dominate the market;. Fascism;, Latin America/Africa/Asia the “few” own most of the wealth, the majority very little; failed companies are allowed to die.

            As far as Ford is concerned it will take a bath in Venezula no matter what Government runs the Country.

          • 0 avatar
            LALoser

            To the three Musketeers… We are all a product of our experiences, and mine have taken me to several countries that are both socialist and capitalist without much government interference. What I saw in socialist settings was a few at the top, and the majority at a lower economic scale. These countries have social unrest just below the surface, very high crime with higher education beyond reach for most. The market for everything from FX to food staples are directed by the very few.
            In extreme capitalism, different methods are employed, but the result is very close to the same.
            Now the US: Our market is far from socialist, but distortions exist. Created by taxes implemented to tax breaks. Unions, futures markets, etc all create pricing structures out of most peoples control. Also a unique-esque in the US is the cozy..very cosy..Business/government relationship. It ranges from banks and the credit-reporting companies to government contractors deep into military operations and security. This, and other grey government/business is tightening the loop where a very few control the flow of money and information. Every form of government heads down the road of a few in charge, sometimes it takes longer, sometimes not.

          • 0 avatar
            RobertRyan

            @LA Loser
            “We are all a product of our experiences, and mine have taken me to several countries that are both socialist and capitalist WITHOUT MUCH GOVERNMENT INTERFERENCE”.

            Now a “Socialist”Government that does not interfere in Economic activity is not Socialist.

            What “Socialist” Governments did you see? Colorado?

          • 0 avatar
            LALoser

            RobertR: Sorry, I did not make myself clear: I have lived and worked in countries that are socialist, and I have worked in other countries that are way capitalist without govt interference. I have a seven year old demanding my attention while typing. Crawling on me actually.

          • 0 avatar
            RobertRyan

            LA Loser,
            “RobertR: Sorry, I did not make myself clear: I have lived and worked in countries that are socialist, and I have worked in other countries that are way capitalist without govt interference”

            OK not a problem. My comment about Colorado that a lot of people call sarcastically “A Socialist Republic”, what countries were they and why were they “capitalist”or “socialist”, as regards those tags having very different meanings depending on the context.

          • 0 avatar
            FreedMike

            I think what he was trying to say that people get screwed in both systems.

        • 0 avatar
          LALoser

          Without details because of clients sensitivities…Not all, but some countries: Myanmar, Communist China, North Korea…paradise there buddy…India, PI,SA right after apartheid fell, and again years later. Nepal..not the end of the earth, but you can see it from there. One thing I can say: I had a sizeable part in new embassies from Afghanistan thru parts of Africa. They were separate from other projects. In all 42 countries.

          • 0 avatar
            RobertRyan

            @LaLoser,
            They are not really typical “capitalist” or “Socialist”
            Failed States, Agarian economies, Dictatorships.Some Capitalistic and Socialist tendencies in a few

        • 0 avatar
          LALoser

          FreedMike: You got it.

      • 0 avatar
        SCE to AUX

        @marjanmm: The 2009 US crisis was not an ‘extreme capitalist experiment’, but rather the perfect storm of government meddling, bank capitulation and foolishness/graft, a delicate housing market, and weak US car mfrs. Problems aplenty, but nothing like Venezuela.

        • 0 avatar
          FreedMike

          You are so wrong…the financial crisis did NOT happen because of overregulation. How anyone can come to that conclusion is beyond me.

          No one says that overregulation is the key to a successful economy…or that under-regulation is any better.

          • 0 avatar
            SCE to AUX

            I didn’t use the word ‘regulation’, but I did say ‘meddling’.

            Specifically, I was thinking of the Clinton-era loosening of borrowing rules which forced banks to loan money to anyone with a heartbeat. What followed was the inevitable default on millions of home/car loans.

  • avatar
    Dimwit

    But if Ford tries to bail, I can see the gov’t nationalizing the plant. The worst of all worlds, no plant, no money but lots of competition when you try to re enter the market once the dust settles and you’re going against yourself.
    Ford does seem to take the long view in most things and I wager that they’ll keep going and try to wait out this setback. This announcement probably has SEC regs in mind for accounting purposes.

    • 0 avatar
      bfisch81

      Let’s say that Ford bails and Uncle Maduro takes over – and some years later the dust settles, capitalism is back, do you think that the People’s Car Factory will be able to produce anything competitive with what western manufacturers are doing at that time? They will have to gut the place and start over again.

      Ford (and others) are really stuck between a rock and a hard place. It may be time for some really cold calculations on the cost of keeping the plant modern and building a new plant when this madness ends. Sadly they’ve invested heavily in this country before this madness.

      Further, Uncle Maduro could totally just take the plant *now* – nothing is really stopping him. In a country without the rule of law run solely on the whims of a pseudo-marxist dictator who can only stay in power through subsidizing bread for the mob, is this really where you want to continue to invest your money?

    • 0 avatar
      bunkie

      What would they produce in the nationalized plant? Not what’s currently produced once they run out of the first critical-path part. In actuality they would produce absolutely nothing because they wouldn’t be able to afford to retool to build something else.

      Ford’s best-case scenario would be to end or radically reduce domestic sales (which would actually happen naturally) and to export as much product as possible. Pay workers and local suppliers in Bolivars and sell nothing that can’t be booked against hard currencies. This would actually be in Venezuela’s best interests as well and I wouldn’t be surprised if it actually happens. It also gives Ford some leverage as they could pay taxes in Bolivars instead of dollars or euros. Unfortunately, this offloads the burden onto the workers and local suppliers but, hey, that’s business, even in a Marxist-leaning state.

      It’s easy to nationalize a bank or a natural-resource, not so easy with a complex product that depends heavily on imported content as it’s too easy to kill the golden goose.

      • 0 avatar
        mik101

        If I could vote this up, I would.

      • 0 avatar
        Dimwit

        The problem is that a lot of the suppliers are around the assembly plant for efficiency. The most likely foreign supplier probably would be in Brazil. If V nationalized the whole industry I could see them being able to make cars for a while. Same models, there’s no way that they could or would redesign them but they could still have a semi industry for a while.
        Ford has been down this path before. I’m sure they have a policy to deal with this. That’s the difference between the domestics. Ford, through the family, keeps its institutional knowledge.

      • 0 avatar
        Athos Nobile

        “Ford’s best-case scenario would be to end or radically reduce domestic sales (which would actually happen naturally) and to export as much product as possible.”

        Nope, they are required to sell the currency from the exports to CADIVI. They did have an export program (Explorers to Colombia) and that ended shortly after 2002.

  • avatar
    Big Al from Oz

    Ford moves out and a Chinese manufacturer moves in. Simple.

    ……………………………………………………………..

    While the Chinese community has existed here for decades, the presence of Chinese companies is increasing and being felt in several sectors of the economy: housing, agriculture, industry. The relationship serves China’s commercial interests.

    ……………………………………………………………..

    China 15 years ago only had a 200billion dollar economy, now 10 trillion. It want to expand its influence.

    Venezuela is now China’s largest recipient of Chinese investment. Oil is probably the main driver.

    Why not have another corporation create infrastructure, force them to become cash strapped, then walk in.

    Chavez is a banana, and is on par with many wacko leaders of recent history.

    • 0 avatar
      Big Al from Oz

      Venezuela is China’s largest recipient of LATIN AMERICAN investment. Sorry.

    • 0 avatar
      bball40dtw

      Chavez was a banana. Now he’s banana fertilizer.

      I will say that while stationed in Columbia and other parts of South America, I was suprised by the Chinese presence in Latin America.

    • 0 avatar
      Dimwit

      Why should China trust V? This is the problem with relationships. Once the trust is gone it’s not so easy. Ask any adulterer.

      • 0 avatar
        Dan

        Because Venezuela is very much the junior partner and only self loathing western liberals would let a junior partner get away with destroying billions of dollars of their interests. China doesn’t have that problem.

    • 0 avatar
      Athos Nobile

      “Ford moves out and a Chinese manufacturer moves in. Simple.”

      Spot on BAFO.

      Actually, lets suppose the government “nationalizes” the factory (an euphemism for downright confiscation/steal). It may produce whatever remaining cars are there as CKD, then if the government is swift or smart (it’s none) it would be handed to the Chinese.

      In your analysis you’re forgetting that the Chinese (and the Russians) have Venezuela grabbed by the balls: they are their biggest lenders, to the point the gold reserves were “deposited” in those two places for whatever BS anti-capitalist rhetoric. Join the rest of the dots yourself.

      And Chavez has been dead since around a year already. Probably Dec 2012 or early this year, depending to whom you want to believe.

  • avatar
    jimbob457

    Ah Communism! Your story brings back so many memories of the bad old days before the fall. Today, there are only a few ideological Marxist regimes left in the world, but their philosophy remains intact. Taking money or property from Capitalists is not stealing. It is not only morally OK, it is morally virtuous. Viva Karl Marx! Viva Lenin! Viva Fidel! Viva Hugo!

    How clumsy of Ford to allow itself to get swindled by one of the oldest ruses in the world.

    • 0 avatar
      FreedMike

      If they’re selling Fords in Venezuela for profit, it’s not a remotely Marxist or communist country. People don’t make profits under a Marxist system. In theory, everyone shares the work and rewards equally.

      The problem that Marxism doesn’t address is scarcity. The idea that everyone shares equally assumes that there’s enough to share for everyone. Inevitably, there isn’t, so you just end up with commisars instead of oligarchs in charge.

  • avatar
    Athos Nobile

    The problem of repatriating the profits has been there almost since CADIVI and the currency control were started in 2002. It has been better or worse depending on the $$$ availability.

    Currently the official rate is Bs6.3/$1, up from Bs4.3/$1. And the black market rate is hovering around (hold to your seats) Bs60/$1. There’s another market that is bond based (with CADIVI like restrictions) that is around Bs12/$1. In any scenario, there’s a shitload of money to be lost.

    It’s a lesson I have learned firsthand. And f@#$%& painful at that.

  • avatar
    JD321

    Communism/Marxism? Naaahh… Only North Korea.

    They are just violent tribal monkeys looting all that they can in this post-tribal (post-collectivism) Internet connected world before their dumb tax livestock wake up and put an end to it. The tribal monkeys that call themselves “Liberals” in the USA are doing the same as well. These belligerent and stupid tribal monkeys don’t want freedom…They want “stuff for free” from everyone else. They even sound like screeching monkeys when you even mention the words Capitalism, Individualism, and Freedom (If you really want them to scream like little parasitic brats…Mention Ayn Rand).

    The collectivist monkeys should stick to Fascism and just steal profits from the capitalist’s business instead of stealing the business and trying to run a productive enterprise. It just shows how stupid and arrogant those monkeys really are.

  • avatar
    FreedMike

    Ford’s leverage here is pretty simple: paychecks. Last I checked, Venezuela is in the sh*tter economically, and they can’t afford to lose major employers.

    No profits, and we pull out, leaving a bunch of unemployed folks to throw rocks.

    • 0 avatar
      RobertRyan

      I think Ford will go to where they can maximize their profit.I can see them leaving, better opportunities in SE Asia, but Latin America is more familiar with Ford’s products.

  • avatar
    jimbob457

    Ideological Marxism provides a moral justification for stealing the rich foreigners’ (or even the local rich people’s) stuff. Such thieves, often driven simply by greed, are always around and use this cursed secular religion to excuse their actions and square themselves with their fellow countrymen. You don’t need an entrenched Communist regime to do it. I once got nailed in Trinidad & Tobago.

    A certain amount of prudence is imo. always advised. Even a thriving place like China is full of unreconstructed ideological Marxists. Chairman Deng’s cat has, is and will continue to catch a whole lotta mice, but all booms (even this one) eventually come to an end. When that day arrives, you need to be properly positioned.

  • avatar
    Lorenzo

    Venezuela is not all of Latin America. It isn’t even close to the largest country in Latin America, or even just South America. The big problem countries in South America are Venezuela and Argentina, two countries that have a long history of repeatedly squandering their national wealth and that of their citizens.

    Economic and political stability is hard, and though others in the region have had their problems, those two are the worst offenders, and represent risks that are excessive, though Peru and Bolivia are getting close. Ford would be better off getting out of Venezuela and spreading its investment primarily to Brazil, Colombia and Chile, countries with reasonable stability and markets representing two-thirds of South America’s population.

  • avatar
    WildcatMatt

    Communism was just a red herring.


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