GM Claims Venezuela Illegally Seized Its Factory, Ends Operations in the Country

Matt Posky
by Matt Posky
gm claims venezuela illegally seized its factory ends operations in the country

If your news diet occasionally strays outside of the automotive realm, then you know that Venezuela is going through a “transitional phase.” The country’s economy is experiencing uncontrollable inflation, unemployment is around 25 percent, food is scarce, and public health services have become nonexistent. There is also more political turmoil than any single country could possibly handle. Venezuela’s capital of Caracas is now a hotbed of increasingly violent protests, as critics of President Nicolas Maduro are met with heavily armed security forces.

The opposition blames Maduro and the Supreme Court for turning the country in to a dictatorship after dissolving the National Assembly’s ability to govern. There are also claims that the leftist government is overstepping its bounds when it comes to property rights.

While you wouldn’t expect an automaker to weigh in on the matter, General Motors is accusing Venezuelan authorities of the illegal seizure of a plant in the industrial center of Valencia and has vowed to “take all legal actions” necessary to defend its rights. It’s also ceasing operations within the country.

“Yesterday, GMV’s (General Motors Venezolana) plant was unexpectedly taken by the public authorities, preventing normal operations. In addition, other assets of the company, such as vehicles, have been illegally taken from its facilities,” the company said in a statement.

According to El Carabobeno, the action was taken as part of a lawsuit against General Motors Venezolana filed 17 years ago, after the country nullified contracts with Chevrolet dealers in the city of Maracaibo due to insufficient performance. The plaintiffs requested compensation equivalent to 4.8 billion dollars, a number which GM said would cripple its Venezuelan operations permanently. However, the factory in question has been indefinitely idled since 2016 after suffering repeated material shortages for over two years.

GM blamed the plant’s troubles on the country’s failing infrastructure and stated that the amount of money requested “exceeds all logic.” It had also previously rejected the adoption of a system that permitted it to sell vehicles with mixed payments in U.S. dollars and local currency after witnessing Toyota and Ford struggling under the plan. Meanwhile, GM has continuously lowered its expectations in South America and scaled back its involvement.

The recent seizure in Venezuela has forced an “immediate cessation of its operations in the country.” In its official statement, GM accused local officials of causing “irreparable damage” to the company, its 2,678 workers, and 79 dealers inside the country. GM said it would pay separation benefits “as far as the authorities permit.”Arndt Ellinghorst, an automotive analyst for Evercore ISI, suggests that the overall impact on GM’s finances may be minimal, as the company didn’t expect to sell many cars there this year.

As for the legality of the issue, article 112 and 115 of the Constitution of the Bolivarian Republic of Venezuela state that “all persons may freely engage in an economic activity of their choice” and that “the right of ownership is guaranteed.” However, there are exceptions. When supported by a court judgement, companies or persons that have committed crimes against public property, enriched themselves illicitly, or engaged in criminal behavior (such as drug trafficking) are still subject to confiscation. And the interpretation of the law broadened following former president Hugo Chávez’s re-election in December 2006 — especially toward North American business interests.

[Image: Michael Kumm/ Flickr ( CC BY 2.0)]

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  • Jeff S Jeff S on Apr 21, 2017

    @chuckrs--Yes Venezuela does have lots of crude, but not all crude is the same. There are different grades of crude depending on the sulfur content. Venezuela has high sulfur crude better known as heavy crude. Few countries and few refineries can refine high sulfur crude. The US and China are among the few that can refine the heavy crude which produces less refined product. At best heavy crude is worth about half of what sweet lower sulfur intermediate crude. Not making any excuses for the dictatorship in Venezuela. China has been making alliances and trade deals with South American countries for their resources and China has become the largest trading partner with these countries. GM will write this seized plant off on their taxes. @Lou_BC--True US policy didn't help South America, if anything it lead to the existing dictatorships in South America. US reputation was not helped when the CIA aided in the removal of a freely elected leader.

  • I_Deal_with_Facts I_Deal_with_Facts on Apr 21, 2017

    @Lou_BC There are still no facts that Trump is buddies with Putin, let alone that there was any Russian involvement in the elections.

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