Venezuela’s Socialist Government Seizes GM Plant

Free enterprise on the brink in South American country, as Maduro regime targets U.S. automaker

by Margaret Menge | Updated 24 Apr 2017 at 11:00 AM

Venezuela’s socialist government unexpectedly seized a General Motors plant in Venezuela on Wednesday.

In a statement to the media, GM referred to the taking as an “illegal judicial seizure of its assets,” and said the seizure has forced it to cease operations in Venezuela after almost 70 years.

 The company said it could lose as much as $100 million.

The company is vowing to take action in response to the seizure, and is also vowing to return and regain its status as the country’s No. 1 automaker.

“GMV strongly rejects the arbitrary measures taken by the authorities and will vigorously take all legal actions, within and outside of Venezuela, to defend its rights,” GM said in the statement. “The company is confident that justice will eventually be served, and looks forward to continue leading the Venezuelan market.”

The General Motors subsidiary in Venezuela, called General Motors Venezolana (GMV), is the oldest carmaker in the country and has a total of 2,678 employees and 79 dealerships. It was established in 1948 and until recently produced cars in Valencia, a city of almost 2 million.

A spokesman for GMV told The New York Times that the plant had been shut down for more than a month after being taken over by members of one of its unions. The spokesman said GM had asked the government to help it take back the plant, but that the government had instead taken over the factory itself – and that union members were allowed in, but not GM managers.

Newspapers in Venezuela reported that the seizure stemmed from a lawsuit that had been filed against GM several years ago by a landowner in the city of Maracaibo.

In its statement to the media, General Motors said only that the Valencia plant, “was unexpectedly taken by the public authorities, preventing normal operations.”

The seizure came on the same day as violent, anti-government protests throughout the country.

The protests have followed months of disputes between the opposition-controlled legislature, called the National Assembly, and the Supreme Court, which is accused of being on the side of President Nicolás Maduro, the socialist who succeeded the late former president, Hugo Chavez.

The opposition coalition has been pushing for a referendum on Maduro to be held, but the Supreme Court and the federal election commission have blocked the coalition’s efforts. Maduro’s government, meanwhile, just barred Henrique Capriles, the two-time presidential candidate, from ever holding public office.

The violent protests have also followed many months of worsening economic conditions, caused in part by a drop in oil prices.

Venezuela is the 11th-largest oil producer in the world and has the largest proven oil reserves in the world.

In July of 2016 Citibank abruptly closed all accounts and left the Venezuela, and in November of 2016, J.P. Morgan reported that Venezuela’s state-run oil company missed a debt payment, though it was reported later that in fact it had not, leading Maduro to accuse American banks of waging an “economic war” on Venezuela in an attempt to destabilize the socialist nation.

“Knowing the way the CIA operates, there’s probably an element of truth in that,” said Steve Hanke, a professor of applied economics at Johns Hopkins University, “but it’s essentially irrelevant. The problems in Venezuela are homegrown.”

Venezuela’s state-run oil company, Petróleos de Venezuela, S.A., is operating at a loss, and the country now has the highest inflation rate in the world — 150 percent.

In testimony before the House Foreign Affairs Committee on March 28 on Venezuela’s economic collapse, Hanke said: “Inflation must be stopped before stability can be established. Stability might not be everything, but everything is nothing without stability.”

Hanke told LifeZette, however, that the end may not yet be in sight for Maduro’s government.

“These things can drag on for many years, actually,” he said, pointing to Zimbabwe, where President Robert Mugabe has been in power since 1987, and to the former Yugoslavia, where inflation was 313 million percent a month in 1994, but Slobodan Milosevic maintained power until 1997.

In its annual report filed in February, GM had said it was monitoring political developments in Venezuela to assess whether changes would mean it could no longer control its subsidiaries there, and that if it couldn’t, the company could lose as much as $100 million.

The U.S. government bailed out General Motors in 2008 to the tune of $50 billion. It recouped part of this money after it became part owner of GM after the company’s 2009 bankruptcy, but when all was said and done, it was determined that the government had lost $11.2 billion.

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