DETROIT—General Motors became the latest corporation to have a factory or other asset seized by the government of Venezuela, and the Detroit automaker faces an uphill battle to recover any damages.
GM said April 20 that its only factory in Venezuela was confiscated a day earlier, as anti-government protesters clashed with authorities in a country that is roiled by economic troubles. GM said assets such as vehicles were taken from the plant, causing the company irreparable damage.
The seizure is the latest in a long string of government confiscations of factories and other assets that have been a staple of the so-called 21st century socialist revolution in Venezuela started by the late Hugo Chavez two decades ago. Venezuela is currently fighting claims of illegal asset seizures at a World Bank-sponsored arbitration panel from more than 25 companies.
GM vowed to defend itself legally but getting compensated could be difficult. Under 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 damages for its lost plant in several different 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 successfully pursued claims against Venezuela’s government before a United Nations panel.
The Venezuelan government had no comment about the GM factory.
Auto production in Venezuela has nearly ground to a halt amid the country’s economic collapse. The cash-strapped government has choked off car companies’ access to dollars needed to import parts and repatriate profits. GM’s factory in the industrial city of Valencia did not produce a single vehicle last year. Nationwide, car makers assembled just 2,849 cars in 2016, from a peak of 172,218 in 2007. Still, many car makers have stayed put in case the economy experiences a turnaround.
GM has about 2,700 workers in Venezuela, where it’s been the market leader for over 35 years. It also has 79 dealers that employ 3,900 people.
The factory seizure arose from an almost 20-year-old lawsuit brought by a former GM dealership in western Venezuela. The dealership had been seeking damages from GM of 476 million bolivars—about $665 million at the official exchange rate, but just $115 million on the black market where many Venezuelans are forced to turn to sell their increasingly worthless currency. GM said it was notified this week that a low-level court ordered an embargo of its plant, bank accounts and other assets in the country.
Hundreds of workers desperate for information about their jobs gathered at the plant on Thursday to meet with government and military officials, as well as representatives of the dealership that brought 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 reforms that would restore growth, but it made no mention of any action the U.S. government might take.
In July of last year, the Venezuelan government took control of a factory belonging to Kimberly-Clark Corp. after the U.S. personal care giant said it was no longer possible to manufacture in the crisis-wracked nation due to a lack of materials. President Nicolas Maduro accused Kimberly-Clark of participating in an international plot to damage Venezuela’s economy.
In recent years, Bridgestone, General Mills, Procter & Gamble, Ford Motor Co. and other multinational corporations have also scaled back operations in Venezuela. Ford suspended operations at its Valencia plant in December due to 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 per cent 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.
—Associated Press writers Dee-Ann Durbin in Detroit and Christopher Rugaber in Washington contributed to this report