Venezuela forex curbs stall GM unit output, sales
Reuters, 03.31.03, 12:09 PM ET By Pascal Fletcher
CARACAS, Venezuela, March 31 (Reuters) - General Motors Corp. (nyse: GM - news - people)'s Venezuelan unit, the largest vehicle assembler in the South American country, has temporarily halted production because of tight foreign exchange controls that are squeezing the local car industry, a spokesman said on Monday.
General Motors Venezolana, C.A. suspended work late last week at its plant in Valencia, west of Caracas, and the stoppage would last until April 21 while the company attempted to resolve the problems caused by the currency curbs.
Since President Hugo Chavez's government halted foreign currency trading in January, foreign-owned vehicle assemblers have been unable to import essential parts due to the restrictions and a two-month delay in the allocation of dollars.
"We have really been hurt by this delay," General Motors Venezolana's Marketing and Sales director Peter Friedrich told Reuters. As a result, the company had lost exports for March and April and had suspended investment plans for 2003 until the situation in the Venezuelan market became clearer.
Another important local assembler, Ford Motor de Venezuela, S.A., a unit of Ford Motor Co. (nyse: F - news - people), said it was also concerned about the restrictive currency control environment.
"It's tight," said Ford Venezuela's Public Relations manager Ricardo Tinoco.
Ford's assembly plant, which has scaled back operations to only three days a week, could continue to run through April. But if the government does not release dollars "very, very shortly," Tinoco said Ford might also have to consider alternative measures for the necessary auto parts imports.
The shortage of hard currency only worsens an already bleak sales outlook for Venezuela's vehicle producers following more than a year of political turmoil and a two-month opposition strike that pushed the struggling economy even deeper into recession.
Car sales in January and February totaled 8,212 units, a drop of 77.4 percent from the same period last year.
The Venezuelan Automobile Chamber (CAVENEZ) is predicting a 30 percent decline in sales this year, which plummeted about 41 percent in 2002. Some Caracas car dealers are only selling a handful of cars a month compared to sales of 100-120 units a month in 2001, a year that saw an all-time sales record for the local market of 217,000 units.
NO "LUXURY" IMPORTS
But after 65 days during which not a single dollar was made available for business in Venezuela, the government currency control board Cadivi announced Friday it had started releasing foreign currency for essential imports like food and medicine.
Companies in this oil-dependent economy that relies on imports for 60 percent of its goods and products have been forced to survive on their fast-dwindling inventories.
But vehicle makers complain that the government, in its application of the currency controls, has only posted dollar import authorizations so far for a so-called family car program, covering cheaper vehicles sold at fixed prices.
Dollars for the parts imports for high-priced vehicles have not been authorized, let alone released.
Chavez, a left-wing populist first elected in 1998, has made clear he will use the currency controls to curb what he calls "luxury" consumption, concentrating instead on importing basic necessities for poorer sectors of the population.
But Friedrich said the dollar import restrictions meant General Motors in Venezuela had been unable to export its Chevrolet Trail Blazer and Astra models to markets in Ecuador and Colombia, and this was bad news for the local economy.
"The government hasn't done its homework," Friedrich said.
His company had also experienced bureaucratic problems in formally registering on the list of importers and exporters requiring dollars to conduct business.
Private sector business leaders have pilloried the currency controls as restrictive and unworkable, warning the dollar drought will put many companies out of business and swell Venezuela's jobless rate, which the government estimates at 16 percent. Private economists say the real figure is far higher.
Product shortages could also arise in sensitive areas like food and pharmaceutical sectors, critics of the controls say.
Businessmen and economists have severely questioned the technical ability of the currency board Cadivi, which is headed by retired army officer Edgar Hernandez, a political ally of former paratrooper Chavez who took part with him in a botched coup attempt in 1992.
Opponents of Chavez, still bitter over the failure of the recent strike to dislodge him from office, accuse the president of using the curbs to starve his foes of dollars in a political vendetta.
But in a television broadcast Sunday, Chavez brushed aside the heavy criticism of the currency controls and said the commission administering them was doing a "tremendous job."
"These measures are here to stay," he said.