Why General Motors Company (NYSE:GM) Intends To Stop Vehicle Production in Venezuela?

General Motors Company (NYSE:GM) intends to stop vehicle production in Venezuela coming July due to prevailing currency-exchange problems. In fact, the automaker commenced laying off workers at plant this week. The foreign-exchange regulations make it tough for the company’s subsidiaries to acquire U.S. Dollars.

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General Motors disclosed its intentions in a quarterly financial filing released in this week. As of now the production continues and no final decision has been made to halt operations. The management continues to talk with the Venezuelan government to look for solutions to exchange currency.

The highlights

General Motors makes the Cruze cars, Orlando, Chevrolet Silverado and Chevrolet Aveo pickup truck at its facility in Valencia. The company already slashed its workforce by as much as 13% at its plants, and the company intends to lay off more workers in the near term. Chrysler, now named as FCA U.S. LLC and an integral part of Fiat Chrysler Automobiles NV (NYSE:FCAU), reduced its workforce by 76.

Even Ford Motor Company (NYSE:F) is looking to get approval from Venezuelan authorities to cut workforce by 267. In such a scenario, it becomes very tough for the workers as it is them who need to pay for a crisis for which they are not responsible.

The devaluation issues

The problem of currency devaluation in Venezuela has been creating problems for U.S. auto makers. The problem was highlighted by Ford as it disclosed to take a big step to eliminate the nation’s operations from its consolidated earnings in the last quarter of FY2014. As per a trade group, the vehicle production in nation declined by 73% in 2014.

It has been more than a decade; the government of Venezuela has maintained stringent foreign-exchange controls. The measures confine access to hard currency, and therefore it is tough for the automakers to pay for imports and reward dividends. All these problems, along with declining crude prices have forced General Motors to consider the closing of operations in Venezuela.

About the Author

Michael joined US Markets Daily in 2009 and is a national news reporter focusing on economic issues, data analysis and the financial health of state and local governments.

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