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GM Leaves Venezuela in Wake of Financial Crisis, Seized Assets

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By William Vogeler, Esq. on April 25, 2017 6:57 AM

Like a tornado sweeping through town, a government can take out a company in a moment that instantly reminds people they are not in control. If any survive, they are left to pick up the pieces and to try to rebuild their lives.

In Venezuela, General Motors employees are dealing with a financial crisis sweeping the country. The government seized the automaker's factory, leaving thousands jobless and wondering about how to pay for their next meal.

The seizure resulted from a decades-old lawsuit, but came to a head because the country is fighting for its political and economic life. Venezuelans are dying in protests over the conditions, and American businesses are also falling victim to the crisis.

It is a reminder to companies doing business abroad that everything can change in an instant.

"Venezuela Is Desperate"

GM announced that it was pulling out of Venezuela after the factory was "unexpectedly taken by the public authorities, preventing normal operation." The government also seized vehicles, and the company said it would take legal action to address the situation.

It is unlikely, however, that Venezuelan courts can do anything for the American company. The economy is in shambles, with inflation up to 445% in February and all auto sales nationwide totaling 293 in March.

"GM is not the first and they're not going to be the last because the government of Venezuela is desperate for any assets they can take," said Peter Quinter, chair of law firm GrayRobinson's Customs and International Trade Law Group. "It really is a vicious cycle they're in."

The Venezuelan government has seized assets belonging to other U.S. companies, including Clorox in 2014 and Kimberly-Clark last year. Coca-Cola suspended operations because of a sugar shortage, and McDonald's stopped selling hamburgers because it couldn't get beef there.

"Test Case for Trump"

Although GM will not likely lose market value from the asset seizure, Venezuela's action will test the resolve of the United States. GM is the largest automaker in the U.S., and the countries' relations are already strained.

"This is a test case for Trump," said Raul Gallegos, an analyst at Control Risks consultancy. "His response to a rogue nation taking over the assets of a brand name U.S. company will be indicative of the road it wants to take with Venezuela."

Meanwhile, other American companies in Venezuela may want to shut down -- like Ford did -- before things get out of control. Otherwise, they will have to pick up the pieces in the United States.

"They can go to the courts here in the United States and try to seek action, but that really is not going to be effective unless the Venezuelan government has some assets here," Quinter said. "I don't see that happening."

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