Final Inspection

Venezuela President Plays With Fire as Auto Sales Plunge

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New-vehicle deliveries tumbled 87% in January and 89.9% in February, marking the lowest level since 2003 when the country was ensnarled in a nationwide strike against Chavez.

South America is never an easy market for global automakers battered by the region’s continuing political and economic instability, with currency fluctuations and high taxes as the main drivers.

While the largest market of Brazil is the usual culprit, followed by Argentina, Venezuela in less than a year has gone from a rocky road to a highway of despair after the death of Socialist President Hugo Chavez last March opened the door for extreme leftist Nicholas Maduro, whose iron fist is polarizing the country.

Economic turmoil resulting from a 50% jump in consumer prices last year, along with escalating inflation and a weakened currency, has alarmed multinational companies doing business in Venezuela, and many are rethinking their 2014 forecast.

Among them are automakers, including General Motors, Ford, Chrysler and Toyota, that saw new-vehicle deliveries tumble 87% in January and 89.9% in February, according to WardsAuto data, marking the lowest level since 2003 when the country was ensnarled in a nationwide strike against Chavez.

In addition to cratering car sales, market-leader GM expects a $400 million pre-tax loss in the first quarter because of the local currency’s ongoing devaluation, which it says in a filing with the U.S. Securities and Exchange Commission is now 10.7 bolivars to the dollar compared with an earlier 6.3.

Ford in its filing says it expects to take a $350 million Q1 pre-tax charge due to currency changes affecting its Venezuelan subsidiary. The automaker first warned in December profits likely would be hurt by the bolivar’s devaluation.

What most of us don’t realize is that Venezuela operates two exchange controls: The official rate is 6.3, but that can only be accessed by companies importing foodstuffs and medicine. It’s 11.3 for other sectors, while the dollar is trading at about 82 on the black market.

However, that’s only part of the problem, as civil unrest continues to roil the country, fanned by protesters demanding political change to end rocketing inflation, up 57.3% in February; shortages of food, medicine and basic goods; and escalating violent crime. Indeed, tens of thousands marched on the capital city of Caracas on Feb. 18.

The government’s response has been brutal, according to The Economist magazine. State secret service officers are firing live rounds, while detainees describe sustained beatings, electric-shock torture and death threats. Scores of journalists have been beaten and detained and their material destroyed.

The government says at least 25 people have died in the turmoil since Feb. 12, the Associated Press reports.

Hardline foes of the Maduro government are demanding he resign. But Maduro claims to be a victim of a “fascist coup plot” financed by the U.S. – ordering the expulsion of three American consular officers in February and in a televised speech in March accusing South Florida politicians of leading the U.S. into an extremist foreign policy against his country for human rights abuse.

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David E. Zoia

As Editorial Director, I oversee much of what goes into WardsAuto.com, enjoying a ringside seat that lets me observe up close just about every facet of the industry worldwide. I have covered the...

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