GM Write Down On Currency Weakness
US-based General Motors Company (GM) is to take a charge of some USD400mn from its operations in Venezuela on the back of changes in how it values the currency. BMI is increasingly bearish on the Venezuelan autos industry, and we expect companies operating in the sector to sustain large losses on the back of ongoing weakness in the currency, declining sales volumes, and deterioration in the business environment.
In December 2013, the government introduced the Sicad 1 rate as a supplementary source of foreign exchange for certain industries, in what BMI maintains was essentially an unofficial devaluation ( see 'Mounting Pressures To Spur Bolívar Devaluation', February 5). The official rate is reserved for goods deemed by the government as 'essential'. GM is now using the Sicad 1 rate (which currently stands at VEF10.7/USD), compared with the official exchange rate (which stands at VEF6.3/USD). This weaker currency will reduce the profits in USD terms the company can repatriate, and also raises the price (in local currency terms) of imported parts.
Similarly, US carmaker Ford Motor recently announced that it is to take a charge of some USD350mn from its operations in Venezuela on the back of these currency changes ( see 'Currency Weakness To Add To Ford's Woes', April 2).