Great moments in economics, motor vehicle division

GM Inside News reports:

General Motors has announced the leftist-led Venezuelan authorities have illegally seized its manufacturing plant and industrial hub in Valencia, reports Reuters.

The country of Venezuela, which remains in a deep economic crisis, did not respond to a request for comment on the situation when forwarded to the information ministry.

“Yesterday, GMV’s (General Motors Venezolana) plant was unexpectedly taken by the public authorities, preventing normal operations. In addition, other assets of the company, such as vehicles, have been illegally taken from its facilities,” the company said in a statement.

GM vowed to “take all legal actions” to defend its rights after the seizing halted operations in the country. GM estimates irreversible damage to take place and fears the worst for its 2,678 workers, 79 dealers and local suppliers.

The Venezuelan government isn’t a stranger to temporary taking things over. In 2014, the government seized two plants belonging to U.S. cleaning products maker Clorox Co which had left the country.

Many plants in the country are barely producing much of anything at all, thanks to dwindling raw materials and currency controls. In 2015, Ford wrote off its entire investment in the country by taking an $800 million pre-tax write-down.

If I were GM management I wouldn’t be holding my breath about those “legal actions.” I once erred on Wisconsin Public Radio when I mentioned that Hugo Chavez was president of Venezuela after he had died. Of course, the only discernible difference between Chavezuela and post-Chavez Venezuela is that the latter’s president is still breathing air.

GMI’s update:

Earlier, Venezuelan sources had reported the seizure stemmed from a 17-year-old lawsuit with a dealer group in Maracaibo, but it turns out the situation is much worse than first thought.

Enrique Tahan, head of corporate and government relations for General Motors in Venezuela, told the New York Times that the plant has effectively been occupied for the last 42 days after being taken over by one of the company’s unions.

GM did ask the government for help reclaiming the facility, but instead, in a stunning show of socialism, the government took over the Valencian plant for itself.

“In other words, we are twice out of control of our plant,” Mr. Tahan told The Grey Lady. Members of the union were still able to enter the plant after the takeover, but the government was still barring GMV’s managers from setting foot inside. …

This isn’t the first, nor the last time the Venezuelan government will take someone else’s stuff, since 1998 it has expropriated more than 1,400 private businesses.

Part of GM’s problem, according to CNN, is that it didn’t bail out of Venezuela fast enough:

A slew of global firms have pulled out of the country or been forced to halt operations as a result of government interference or moves to put key sectors of the economy under state control.

ExxonMobil (XOM) pulled the plug on its operations in Venezuela in 2007 after former President Hugo Chavez attempted to nationalize one of its projects. The oil producer then took the government to court.

In 2016, Kleenex maker Kimberly-Clark (KMB) suspended its operations in Venezuela, citing the country’s “rapidly escalating inflation” and the “continued deterioration of economic and business conditions.”

The government called the closure illegal. It took over operations at the facility days later, according to state-run media.

Coca-Cola (KO) was also forced to halt production of Coke and other sugar-sweetened beverages last year due to a sugar shortage.

The irony of Government Motors, bailed out by this country’s government (when it should not have been) almost a decade ago (losing the taxpayers $10.5 billion in the process), having its assets seized by another country’s government is certainly rich. Between GM’s illegal bailout (and associated unconscionable Cash for Clunkers) and its failure to figure out it needed to leave (even though GM had been in the country for seven decades because it wanted to sell cars in South America), I can’t say I have much sympathy for GM, though there is no case where nationalizing an industry is an appropriate government activity.

Jazz Shaw adds:

If nothing else, this incident will provide an enlightening, educational moment for the rest of the world. It’s a given that this is bad news for General Motors, for the workers there… let’s just say it. This is bad news for everyone except Maduro and his cronies. But it also serves to further pull away the mask, allowing the rest of the world to see what’s actually going on. So gather around, kids, because we’re not only seeing how socialism ends (and it always ends this way) but also how the socialist machinery operates through the various phases of its life cycle.

Originally, the government tolerates the presence of foreign manufacturing entities such as General Motors to fill needs they have which can’t be handled domestically. (GM has been there for roughly seven decades.) It’s not that the Venezuelan people are incapable of innovation or creation… there’s simply no motivation for them to strive for success. Anything they create simply becomes the property of the state anyway, so the hard working, innovative person doesn’t realize much more success than the guy who can barely keep his eyes open to show up for his job sweeping the sidewalk. There’s no point to being particularly innovative.

So companies such as GM are allowed to go to work. But once the system inevitably begins to implode, the tyrant in charge begins looking for new resources to grab. In the name of the socialist concept wherein everything “belongs to the people” he seizes the GM plant. They take the cars which are there to hand out to high ranking party officials and divide up the assets while demanding that the workers get back to producing automobiles. This is, of course, impossible because they don’t have the parts to do it and the people who actually know how to run things are fleeing.

These are the fruits of socialism. It’s a humanitarian disaster to be sure, but it’s also a teachable moment. Watch and learn.

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