GM’s judgement day: How two Venezuelan car dealers seized an auto factory

Brian Ellsworth –

Venezuela’s government has seized assets from dozens of foreign corporations in nationalisations by the late president Hugo Chavez and the embattled current government of Nicolas Maduro. The man behind the confiscation of General Motors Co’s $100 million assembly plant in April is a much more obscure figure: Kaled Kansao, the owner of two long-defunct GM dealerships. Kansao convinced a court to seize the plant as the remedy for a relatively small-time business dispute — over GM’s termination of his franchises — that mushroomed into a 17-year court battle.

The legal fight that pushed GM out of Venezuela offers a unique case study in the struggles of foreign corporations to keep operations afloat — much less turn a profit — amid the Opec nation’s economic and political chaos.
The seizure stands out because it stems from a dispute with private citizens rather than the government, highlighting yet another risk of doing business in Venezuela — the spectre of debilitating legal judgements, said Francisco Martinez, President of Venezuela’s main business organisation, Fedecamaras.
“It would be impossible to say that the legal proceedings against General Motors had any legal logic,” Martinez said. “Venezuela does not provide even the most minimal guarantees with respect to investment or private property.”
Venezuela ranked 187 out of 190 countries in the World Bank’s 2017 Ease of Doing Business report, which evaluates countries’ regulatory systems.
Only Eritrea, Libya and Somalia scored worse.
Under Chavez, the socialist firebrand who died in 2013, some asset seizures featured gun-wielding soldiers and live television broadcasts.
The GM case had its own less publicised drama, including duelling allegations of courthouse misdeeds; recusals by judges citing security concerns; a dispute over 158 vehicles that GM says “vanished”; and mysterious damage calculations awarding the dealers thousands of cars.
GM stopped producing vehicles here in 2015 amid a lack of access to supplies.
But the judgement appears to have doused any remaining hopes that it will produce cars again in Venezuela anytime soon.

The company terminated the plant’s 2,700 workers after the decision.
In its initial announcement in April, GM did not connect the plant seizure to the dealers’ lawsuit, saying only that the facility was “unexpectedly” seized by “public authorities.”
In response to inquiries, the company provided a detailed history of its frustrations with the proceedings, which it called “absurd” and rife with “irregularities.”
In the end, a civil court in the western state of Zulia granted the dealers’ request to attach GM assets worth up to about $115 million.
Venezuelan law requires the court to auction off the factory to satisfy the judgement.
In the meantime, it ordered GM to pay the dealers to pay an “occupation fee” that at the time equated to about $36,000 a month — in effect, rent on its own plant.
“The illegal and outrageous seizure was the final act of a series of unfortunate events beyond GMV’s control,” GM said, referring to its Venezuela subsidiary.
GM did not respond to questions about whether it had any intention of paying the court judgements or trying to regain control of the factory.
In a May press statement, Kansao and his business partner, Elena Rodriguez, accused GM of perjury, influence trafficking, and violation of the United States Foreign Corrupt Practices Act, without offering evidence.
GM has ignored court rulings because it believes “might is right as a law,” Kansao said.
Back in 2000, Kansao and Rodriguez operated two GM dealerships that had originally been founded by Kansao’s father.
In an interview, Kansao said GM arbitrarily stripped him of his franchise, which he said brought “tragedy and calamity” on his family.
GM said it terminated the agreement for a range of reasons, including the dealers’ failure to meet a minimum monthly sales average of 25 vehicles.
Nearly two decades later, the dealers’ hopes of collecting on the judgement now hinge on whether a court-ordered auction attracts a buyer — an unlikely prospect in a nation where the auto industry has all but collapsed.
Chronic shortages of hard currency have left automakers unable to import parts, while triple digit inflation has left would-be customers struggling to buy basics like food and medicine.
In 2016, output at Venezuela’s seven biggest auto plants had dropped below 3,000 cars, down from a peak of 172,000 vehicles in 2007 — 79,000 of those from GM, according to auto industry group Cavenez.
Labour laws dictate that the dealers would also have to wait behind GM workers — who contend they are owed severance payments — to collect any proceeds from a factory auction.
The automaker had agreed with union leaders to continue paying workers after the plant stopped making cars, said Adan Tortolero, one of several union leaders at the defunct plant.
GM tried to shed that obligation last year by offering buyouts of about $3,500 per worker, Tortolero said, but workers spurned the offer because it seemed small in comparison to the pay and benefits the workers had previously enjoyed.
One lucrative perk was the right to buy two factory cars every year at government-regulated prices that were well below their actual market value.
The regulated prices were theoretically available to anyone, but because demand for cars far outstripped supply, most buyers had to get waiting lists — which usually required large under-the-table payments.
GM employees had been among the first in line to buy the cars at regulated prices, which allowed them to sell the vehicles at a steep premium. — Reuters