Ford Motor Company assembly plant in Valencia, Venezuela.
Ford Motor Company announced last week that instead of making money in Latin America this year, it will likely lose $350 million in the region because the government of Venezuela devalued its currency, the bolivar, by 44%. Ford is currently holding more than $700 million in bolivars that it cannot exchange or repatriate. The Venezuelan government is trying to conserve its hard currency reserves and it will not give Ford dollars for bolivars. FoMoCo, which has built vehicles in Venezuela since 1962 and currently operates an assembly plant in Valencia, really doesn't have any options other than to write down the loss. The car company can't very well try to exchange currency on the black market. Other international companies, including Toyota, face similar situations with their operations in Venezuela.
The 44% devaluation in the bolivar is the second this year, following a 32% devaluation in February. Currency controls in place for the last decade have made dollars scarce in Venezuela. Foreign reserves were reported to be at a nine year low this month. With a weak domestic currency and shrinking reserves of hard foreign currencies, companies in Venezuela have had a difficult time arranging imports, resulting in shortages of imported good ranging from meat to tires.
One reason analysts give for Venezuela's currency issues has been growing government deficits. Government revenues from exporting oil have gone down as the country's oil fields experience natural decline. The deficits are exacerbated by the government subsidizing the price of gasoline so consumers only pay about 5 cents per gallon, a subsidy that is reported to be phased out to bring the price up to about $1.60/gallon..
from The Truth About Cars http://www.thetruthaboutcars.com
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