By Mike Spector
General Motors Co.'s financial hit caused by its exposure to the
Venezuelan currency will grow to $1 billion in the first half of
the year, deepening the troubles stemming from dismal industry
conditions in South America.
The Detroit auto maker on Thursday said it would take a roughly
$600 million pretax charge in the second quarter after changing the
way it approaches the exchange rate on Venezuelan currency. This
follows a $400 million devaluation taken in the first quarter
related to the bolivar.
GM will move to a system that values Venezuelan currency at 200
bolivars to one U.S. dollar, a shift from the previous approach of
12 to 1, according to a regulatory filing. Thomas Timko, GM's vice
president, controller and chief accounting officer, outlined the
changes during a presentation to analysts about the auto maker's
financial reporting practices, the regulatory filing said.
While the charge isn't expected to affect operating results in
Venezuela or South America more broadly, it is the latest
indication of turbulence in a region that has been troublesome and
comes after currency headwinds dented the company's first quarter
revenue by $1.7 billion and decreased operating margin by $300
million. GM added in the regulatory filing that the charge isn't
expected to affect adjusted free cash flows this year.
GM shares closed down 1.31% at $34.70 on Thursday on the New
York Stock Exchange. Venezuela has been a drag on several auto
makers, including Ford Motor Co., as low oil prices and currency
controls have crimped the economy.
Ford took an $800 million pretax charge in the fourth quarter to
remove its Venezuelan operation from its consolidated financial
results, part of $1 billion in total impact against Ford for
2014.
GM lost $214 million during the first quarter in South America,
as revenue slipped 30.8%, to $2.1 billion. GM has warned it expects
to halt vehicle production in Venezuela in July amid
currency-related difficulties. It builds Silverado pickup trucks
and a few car models at a factory in Valencia.
In its first-quarter filing with the Securities and Exchange
Commission, GM also warned it may be affected in its ability to
fully benefit from and maintain its controlling financial interest
in Venezuelan operations. It said that no longer being able to
maintain controlling financial interest could result in a charge of
up to $800 million, based on the April exchange rates.
Venezuela isn't the only place in the world where economic and
currency headwinds hurt GM.
In March, the auto maker took the drastic step of shuttering
most of its Russian operation. While the weak ruble played a role,
wider political uncertainty and economic turmoil led the world's
No. 3 auto maker in terms of sales to throw in the towel on a
Russian car market once believed to hold significant potential.
GM recorded a $428 million charge related to the Russia move.
Once clear of those operations, GM believes it will be more likely
to achieve a 2016 profit target for European operations, which have
been in the red since 1999.
Write to Mike Spector at mike.spector@wsj.com
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