Trouble in Venezuela

Chavez's volatility, threats worry Ford

Devalued currency slashes profits; leader calls for nationalizing foreign plants

Bryce G. Hoffman / The Detroit News

Detroit --Ford Motor Co. is "very concerned" about recent developments in Venezuela -- an important source of profit -- after paratrooper-turned-president Hugo Chavez devalued the currency and threatened to nationalize foreign automobile plants.

On Friday, Chavez increased the exchange rate for the nation's so-called "strong bolivar" currency from 2.15 per dollar to 4.3 per dollar in a bid to strengthen government finances and boost economic growth.

Jim Farley, Ford's global head of marketing, sales and service, told The Detroit News that the move effectively cut his company's profits in the country in half.

The latest developments in Venezuela affect all automakers. But the country is an important profit center for the company. The Ford Explorer sport utility vehicle is one of the best-selling vehicles in the oil-rich nation, a fact that has contributed to the automaker's success in South America.

Ford has a factory in the city of Valencia that assembles Explorers, as well as Ford Fiesta subcompacts and F-350 pickups, from kits manufactured elsewhere. The nearly 500,000-square-foot facility employs about 2,000 people and also exports finished vehicles to other countries in Latin America.

"Last year, Venezuela was a very critical market for us," Farley said. "We have committed capital there."

An outspoken socialist who has vilified the United States, Chavez nationalized foreign oil refineries shortly after his election in 1998. Last month, in a speech specifically targeting Toyota Motor Corp., he threatened to expel automakers that ignore his demand to share technology with his country.

"Companies who come here to set up must be ready to transfer technology to us," he said, according to a Reuters report. "If they don't want to, they should go away. I invite them to pick up their things and go."

Analyst Aaron Bragman of IHS Global Insight in Troy called it "a real threat" and said Ford should probably think about doing just that.

"Venezuela, as a market, had a lot of promise. But the political instability and economic instability has made it risky," he said. "Ford has made a lot of money there, but it is rapidly becoming less of a good idea to be in Venezuela."

Farley acknowledged that the risk is real, but said there is little his company or any other foreign manufacturer can do at this point except wait and hope that Chavez does not make good on his threats.

"Hasn't the time for talk about repatriating assets and that sort of thing passed?" he said. "I'd hate to see that happen. I think the Venezuelan government is getting pretty smart about foreign investment now."

General Motors Co. also is major player in the Venezuelan market, but could not be reached for comment.

Ford does not break out financial results for individual countries in South America. In 2008, the Dearborn automaker made $1.23 billion in the region -- $58 million more than it made there in 2007. By comparison, it lost more than $10 billion in North America.

In recent years, it has restructured its production in the region so that a disruption in Venezuela is unlikely to have a significant impact on its sales in more important countries like Brazil and Argentina.

bhoffman@detnews.com (313) 222-2443