General Motors Co. GM is expected to incur a pretax charge of $600 million in second-quarter 2015 due to the impact of devaluation of the Venezuelan bolivar, according to sources. Venezuela is facing challenges on account of low oil prices and currency controls which have led to a deficiency of the dollar in the South American nation.
General Motors expects that the charge will not have an adverse effect on the company’s operating income. The automaker will continue to focus on the Venezuelan market. GMSA witnessed a 30.8% decrease in revenues to $2.1 billion in the first quarter of 2015. The segment reported adjusted loss of $214 million compared with a loss of $156 million in the first quarter of 2014.
General Motors is changing the way it values assets and liabilities denominated in non-U.S. currencies. However, the automaker did not throw light on the financial implications of this change.
Ford Motor Co. F too has faced similar challenges. The company incurred a charge of $800 million in the fourth quarter of 2014 owing to the Venezuelan currency devaluation, which adversely affected its net income by $700 million, after deferred tax benefits. Ford had to stop vehicle assembly at its Venezuela plant in May 2014 and Apr 2015 due to a lack of foreign currency to import parts for assembly The automaker expects further trouble down the road due to weak industry volumes, low GDP growth, high inflation, weak currencies, lower foreign exchange reserves, changes in trade policies, and political and social uncertainty in some countries.
General Motors currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the auto industry include Meritor, Inc. MTOR and Fox Factory Holding Corp FOXF, both carrying a Zacks Rank #2 (Buy).
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