Falling Bolivar Hurts General Motors
General Motors Co. (GM) announced that it will have to incur a pre-tax charge of $400 million in the first quarter of 2014 due to change in the exchange rate of Venezuelan currency Bolivar Fuerte (BsF). The charge is a result of the re-valuation of the non-U.S. Dollar denominated monetary assets and liabilities of General Motors’ Venezuelan subsidiaries.
The current exchange rate used by General Motors stands at 10.7 BsF per U.S. dollar. The previous rate was 6.3 BsF for a dollar. General Motors reported the currency rate change in a government filling.
On Feb 13, 2013, the Venezuelan government had set the official exchange rate of Bolivar Fuerte at BsF 6.3 to $1.00, an update from the previous rate of BsF 4.3 to $1.00. Owing to this devaluation, General Motors had to incur a $0.2 billion charge in the three months ended Mar 31, 2013.
Not only General Motors, another automaker Ford Motor Co. (F) also announced that it will have to face the brunt of volatility in the Venezuelan currency. Ford will incur a charge of $350 million in the first quarter of 2014 due to the currency exchange rate change. The current exchange rate for Ford stands at 10.8 bolivars for a U.S. dollar as against the previous 6.3 bolivars.
Ford also announced that it is facing difficulties in Venezuela due to the shortage of hard currency. Consequently, the automaker reduced the output from the Venezuelan plants by 75% in the fourth quarter of 2014. It also apprehends reduced production in the country this year owing to the decline in Venezuelan car sales.
At present, Venezuela is going through a rough phase. Government initiatives of price control and limited supply of foreign currency are affecting business and Ford’s results in the region.
General Motors currently holds a Zacks Rank #5 (Strong Sell).
Better-ranked automobile stocks worth considering are Tata Motors Ltd. (TTM) and Tesla Motors, Inc. (TSLA). Both the stocks sport a Zacks Rank #1 (Strong Buy).
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