Why Toyota Will Stop Production in Venezuela
Toyota (NYSE:TM) saw great success in 2013 as it proved capable of weathering recalls and a revival of Detroit automakers. In its plan to push even further in 2014, Toyota is going to have look outside of Venezuela. Bloomberg reports Toyota de Venezuela will put the brakes on production beginning Feburary 13 due to parts shortages and a foreign currency system described by analysts as “paralyzed” in the beleaguered country. There is no date set for a return to manufacturing for Toyota.
The Venezuela auto market took a turn from unsteady to dismal in recent months. Cavenez, which tracks the local auto industry, reported a total of 722 automobiles sold in January 2014, a drop of 87 percent compared to the previous year. Toyota accounted for 225 of those 722 unit sales, but the 291 vehicles the automaker produced represented nearly every vehicle manufactured in the country in January. Neither Ford (NYSE:F) or GM (NYSE:GM) has produced any automobiles in Venezuela in 2014. Next up is Toyota.
According to Bloomberg, the foreign exchange crisis in Venezuela has made it nearly impossible for local factories to get dollars to pay for car parts. As a result, assembly lines are stopping without any clear sign they will reopen in the near future. In Toyota’s case, administrative staff will join factory employees when the lines stop February 13.
Toyota will have to continue its push to expand market share in other countries in the region. In August, Toyota executives outlined a plan to boost Toyota’s fortunes in South America, an arena it had neglected for years. The record profits of 2013 may allow the automaker to invest more heavily in Brazil and other markets where growth is possible.
Ford’s output in Venezuela in January 2014 (0 units) nearly mirrored its sales (2 cars.) Word of increased controls on the foreign auto market have made most automakers wary of continuing any type of footprint in Venuezuela while inflation soars to record levels. Dollar auctions by the government will begin February 10, Bloomberg reports.
Toyota is poised to report its biggest profit in company history when it records $18.8 billion at the end of the fiscal year in March, the New York Times reported. The number eclipses the profits of all three Detroit automakers combined. On the back of such a windfall, Toyota plans to expand into markets where there is room for the brand to succeed.
Surveying Latin America, Toyota sees Brazil as a spot to increase its footprint and tap into a hunger for small cars, which it had inexplicably ignored in South America. Though the automaker announced no permanent end to production in Venezuela, there are few signs the country is a viable spot for foreing automakers to do business. Where there’s a sum total of zero automobiles produced, there’s no room for things to get worse.