Toyota (TM) Restarts Production in Venezuela, Plans to Export

Zacks Equity Research
Updated

Toyota Motor Corporation TM has restarted production in Venezuela after a gap of six months. This South American nation has been going through troubled times due to low oil prices and currency controls, which have led to a deficiency of the dollar in the region.

As a result, Toyota, along with many other automakers, has been facing headwinds in vehicle production in the country. In fact, auto production in Venezuela plummeted 86% in the first half of 2016 due to a shortage of vehicle parts.

Nevertheless, Toyota has now started vehicle assembly in Venezuela for catering to local markets as well as for exports. It is currently assembling three models – Corolla, Hylux and Fortuner – at the Cumana plant. Export of these vehicles will start in the first half of 2017. Note that Toyota had commenced the export of vehicle parts from Venezuela last year.

Apart from Toyota, other automakers like General Motors Company GM and Ford Motor Company F, as well as parts makers like The Goodyear Tire & Rubber Company GT have faced similar issues in Venezuela in recent years.

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 vehicle parts for assembly. The company also incurred a charge of $800 million in fourth-quarter 2014 owing to the Venezuelan currency devaluation, which adversely affected its net income by $700 million, after deferred tax benefits.

Meanwhile, General Motors incurred a pretax charge of $600 million in second-quarter 2015 due to the impact of devaluation of the Venezuelan bolivar. On the other hand, deconsolidation of Goodyear’s subsidiary in Venezuela is leading to a significant decline in the company's revenues and operating income.

Toyota currently carries a Zacks Rank #3 (Hold).

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