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GM’s exit won’t spark more divestment

May 21 2017 08:27
Dewald Van Rensburg and Riana De Lange

All electric cars on the way: General Motors will start production of a pure-electric model in China within two years the company's Chinese head said. Image: AFP / Bill Pugliano (Bill Pugliano)

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Johannesburg - The withdrawal of General Motors (GM) from South Africa is unlikely to be the harbinger of a larger divestment from the heavily incentivised automotive sector.

However, it will cause a second year of falling employment as it represents the most advanced part of the manufacturing sector.

Philippa Rodseth, CEO of the Manufacturing Circle, said there was no reason to think the other motor manufacturers were planning to leave.

Multinational companies change their strategies, she said.

Late on Friday, GM said it had started a restructuring process following the announcement of the company’s exit on Thursday.

“We believe it is in the best interests of our workforce to confirm that it is expected that approximately 589 employees will likely be affected by the proposed restructuring,” said the US carmaker.

Japanese company Isuzu issued a brief statement promising “sustainable, long-term business growth” in South Africa for its commercial trucks and the bakkies made at Struandale in Port Elizabeth.

The Japanese company said it hoped to have concluded the deal by June.

READ: Job loss fears as GM pulls out of SA

The first part of this deal entails taking over the 30% of Isuzu Trucks SA that GMSA owns, and then transferring the GMSA bakkie business into it.

The company will then be renamed Isuzu Motors SA and build its own dealership network in the country.

Renai Moothilal, CEO of the component manufacturers’ association Naacam, said that there was immediate concern regarding the suppliers to the Chevrolet production line.

“Manufacturers will struggle to make up those volumes. It could affect employment,” said Moothilal.

On the other hand, there should be new opportunities to supply Isuzu, he added.

Jason Muscat, an economist at FNB, said Isuzu could even increase vehicle production by targeting more exports into the region.

The department of trade and industry blamed GMSA’s departure on the company’s inability to achieve the scale it needed to benefit significantly from the Automotive Production and Development Programme (APDP), South Africa’s major manufacturing incentive.

More specifically, GMSA had not produced the 50 000 units a year normally needed to qualify for the APDP’s Vehicle Assembly Allowance, a rebate which removes import duties from 20% of a manufacturer’s component imports.

GMSA’s Struandale plant has a capacity of 100 000 units a year, but has not produced anything near that many vehicles since 2007.

The plant was established in 1996 by Delta Motor Corporation, the company that had taken over GM’s operations when it first divested from apartheid South Africa in 1986.

GM reacquired Delta in two stages, turning it back into a subsidiary in 2004.

Over the past four years, it rolled out a total of 167 078 units, averaging 40 000 a year – or 40% capacity utilisation, which includes the Isuzu bakkies manufactured at the facility.

The trend has been falling, with only 31 000 units produced last year.

The local industry produced 600 000 vehicles last year.

GMSA has also been the most inwardly focused of the local car manufacturers, barely exporting from South Africa at all.

READ: We're not leaving SA over junk status - GM

Jannie Rossouw, head of the University of the Witwatersrand’s School of Economic and Business Sciences, said there was a case to be made for the government buying more locally made vehicles.

Research in which Rossouw has been involved shows that the state buys about 25 000 vehicles a year, but imports a quarter of these.

The 1 900 employees at Struandale are split across assembly lines for Isuzu bakkies as well as Chevrolet Spark vehicles.

Unions have raised concern about knock-on effects in the local value chain, from component manufacturers to dealerships.

According to the National Association of Automobile Manufacturers of SA, the industry already shed 1 900 jobs last year to bring the total workforce to 29 489.

GM’s divestment of its South African operation is part of a global retreat.

During this year alone, the US company is downsizing its presence in India and selling its part of a partnership in Kenya to Isuzu as well.

The company’s international subsidiaries are managed from Singapore and this office is also being cut down.

This global downsizing has been ongoing since 2013, affecting GM’s operations in Australia and Indonesia.

The company also sold the Opel brand to Peugeot recently.

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