EDITORIAL: SA’s stalling motor sector
This is not a time when SA can afford to lose any more employment or investment
Back in 1986, as sanctions against apartheid SA began to bite and the economy headed into a tailspin, General Motors (GM) disinvested from its South African operations, selling its Port Elizabeth-based operation to a management consortium.
Now GM is to disinvest for a second time after it returned to the newly democratic SA in the 1990s. And although this time its decision is not about SA as such, it highlights the industry’s vulnerability to such exits and raises some questions about SA’s industrial policy and its exports.
It is little comfort that for GM, the South African divestment comes at the tail end of a global retreat that has resulted in the company exiting Europe and Russia as well as Indonesia and Thailand in an effort to improve its subpar profitability.
It will stop selling its cars in India as well, although it will hold on to its Indian manufacturing plant, which will produce for export to Latin America.
GM, which makes two Chevrolet models and the Isuzu bakkie at its Port Elizabeth assembly plant, plans to sell the plant to Japan’s Isuzu Motors, which from 2018 will build and distribute only its own brand. New Chevrolet vehicles will not be sold in SA after 2017, though the Isuzu dealer network will continue to provide service and aftersales support for the Chevrolets already on the road.
GM’s Opel brand is expected to remain in SA but its future will depend on Europe’s PSA Group, the maker of Citroen and Peugeot, to which GM has recently sold the Opel brand.
The divestment will be a blow to Port Elizabeth’s fragile economy. It’s not yet clear how many of the 1,500 jobs at GM’s plant Isuzu will keep, but many of those must be at risk, and more will go in GM’s Gauteng corporate and sales headquarters, which employs a further 300 people.
Then there are the dealerships, whose number will be trimmed from 132 to 90, putting jobs and businesses at risk. This is not a time when SA can afford to lose any more employment or investment. Arguably, GM had long been half-hearted about SA and its last new significant investment was several years ago.
Nor was it one of the success stories of SA’s much-vaunted Automotive Production and Development Programme. With annual production of 34,000 vehicles and annual exports that were a fraction of market leader Toyota’s 8,000 a month, GM fell below the threshold for the incentives under the programme. Concessions had to be made so it could receive a portion of those incentives.
It serves as a reminder that SA needs to make itself more attractive to foreign investors and the economy is in desperate need of fixing
GM has firmly rebutted any notion that its exit was a response to SA’s economic ills. But its decision does serve to highlight how crowded the South African market is, with more than 50 brands and seven major manufacturers — and how difficult it might be for SA to hold on to all these producers even with the production and development programme.
The domestic new-vehicle market has been in decline for the past three years and at about 540,000 is well below the 700,000 peak of the boom years — nor is it likely to get back there anytime soon given a weak growth outlook and weak business and consumer confidence levels. No wonder this was one of the markets GM wanted to exit. Against that, vehicle exports have been growing strongly, to more than 340,000 in 2016, with motor by far SA’s largest manufactured export.
The Automotive Production and Development Programme has been SA’s one big industrial policy success. The country has not managed to drive exports or foreign investment to nearly the same extent in other industrial sectors.
It serves as a reminder that SA needs to make itself more attractive to foreign investors and the economy is in desperate need of fixing. Comparisons with the economy of 1986 are just too eerie.