Why the loss of GM is no shock
SA is the victim of collateral damage as the US car maker retreats to North American and Chinese markets
For once-great General Motors (GM), the numbers required to continue doing business in SA just don’t add up.
The predictable reaction to last week’s announcement that the US motor company is disinvesting from SA for a second time was one of "Shock! Horror."
In truth, the outcome has been likely for some time.
The deal will result in GM selling its SA operations to Japanese commercial vehicle manufacturer Isuzu. At the moment, the Struandale vehicle assembly plant in Port Elizabeth builds Isuzu KB 1t bakkies and two small Chevrolets, the Spark car and Utility pick-up.
From 2018, Struandale will build only Isuzus. Besides KB bakkies, the production of heavy trucks and buses, currently bolted together at a nearby facility, will shift to Struandale.
GM’s departure from SA will be absolute. The Chevrolet brand will not be sold after this year. Opel vehicles will continue to be imported but through a new, as yet undecided, importer. GM is selling the brand to French company PSA, which owns Peugeot and Citroën.
Why disinvest from SA? The numbers tell the story. Of the 599,004 new vehicles built in SA in 2016, GMSA produced about 34,000. Of the 344,859 vehicles exported, it contributed 3,000.
When government introduced its Automotive Production & Development Programme in 2013, motor companies had to build at least 50,000 vehicles a year to enjoy incentives that included import-duty benefits and investment rebates. GMSA and Nissan SA have been well short of that number, so government last year cut the entry figure to 10,000 — at which point companies can claim limited benefits, which improve as production volumes rise.
Any assembly plant will struggle to be cost effective building 34,000 vehicles. When that number is split between three products, it’s well near impossible.
Compare that with BMW SA, Mercedes-Benz SA and Ford Southern Africa, all of which produce single models in volumes between 60,000 and 110,000. Toyota SA and Volkswagen SA both have more than one product, but in sustainable numbers. Some export more than 80% of what they build. Overall, the SA motor industry exports more than 50% of production. For GMSA, it’s less than 10%.
It became clear to GMSA at least two years ago that the solution to its problem was to concentrate on a single model. Logically, that had to be the Isuzu KB, as the only one with export potential, particularly to Africa.
It is a proven business model. After 2010, Ford stopped building multiple products in favour of one, the Ranger pick-up. The vehicle is a top seller in SA and shipped to more than 100 export markets. Most of Toyota’s local success is based on the Hilux.
But it takes money to succeed. GMSA’s rivals have spent up to R7bn on single product investments. GMSA spent a combined R1bn on introducing latest versions of all three of its products early in the decade.
GM’s spending in SA has been notably cautious since it returned from its first exile. Faced with US anti-apartheid resistance, it sold out in 1987 to local shareholders but continued to provide parts and technology. It returned as a 49% shareholder in the surrogate, Delta Motor Corp, in 1997, then bought 100% in 2004.
But its brands have not enjoyed the expected success. And parent company GM has never been the same since the US motor industry imploded in 2008 and the company was rescued by the US government.
Once unrivalled as the world’s biggest motor company, today it is driven by return on investment. Under CEO Mary Barra, it is concentrating its resources in North America and China, where returns are most achievable.
That means retreating from many old markets. Australia, the UK, Europe, Indonesia and India are among countries and regions where GM is either reducing involvement or pulling out altogether.
Add sub-Saharan Africa to those. GM, like many global companies, has waited for decades for the continent to fulfil its growth potential. Instead, markets have recently collapsed. Exports of new vehicles from SA to the rest of the continent have fallen by nearly 75% in four years. GM is also selling its share in a Kenyan joint venture with Isuzu.
The SA market, too, is in a period of decline. It is already a tiny market in the global scheme of things. Recent credit downgrades and political upheavals haven’t made it any more attractive, but neither have they made up GM’s mind on its future in SA. This country is caught in a storm — it is not the cause of it. It is collateral damage.