GM’s exit not personal Mzansi

BRAAIVLEIS, rugby, sunny skies and Chevrolet. This popular advertising jingle summed up the (white) South African good life of the early 1980s. A third of a century later and what do we have? Chevrolet’s leaving and the jury’s out on South African rugby. Oh well, two out of four’s not bad.

The announcement last week by US automotive group General Motors (GM) that it would disinvest from SA at the end of 2017 will bring down the curtain on a relationship that has endured for more than a century. The company, which owns the Chevrolet brand, has disinvested from SA before, but then it continued to make vehicles available to local consumers. Not this time. The parting will be absolute.

The US company is selling all its South African assets including the Struandale vehicle assembly plant in Port Elizabeth, to Japanese commercial vehicle company Isuzu. The plant builds three vehicles: the Chevrolet Spark, Chevrolet Utility light pick-up and Isuzu KB one-ton pick-up. From 2018, Isuzu Motors SA will build and distribute only its own products. GMSA says up to 589 jobs at Struandale, employing 1 500, could be affected.

Chevrolet vehicles will disappear from the market altogether. Opel cars will be managed by a new, as yet unknown, distributor after GM, Opel’s owner, completes its sale to French company PSA, which owns Peugeot and Citroen.

The 1980s advertising jingle underlined the special place Chevrolet held in the South African market. It was part of the motoring fabric. It entered the domestic market in 1913, creating GMSA to import and distribute Chevrolet vehicles.

It began manufacturing in 1926, producing brands such as Buick, Chevrolet, GMC trucks, Oakland, Oldsmobile, Pontiac and Vauxhall. At one stage, it even assembled train locomotives.

By the mid-1980s, however, the company was under pressure. During the 1970s, Toyota SA had launched Corolla and Hilux, and Volkswagen SA, the Golf. Growing market competition was taking its toll. GMSA sales were tumbling and debt climbing. The company lost money every year from 1981 to 1986.

Respite of a sort came knocking. US anti-apartheid legislation forced GM and Ford to disinvest from SA. GM sold up to local management at the end of 1986. A new company, Delta Motor Corporation, was formed at the start of 1997.

GM continued to sell Delta components and vehicle kits, and received licence fees for trademarks and technology. The arrangement proved more profitable to the US company than actual ownership. Delta, through fierce costmanagement that GM could never envisage, was profitable almost from day one.

After apartheid ended, GM decided to activate a buyback clause in the sale. It acquired 49% in 1997, leaving Delta management in charge, before taking 100% control in 2004.

Between 2003 and 2006, annual sales rose from 40 000 to 85 000 – admittedly in a growing market.

Market share improved more than 20%. Executives talked of challenging Toyota and VW for market leadership.

So intent was GM on making a success of its reborn South African baby that it named Struandale as one of two plants around the world to build the bulky Hummer sports utility vehicle.

The contract was supposed to last six years and generate R18-billion in earnings. It lasted less than three years, before GM pulled the plug on the whole Hummer project. Similarly, Cadillac came and went, though only as an import. Saab, too. A luxury GMSA dealer network to sell the two brands and Hummer survived little more than a year.

Hummer’s death undermined a GMSA dream: to become a major exporter.

Bob Socia, the first GMSA managing director after re-incorporation into the GM network, said exports were to be a priority. But if not Hummer, then what? The favourite was Isuzu bakkies, which GMSA has built in a joint venture with the Japanese company for many years.

But Isuzu was cool on the idea of another manufacturer spearheading its drive into Africa – the obvious target for its products. Two years ago, it seemed the blockage was easing. Business Day reported in March 2015 that GMSA was considering halting Chevrolet production at Struandale and concentrating on the Isuzu KB. The company later issued a statement that it and Isuzu were looking for ways to improve their performance in SA and the rest of sub-Saharan Africa.

Last week’s announcement of Isuzu’s buyout was the result. Besides taking over GMSA assets, Isuzu is buying GM’s remaining 30% shareholding in the Isuzu Truck SA joint venture, which assembles and distributes trucks. Their assembly, now at another site in Port Elizabeth, will shift to Struandale.

Isuzu is also buying out GM’s 57.7% share in GM East Africa, which builds trucks. Chevrolet will disappear from that market, too. In effect, GM is withdrawing from sub-Saharan Africa.

It’s nothing personal. The company is also reducing its activities or withdrawing from the UK, Europe, Australia and India, among others. The strategy is part of global CEO Mary Barra’s plan to reinvent GM as a company driven by return on investment.

GM boasted of being the world’s biggest producer and seller of vehicles for more than 75 years. But it never recovered from the 2008 implosion of the US motor industry and its humiliating bailout by the US government. That’s why, these days, it is retreating to its North American heartland and to the world’s biggest market, China.

SA and the rest of Africa no longer measure up. Talk of Africa, with more than one billion people, becoming the “new China” seems as far away as ever. Low commodities prices, lack of foreign exchange, corruption, poverty, limited spending power and intransigence on pan-African freetrade agreements are seeing to that.

While Isuzu SA will try to increase its monthly exports of 300 or so into an African market that has shrunk nearly 75% in the past four years, GM will concentrate on markets measured in millions.

In its fourth successive year of shrinking sales, the SA market is also struggling. In 2016, the global motor industry built more than 94 million vehicles. GMSA contributed fewer than 34 000 of SA’s 599 004. Its exports totalled about 3 000 – less than 1% of the domestic industry’s 344 859.

Overall, South African companies export more than 50% of production. At GMSA, it’s less than 10%. Its production is below the 50 000 threshold allowing companies to access full benefits under the Automotive Production and Development Programme. In 2016, the government relaxed the minimum to 10 000 units for companies to claim limited rebates.

In hindsight, it’s easy to see why GM is leaving. In many respects, it’s inevitable. We all hoped that a foundation stone of the South African motor industry would find ways to remain. Labour and government officials have consistently argued that global motor companies are here to stay, come what may – that SA and Africa are too important to ignore. In the real commercial world, they’re not.

David Furlonger writes for Financial Mail