General Motors (GM) plans to cease the production and sale of its vehicles in South Africa by the end of 2017, a move that has sparked jitters over job losses.
Its announcement on Thursday follows a string of vehicle manufacturers pulling out of South Africa over the last two years, including Citroën, Daihatsu and MG Cars.
In preparation for its exit this year, GM will sell its light commercial vehicle manufacturing plant in Struandale, Port Elizabeth, to Japan-based Isuzu Motors for an undisclosed amount. GM’s manufacturing plant is a coup for Isuzu, as it looks to add scale to its commercial vehicle and pick-up truck business in South Africa. Isuzu will also buy GM’s 30% stake in Isuzu Truck South Africa.
GM began producing Chevrolet vehicles in South Africa in 1926 but divested from the country in 1985. It then revived its operations in 1997.
The sale of the manufacturing plant paves the way for GM to stop selling and production of Chevrolet vehicles in South Africa.
The prospects for GM’s Opel brand in South Africa hangs in the balance as discussions with Opel’s new owner Peugeot-Citroën are still on-going. In March, GM announced that it’s exiting Europe by selling its Opel brand to the maker of Peugeot and Citroën, PSA Group for US$2.3 billion.
GM is restructuring its business towards more profitable markets including the US and China, where it could achieve greater return on investments than in South Africa.
The company denied that its departure was influenced by the recent double-downgrades to junk on South Africa’s credit rating by S&P Global Ratings and Fitch. Market watchers have warned that the downgrades would result in the flight of capital out of South Africa as investor confidence would diminish.
GM has found it difficult to compete in emerging markets as its vehicle sales are under pressure due to waning consumer confidence and economic uncertainty. It sold 40 867 vehicles last year (Opel, Chevrolet and Isuzu brands), which GM’s spokesperson Denise van Huyssteen said reflects the third consecutive year of industry sales decline in South Africa. “The sales volume was consistent with our plan for 2016,” van Huyssteen told Moneyweb.
The big question is whether there would be any job losses as part of the departure. Van Huyssteen said that it’s premature to speculate on the number of employees who will be affected. “GM will enter into a consultation with employees and their representative unions to discuss all possible options going forward.”
The automotive industry is a bright spot for Port Elizabeth’s economy, with the operations of GM and Volkswagen (VW) being the biggest employers in the coastal region.
GM employs over 1 000 people at its Port Elizabeth plant. The National Union of Metal Workers of South Africa (Numsa), whose members are GM employees, has accused the company of not consulting it about the sale of the plant.
Numsa’s general secretary Irvin Jim said GM’s decision will have an impact on its plants and also for companies along the value chain. He added that Isuzu might not absorb all workers who worked at GM’s plant. “We are concerned that GM has already indicated that it might retrench workers… If these discussions are indeed taking place then it is likely that GM knows how many employees will be retained, and how many will be retrenched.”
The Department of Trade and Industry (dti) launched the automotive production and development programme in 2008 to boost automotive investments. Since then, the programme has attracted investments from Toyota, BMW and VW to set up plants that manufacture vehicles locally and sell them overseas.
Dti minister Rob Davies said although the department doesn’t welcome GM’s decision, he believes the future of the automotive industry is positive. “While it is regrettable to see GM exit South Africa, market performance leading to cuts in profitability, coupled with recent global initiatives have created the conditions to make such a move likely,” he said in a statement.