As happened those days, one of my first jobs in financial journalism was covering monthly new car sales. It taught me seemingly boring data can tell an interesting story. I went back to this old stamping ground to understand last week’s apparently shock decision by General Motors to abandon South Africa.
After checking out the long-term trends, the conclusion is obvious. Once again, the law of unintended consequences has hit an interventionist approach that’s gone awry.
The official vehicle sales and production figures leave little to the imagination. On the one hand, exports of SA-made motor vehicles have exploded to a record 350,000 a year – last year’s was a staggering five times the exports achieved in the year 2000.
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But there is a very dark side to this. For every car being built in SA and sufficiently subsidised to be price competitive abroad, another one is being imported to meet the demand of local consumers.
In the year 2000, South Africans bought 276,000 locally produced vehicles, or 78% of those built in the country. Even though the market has virtually doubled in size, their Made-In-SA purchases last year were 50,000 below that (228,000). Despite the much hyped local manufacturing programme, imports now account for a staggering 68% of SA vehicle sales.
And here’s the problem: SA motor vehicle exports are heavily subsidised by the taxpayer. The subsidy (what used to be called the Motor Industry Development Programme) encouraged multinationals to invest billions in local plants. But now that a major multinational has very publicly announced its departure, the sustainability of the entire exercise is in question. Especially as GM is continuing to build vehicles at its Indian factory for export – despite also leaving that country’s retail market.
Does GM’s departure suggest other multinationals will follow?
SA’s Trade Minister Rob Davies doesn’t think so. He says GM’s pitiful exports made its departure inevitable. But that response also raises all kinds of fresh questions about the true nature of the export incentives.
For its part, Detroit has positioned the divestment in the way you’d expect. SA is only a tiny part of global production (0.2%) so the Port Elizabeth operation has become a bit of a historical anomaly.
More to the point, under its forthright CEO Mary Barra, GM is determined to streamline itself into a more focused, better disciplined company. After exiting Russia and Australia, GM’s loss-making European operations (Opel/Vauxhall – 13% of global sales) are in the process of being sold to Peugeot. Next to that, offloading its African operations to GM’s Japanese associate Isuzu isn’t even a blip on the radar.
Also, after its share price has flat-lined for the last three years, GM’s market cap was this month overtaken by newcomer Tesla. That looks bizarre when you look at the difference between the two businesses. GM makes more than 9m vehicles a year, one of every ten new vehicles on the planet. Tesla builds less than 100,000 a year.
If you wonder whether GM’s management team is bothered by this, glance at the latest quarterly update where the first slide is headlined “GM is a More Compelling Investment Opportunity.”
But what are those on the southern tip of Africa to make of the departure? Is GM’s divestment the start of the wave the country saw in the late 1980s?
Subsidising multinationals to make long-term fixed investments makes sense when they deliver a net benefit. But in the case of SA’s motor industry, where taxpayer-funded exports have simply been replaced by higher imports, something is clearly out of whack. An unintended consequence of an interventionist policy that is costing SA citizens billions. Someone needs to wake up and smell the coffee.
