By John Bowker
Bloomberg – General Motors, which initially started vehicle production in South Africa in 1926, plans to sell its manufacturing plant in the country to Japanese truck maker Isuzu Motors as part of a worldwide reorganisation to focus on more profitable businesses.
Isuzu will take over GM’s commercial vehicle factory in the coastal city of Port Elizabeth and will also buy the US automaker’s 30 percent share of a truck manufacturing joint venture, GM said in a statement on Thursday.
The company didn’t disclose financial details of the transaction. GM will also stop selling Chevrolet cars in the country.“We determined that continued or increased investment in manufacturing in South Africa would not provide GM the expected returns of other global investment opportunities,” Stefan Jacoby, president of international operations, said in the statement.
The move comes as part of Chief Executive Officer Mary Barra’s review of the business following its plan to sell European operations to Peugeot maker PSA Group. The company also announced a scaling back of its Indian operation, which will now only be used for exports. GM sold a majority stake in its East African business in the Kenyan capital of Nairobi to Isuzu in February.
At Mary Barra’s GM, It’s Profit Before All Else
Auto manufacturing is one of the bright spots in the South African economy, which last year expanded at the slowest pace since a 2009 recession. The government’s auto-incentive program has attracted companies including Toyota Motor, Volkswagen AG and BMW AG to set up and invest in factories, which produce vehicles mainly for sale abroad. In August, a Chinese state-owned car manufacturer agreed to build an R11bn ($813m) auto plant in South Africa, the biggest investment in a vehicle production facility in the country in four decades.
“While it is regrettable to see General Motors 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,” Trade and Industry Minister Rob Davies said in a statement. “Although we do not welcome this decision, we believe that the future of the industry is positive.”
Automaker industry representatives are working on a strategic plan to increase South African vehicle production and an announcement on the initiative is expected by early 2018, he said.
After starting production of Chevrolets in South Africa in 1926, GM divested its holdings in the country in 1985 and then revived activities in 1997. GM said it is continuing to work with PSA on the prospects for the Opel brand in the country.
Press statement from General Motors
SINGAPORE – General Motors (NYSE: GM) today announced key restructuring actions in its GM International operations to drive stronger financial performance and focus its capital and resources on business opportunities expected to deliver higher returns.
The company will focus its GM India manufacturing operations on producing vehicles for export only and will transition GM South Africa manufacturing to Isuzu Motors. GM’s Chevrolet brand will be phased out of both markets by the end of 2017.
“As the industry continues to change, we are transforming our business, establishing GM as a more focused and disciplined company,” said GM Chairman and CEO Mary Barra. “We are committed to deploying capital to higher return initiatives that will enable us to lead in our core business and in the future of personal mobility.
“Globally, we are now in the right markets to drive profitability, strengthen our business performance and capitalize on growth opportunities for the long term. We will continue to optimize our operations market by market to further improve our competitiveness and cost base.”
These decisions were made following an extensive review of operations in GM International markets and reflect a series of actions taken to improve global business performance that began in late 2013.
“These actions will further allow us to focus our resources on winning in the markets where we have strong franchises and see greater opportunity,” said GM President Dan Ammann. “We have compelling plans for growth in both the top line and the bottom line as we invest for the future.”
GM Executive Vice President and President, GM International, Stefan Jacoby said the company is running its GM International markets with an enterprise approach and making decisions that are best for the global business.
“In India, our exports have tripled over the past year, and this will remain our focus going forward,” he said. “We determined that the increased investment required for an extensive and flexible product portfolio would not deliver a leadership position or long-term profitability in the domestic market.”
In South Africa, Isuzu will acquire GM’s light commercial vehicle manufacturing and GM will cease manufacturing and sales of Chevrolet in the domestic market, subject to local regulatory requirements.
“After a thorough assessment of our South African operations, we believe it is best for Isuzu to integrate our light commercial vehicle manufacturing operations into its African business,” said Jacoby. “We determined that continued or increased investment in manufacturing in South Africa would not provide GM the expected returns of other global investment opportunities.”
Under the improvement actions announced:
India: GM’s manufacturing facility at Talegaon will continue as an export hub for Mexico and Central and South American markets. GM will cease sales of Chevrolet vehicles in the domestic market by the end of 2017. Existing Chevrolet customers will continue to be supported in the market.
South Africa: Isuzu will purchase GM’s Struandale plant and GM’s remaining 30 percent shareholding in the Isuzu Truck South Africa joint venture, with sales through a national dealer network. Isuzu will also purchase GM’s Vehicle Conversion and Distribution Centre and assume control of the Parts Distribution Centre. The company will phase out the Chevrolet brand in South Africa by the end of 2017. GM continues to work with PSA Group to evaluate future opportunity for the Opel brand in South Africa. Importantly, existing Chevrolet and Opel customers will continue to be supported in the market.
East Africa: As announced on February 28, Isuzu has agreed to purchase GM’s 57.7 percent shareholding in GM East Africa, assuming management control. GM will withdraw sales of the Chevrolet brand from the market.
Singapore: GM International will streamline its regional headquarters office in Singapore, which will retain responsibility for strategic oversight of the remaining regional business and markets, including Australia and New Zealand, India, Korea and Southeast Asia. This will deliver greater organizational efficiencies while leveraging global resources and in-market expertise.
Across affected markets, GM is working with employees, their union representatives and local authorities to provide transition support.
As a result of these actions, GM expects to realize annual savings of approximately $100 million and plans to take a charge of approximately $500 million in the second quarter of 2017. The charge will be treated as special and excluded from the company’s EBIT-adjusted results. About $200 million of the special charge will be cash expenses.
Press Statement from Department of Trade and Industry: Minister Davies Responds to GM SA’s decision to exit South Africa
The Minister of Trade and Industry, Dr Rob Davies has learnt of the announcement by General Motors South Africa (Pty)Ltd to cease some of their operations in South Africa with regret and concern for the numerous employees whose jobs and livelihood will be directly and indirectly affected as a result
Minister Davies notes that the decision by General Motors is part of a broader, international strategic position by the company to exit certain markets and focus the organisation on target markets and products as evident through the recent activities such as:
– Exiting Australia in 2013 where there was a joint venture with Holden.
– Pulling out of Europe in 2017(Opel / Vauxhall brand sold to Peugeot SA)
– Closure of a plant in Indonesia in 2015.
– Plant closure in Halol, India in April 2017.
– Recent pronouncements by General Motors CEO Mary Barra that the focus of the organisation will in future be orientated towards the development and production of autonomous vehicles, electrification and connectivity.
It should also be noted that the emerging global geo-political dynamics might have a bearing on some business decisions being made such as the recent confirmation of additional investment in the US coupled with further move of some parts production from Mexico.
General Motors has had a presence in South Africa since 1926, under various brands such as Buick, Chevrolet, GMC, ISUZU, Oakland, Oldsmobile and Vauxhall. Given the intense competition in the South African market, especially after 1994, GM has had some difficulties including:
The GMSA plant not meeting the initial annual minimum production volume of 50 000 units set under the APDP since 2013, sales have been on a downward trend for the past 5 years, and exports remained low at about 2 000 vehicles per annum with a maximum of 3 500 units.
Therefore whilst it is regrettable to see General Motors 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.
Although we do not welcome this decision, we believe that the future of the industry positive as automotive industry stakeholders are finalising a Master Plan for South Africa with a view to growing domestic vehicle production volume and local value addition and an announcement on the final program can be expected early 2018 latest and will cover the period post 2020, Davies said.
Minister Davies stressed that the dti will therefore continue to work with all stakeholders to mitigate the impact of this exit. These initiatives include encouraging the strengthening of the presence, including vehicle assembly, of ISUZU who has been partnering GMSA in South Africa. Minister Davies also expressed confidence that recent announced investments in Coega should save jobs in automotive production in the Nelson Mandela Bay Metropolitan area, and that anticipated investments and localisation by the remaining vehicle producers will have a positive effect going forward.