Possible GM bankruptcy will have minimal impact on SA

Tuesday, April 7, 2009

Johannesburg - The possible bankruptcy of General Motors in the United States will have minimal impact on GM South Africa (GMSA).

President and Managing Director of GM South Africa and African operations Steve Koch said on Tuesday that GMSA generated its own cash and was responsible for its own viability.

"We are responsible for funding our own operations and do not rely on any direct financial support from North America," he said.

Given the small overlap of product portfolios between GMSA, the North American market and the financial independence under which GMSA operated, there are few implications for the South African market.

"Approximately 95 percent of GMSA's total sales were derived from markets outside North America," explained Mr Koch.

Customers could also be assured that GMSA would continue to honour its warranty and after-sales commitments. "South Africans need to worry as we will live up to our warranty," he assured.

While GMSA source many components for assembly from local suppliers, Mr Koch said the majority of Isuzu components are sourced from Japan and Thailand and Corsa Utility components from Brazil, while the Chevrolet products are imported from Korea and Australia.

Each of these locations had their own design and engineering capabilities and operated independently from North America as well, he explained.

Mr Koch further explained that they have continued investment in the distribution infrastructure.

These include the recent inauguration of the new R150 million vehicle conversion and distribution centre, the recently announced additional investment in a new R220 million pan-African parts distribution centre at the Coega Industrial Development Zone scheduled to begin construction early next year.

Local vehicle sales have dropped by more than a third this year despite interest rate cuts.

The National Association of Automobile Manufacturers of SA last week indicated that new vehicle sales dropped 30.3 percent year on year last month to 36331, confirming the depressed and increasingly desperate state of the domestic vehicle market.

Sales of vehicles exported from South Africa to the flailing US, Japanese and European markets, also continue to slump.

Mr Koch said during the course of 2008, the company made significant changes in line with the deterioration in the vehicle sales. The company began a reorganisation of its business in May.

"Unfortunately the market deterioration has continued into 2009 to the point where we have no other option but to contemplate forced retrenchments."

Last week GMSA indicated it would retrench 700 workers.

Current job losses are estimated at more than 35 000 people in the automotive industry in South Africa.

Meanwhile, government has tasked an auto industry task team to draft a strategy aimed at assisting the local industry. It is expected to present its proposals to Trade and Industry Minister Mandisi Mpahlwa during the course of this month.

Since 2005, General Motors in the United States has lost more than R800 billion and has been kept afloat by an emergency loan of R130 billion from the government.

It has requested a further R160 billion from the US government. However chances of a government bailout of GM in the US have taken a knock after the White House determined that neither GM was viable and that its turnaround plan was vague.