American automotive giant General Motors has announced that it is withdrawing from the South African market. As a result, production and sales of Chevrolet models will cease and Isuzu will take control of the firm’s Port Elizabeth operations.
This major announcement was made to the press early on 18 May 2017 in Port Elizabeth (*attached below), after GM’s top management had informed its workforce and dealers of the decision. When the process is concluded by year-end (as planned), it will mark the end of the US multinational’s 13-year tenure in South Africa, which saw the introduction of the Chevrolet, Hummer and Cadillac brands as well as the production of Isuzu and a number of Opel and Chevrolet products.
Speaking to Cars.co.za exclusively prior to the announcement, Ian Nicholls, President and MD of General Motors South Africa, said: “General Motors is today announcing restructuring actions in a number of different markets to drive stronger global financial performance."
From a global point of view, the firm is adopting a more efficient structure to allow it to focus on its core business of building and selling vehicles and also investing heavily in defining the future of personal mobility.”
He added: “after considered assessment at a global level General Motors had determined that continued or increased investment in manufacturing in South Africa would not provide the strong returns required by GM to support their overall global business strategy.”
Nicholls pointed out that the decision by General Motors, which took control of the Delta Motor Corporation’s Eastern Cape facilities and distribution network in early 2004, had nothing to do with the state of South Africa’s economy or political situation. General Motors has in recent years also ceased or dramatically cut back on operations in places such as Australia, Indonesia and in most parts of Europe. It most recently sold the Opel brand to Peugeot Citroën (PSA).
Isuzu taking over
Although the local production of the Chevrolet Ute and Spark in Port Elizabeth will cease during the coming months, it not all doom and gloom… Isuzu is staying put. The Japanese truck and LCV giant, whose KB is currently distributed by GMSA, views South Africa as a very important market for its products, as well as a manufacturing base from which to supply the rest of Africa.
Consequently, Isuzu will purchase the Struandale-based manufacturing plant, as well as the 30% shareholding that GMSA has in Isuzu Trucks SA, subject to approval by the competition commission. Isuzu will further take over the GMSA parts distribution centre in Coega and its vehicle conversion and distribution centre, where vehicles are stored prior to shipment.
Plans are underway for Isuzu to set up a national dealership network of around 90 outlets to market its LCVs and trucks in the South African market. It is clear that Isuzu has big plans for South Africa. According to Nicholls, the relationship with Isuzu is long-running and based on mutual respect. Isuzu trusts the local management team’s abilities to deliver on its objectives. He says the brand has major short- and medium-term plans for South Africa.
The Japanese giant is eyeing South Africa as a base from which to increase its presence into Africa. It recently purchased the 57.7% shareholding from GMSA in the Kenyan operations, where the Isuzu brand is the market leader and where SA-built Isuzu bakkies are sold.
Nevertheless, the decision will have a major impact on the local operations and its workforce. A significant local restructuring programme is on the cards as manufacturing and sales shift to supporting a single brand. At a dealership level, note that GMSA current has roughly 130 outlets, compared with the 90 franchises planned for Isuzu.
What if you own an Opel or a Chevrolet?
Nicholls says that all warranties and service/maintenance plans of affected brands will be honoured, either by the existing General Motors dealership network through to the end of 2017, or by the new Isuzu network being established. He envisages a parts supply agreement of “at least 10 years”.
The situation with Opel - from a sales and marketing point of view - could change in the coming months, however. As it stands, GMSA has an agreement to distribute Opel until the end of this year, and the German firm’s plans for SA will only become clear once the sale of Opel to PSA (Peugeot Citroën) is confirmed and final.
At present General Motors and PSA are working together to investigate the market opportunities for Opel in South Africa. An Opel press conference is set to take place on 8 June in Sandton. Either way, according to Nicholls, Isuzu will continue to provide back-up and support for Opel products until the expected Opel/PSA agreement is concluded.
The European Commission (EC) has banned Zimbabwe’s struggling airline, Air Zimbabwe, from its airspace over safety concerns.
The EC said it had updated the list of non-European airlines that do not meet international safety standards and were, therefore, “subject to an operating ban or operational restrictions within the European Union”.
“All air carriers from Benin and Mozambique were removed from the EU Air Safety List, while four individual airlines, one each from Nigeria, St Vincent and the Grenadines, Ukraine, and Zimbabwe, were added,” the EC said. At Zimbabwe’s independence in 1980, the national carrier boasted a fleet of 18 planes, but is now operating at less than a third of that capacity and reeling under a debt in excess of US$300-million.
Zimbabwean President Robert Mugabe usually uses Air Zimbabwe for his foreign travels, which he reportedly pays for in full. The commission said the EU Air Safety List sought to ensure the highest level of air safety for European citizens.
The airlines Med-View (Nigeria), Mustique Airways (St Vincent and the Grenadines), Aviation Company Urga (Ukraine) and Air Zimbabwe (Zimbabwe) were added to the list due to unaddressed safety deficiencies that were detected by the European Aviation Safety Agency during the assessment for a third country operator authorisation,” the EC said.
Following Tuesday’s update, a total of 181 airlines were banned from European skies, the EC said. Six years ago, Air Zimbabwe’s Boeing 737-500 was impounded in South Africa after failing to settle a $500,000 debt owed to Bid Air Services for ground handling services. In the same year, its largest aircraft, a Boeing 767-200, was seized by American General Supplies in London over a $1,2-million debt, but was later released after the airline settled this
The airline immediately stopped flying to London, one of its most lucrative routes. The debt-ridden airline was kicked out of the International Air Transport Association’s flight reservation services in 2012 after failing to honour its obligations — which then stood at $3,4-million — a development which resulted in limited business.
African News Agency
Molefe left the power utility after a Public Protector’s inquiry alleged that he may have been involved in nefarious activities. The State of Capture report by the then Public Protector, Thuli Madonsela, showed extensive and irregular communication between Molefe and the Guptas, a family with close ties to President Jacob Zuma.
At the time Molefe’s backers – including board chairperson Ben Ngubane – glorified him. They attributed a turnaround in Eskom’s fortunes as a function of the CEO’s 18-month tenure. His supporters branded him as a messiah whose departure would have negative consequences for the power utility.
Similar sentiments were expressed more recently by Ngubane and Public Enterprises Minister Lynne Brown. She told a press conference that she supported his return as CEO as he was responsible for the fact that load shedding (organised power cuts) had stopped and the power utility was on sound financial footing.
But was Molefe’s performance as great as his supporters say it was? I suggest not.
It’s true that under Molefe’s reign power cuts across the country were brought to an end. In addition, Eskom reported better financial results last year.
But neither of these two developments had much to do with Molefe’s capabilities as a CEO. The power cuts ended primarily due to a decline in electricity demand – partly the consequence of a weakening economy – and new generation capacity that had been in the pipeline for years. And the improvement in a number of Eskom’s financial ratios was due in large part to massive financial support provided by the government in 2015.
Did Molefe end the power cuts?
Prior to Molefe’s arrival as CEO in March 2015 the power utility’s finances had been worsening and it was struggling to meet electricity demand. These challenges were largely due to a delay in investment by the government as well as slow increases in tariffs.
The delay in investment was due to government’s indecisiveness over a protracted period of time. And the slow increase in tariffs was the result of a desire to shield consumers from sharp increases and a mistrust of Eskom’s claimed needs.
South Africans lived through a period of extensive power cuts in 2007. Electricity generation capacity was unable to keep up with demand. The situation was largely saved by slowing economic growth combined with greater energy efficiency. These factors meant that electricity demand was already well below forecasts prior to Molefe’s appointment and continued this trajectory during his tenure as CEO.
Falling demand created a virtuous cycle in operations: lower demand put an end to the need to impose power cuts. It also opened up the opportunity to do maintenance on infrastructure, leading to greater availability of capacity and an even lower probability of power cuts.
To be sure, Molefe still had to ensure that Eskom continued to get the basics right. There’s little evidence that he did more than that. Instead, it seems that his predecessor, Tshediso Matona, was excessively negative in his outlook. This set up Molefe to appear as though he had pulled-off a dramatic success.
What of the improvements in Eskom’s financial situation?
The view that Molefe was behind Eskom’s short-term financial turnaround was used to award him a R2.5 million performance bonus for the year ended 31 March 2016. (Molefe appears to have secured a R30 million retirement package when he tendered his resignation. Under the terms of his return to the job this will now no longer be paid. But a closer look suggests that Eskom’s financial improvement can’t be attributed to Molefe. In many respects it was the result of extraordinary support afforded to the power utility by the government in 2015.
This support, facilitated by two special appropriation bills passed by Parliament, had two main components. The first was an equity injection through which the National Treasury under which Eskom received R23 billion in exchange for shares. Since government is the sole Eskom shareholder, this translated into a straight cash gift.
The second component was even more significant. This involved government writing-off a R60 billion loan which had been approved in 2008 and disbursed in multiple tranches between 2008 and 2010.
If we treat Eskom as a genuinely independent entity, the full cost to national government and therefore the taxpayer of writing off the loan had two parts:
the remaining principal amount (around R30 billion), and
an additional R86 billion, the estimated cost of the state foregoing interest payments on the loan. According to the loan conditions, Eskom would have been required to pay this interest in the event that its financial situation improved.
Whether this financial support was desirable depends on your view of Eskom’s recent history. Many analysts agree that additional government support was overdue. But in relation to Molefe it raises a simpler question: if many of the improvements in Eskom’s financial ratios were due to massive transfers of cash and assets from taxpayers, did it make sense to pay its CEO a bonus that effectively also came from taxpayers?
Either way, closer analysis of Molefe’s supposed successes reveal that they are not what they have been made out to be. Combined with the failures of corporate governance with which he has been associated, the case for reappointing him as Eskom CEO appears to be paper thin.