GM quitting SA is a wake-up call to all

Posted on May 29, 2017


Every South African citizen should regard the decision by General Motors (GM) to quit South Africa as a wake-up call to deal with a fundamental economic problem. Instead, it has triggered the usual local blame game, with fingers pointed at everything from the recent cabinet reshuffle and the junk status credit rating to — from the free marketeers — greedy workers with unrealistic wage demands.

That the pull-out announcement was made without first consulting the union that represents the majority of workers revealed a worrying degree of insensitivity and arrogance. But, as GMSA chief, Ian Nicholls, clearly indicated, the reason had nothing to do with politics, credit ratings or wage rates. It was part of a “global review”, that will also see GM withdraw from India and close offices in Singapore.

Here is an excellent example of the dilemma facing more and more companies on a global scale: the need to remain profitable in a world of surplus capacity and production. The cliché that there is no gain without pain also applies, but for every bit of corporate gain, it will be workers who will bear the pain.

In the local context, this will probably mean up to 1 000 GMSA jobs alone being lost. Then, as the National Union of Metalworkers has pointed out, there will be a major impact “on companies along the value chain as well”. And with every worker, on average, supporting four or more dependents, the pain will be widespread.

However, the answer is not, as has been suggested, for South Africa to produce still more motor vehicles even more cheaply or to entice more companies with even more generous incentives than those in the existing Automotive Production and Development Programme. That would merely compound the problem.

Even a brief look at the international situation reveals clearly why the once globally dominant GM is now in apparent retreat. Fifty years ago, as the post World War 2 economic boom got underway, vehicle manufacturers in the United States and Europe ruled the roadways, none more so than GM.

War battered Japan revived its motor industry, but it was only in 1963 that the first Japanese cars reached beyond the domestic market. There were, for example, only 100 000 Japanese passenger car exports in 1965. Ten years later, the figure was approaching 2 million.

In the same period, Kia and Hyundai in South Korea made their appearance on the world stage, Kia having started in 1951 manufacturing bicycles. Hyundai, now linked with Kia, produced its first car in 1968 and, by 1985, had reached the 1 million mark. The popular South Korean SsangYong marque is now owned by Mahindra of India that built it first passenger cars in 2007.

By that time, India’s Tata conglomerate had already made inroads into the global car market with its Indica brand, first produced in 1998. A year later, the first cars started rolling off China’s state-owned Chery assembly lines and entered the world market in 2001, selling more than 1 million vehicles in the following 15 years.

The Chinese, Koreans and Indians were also able to utilise the best of automated and robotic technology pioneered in the 1970s by Japanese car makers such as Toyota, Honda and Nissan. Late comers were also able to learn profitably from established makers leading, in the case of Chery, to both GM and Germany’s Volkswagen accusing the Chinese of design piracy.

It all boils down to an absurd situation of over capacity, over production and cut-throat competition that leads to increasing unemployment and the pain that entails. Yet it was all so predictable. And one has only to look — ironically — to the words of that pioneer of assembly line auto production, Henry Ford.

In his 1922 autobiography, Ford explained why he paid his workers a higher rate of pay than the average wage. He noted: “If we can distribute high wages then that money…will serve to make storekeepers and distributors and manufacturers and workers in other lines more prosperous and their prosperity will be reflected in our sales”.

Here is expressed the blinkered belief in a “virtuous cycle” in which an equilibrium between supply and demand would naturally emerge, providing a prosperous future for all humanity. Like Adam Smith, more than a century earlier, Ford can perhaps be excused for not realising what unbridled competition, combined with massive technological advances, would mean: growing millions of jobless people needlessly suffering in a world awash with surpluses that could sustain them.

This is the fundamental question that continues to be largely ignored or fudged as the minority who benefit from the system continue, lemming-like, to drive us all toward a dystopian future. Until and unless we acknowledge and deal, openly and comprehensively, with this issue, we seem, largely, to be wasting our time.