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Apr 07, 2009

Severely downsized GMSA will survive US bankruptcy - Koch

GMSA MD Steve Koch on why GM's possible controlled bankruptcy in the US should not affect South African operations (07/04/09) Video: CorpCinema; Editing: Darlene Creamer
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By June this year, General Motors South Africa (GMSA) would employ half the number of people it had on its payroll in 2007.

General Motors (GM) African operations president and MD Steve Koch said on Tuesday that the company had seen one thousand people leave last year on the back of a voluntary retrenchment deal, with another 700 to follow this year.

This meant there would remain around 1 050 hourly workers, and 680 salaried employees at the company's Port Elizabeth plant and Midrand offices.

It was initially thought that only around 400 employees would have to be cut in 2009, however, with Hummer production to all but close down, this had increased to 700.

“Beyond May, have no firm orders for the Hummer,” noted Koch.

GMSA's parent company in the US was in the process selling off Hummer, which was produced in two global production locations, namely South Africa and the US.

An announcement was expected on the future of off-roader during the next few weeks.

GMSA expected production of 30 000 vehicles at its Port Elizabeth plant in 2009, compared with the 48 000 units achieved in 2008.

Koch said the pain was spread across the company, with not only plant workers to feel the impact of a vehicle market reeling under the global economic crisis, but also office staff.

He noted that GMSA's salaried staff had not receive an increase this year, in a directive from headquarters, in the US. In fact, he added, the company's executive team had accepted a 10% drop in salary, and the management team a 2,5% to 5% drop. The management team was also reduced from 140 people, to 80 people.

Koch said he hoped to reverse this move next year.

He added that GMSA's reduction in head-count had nothing to do with GM's financial woes in the US, but rather with a sharply declining home market.

Koch said the local vehicle market had been in decline for the last 27 months.

In any normal economic cycle, the market should have been moving upwards again, but the South African market was still reaching deeper into the red, he noted.

GMSA had revised its forecast for new vehicle sales in South Africa from the 400 000 units anticipated at the beginning of the year, to 360 000 units as the year progressed, and then finally down to the current forecast of 353 000 units.

“March sales have been disaster, and we're heading for a tough month with all the holidays in April,” said Koch.

In total, South Africa's new vehicle sales had reached 533 327 units in 2008, compared with the 676 097 units in 2007, and the record 714 000 vehicles achieved in 2006.

Koch said GMSA had no choice but to downsize in accordance with the demands of a 350 000 unit market.

“We have done so, and now we can continue indefinitely at this level for the next 12 months or 36 months. If we move to 300 000 units, though, we may have to look at making changes again.”


The US government had at at the end of March agreed to provide GM with yet another lifeline, but warned that if the companies failed to restructure rapidly, controlled bankruptcy might be the only avenue remaining to the embattled auto makers.

President Barack Obama had noted that GM would receive funding for another 60 days, while a restructuring plan was being thrashed out.

A so-called Chapter 11 bankruptcy was not what South Africans were used to in terms of liquidation procedures, explains Koch.

He noted that such a process would see GM remain safe from the demands of creditors, protected by US courts, so as to re-emerge as a new, leaner company able to do business again.

Such a process could, however, harm the image of the company and the brands it represents. It could also see the company shrink in size, and shed some brands not deemed profitable.

“At the moment, we are evaluating the different options,” said Koch.

“It means nothing for GMSA, except that we have to have this conversation; except for the reputation management we have to do.”

Koch said GMA was a standalone, self-sustaining entity which generated its own cash, and which was responsible for its own viability.

“I assure you, we'll be in South Africa as long as there is an automotive industry in South Africa.”

He added that GMSA sourced only some Cadillac products from the US, with the remainder brand products coming from other GM divisions across the world.

GMSA sold the Isuzu, Opel, Hummer, Cadillac and Chevrolet brands in South Africa.

Should a Chapter 11 bankruptcy then disrupt supply chains from the US, GMSA's operations should remain largely unaffected.

Koch expected to see a recovery in the US market to precede the rest of the world, “due to the money being thrown at it, but not until the second half of 2010, maybe 2011”.

US new vehicle sales had averaged around 16-million units a few years ago, but had since dropped to 13,4-million units in 2008, with the current forecast at nine-million units for 2009.

Edited by: Creamer Media Reporter
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