Workers at the General Motors plant in Nairobi. Photo/FILE
What you need to know:
General Motors says the shift to South Africa is linked to its search for economies of scale, incentives like lower tax on raw materials, cash grants for new investments and expansion.
The shift to South Africa is set to widen the idle capacity at GMEA’s assembly plant—which will continue to make Isuzu buses and light commercial trucks for the local and regional market.
General Motors East Africa has transferred the assembly of Isuzu pick-ups to South Africa where it says the vehicles will be produced at a lower cost.
The auto dealer says the shift to South Africa is linked to its search for economies of scale, incentives like lower tax on raw materials, cash grants for new investments and expansion.
The local unit of GM did not disclose whether it has cut jobs due to the shift, given that assembly of pick-ups used to account for 26.3 per cent of the 3,376 units the dealer sold last year.
The move is set to reduce activity in Kenya’s assembly business that has been riding on tax exemptions which has seen imports of vehicle parts exempted from the 25 per cent tax levied on fully built units, helping dealers to churn out cars at reduced prices.
But GM reckons that it stands to benefit more from assembling at its Port Elizabeth plant in South Africa—which will feed the rest of sub-Sahara Africa with pick-ups.
“We will achieve economies of scale here (in South Africa) as we target a larger share of pick-up sales in sub-Sahara Africa,” Mario Spangenberg, the president of GM Africa told the Business Daily in South Africa.
Last year, Kenya saw a growing preference for locally assembled cars in what helped reduce the idle capacity in the country’s three plants — Kenya Vehicle Manufacturer (KVM), Associated Vehicle Assemblers (AVA) and General Motors East Africa (GMEA).
Data from the Kenya National Bureau of Statistics shows that 5,456 vehicles were assembled in Kenya in the 10 months to October 2012, representing 52.3 per cent of the 10,422 new vehicles sold in the same period.
KVM said that increased interest for locally assembled cars is set to revive the fortunes of vehicle assemblers, but reckoned that Kenya was still far from hitting the peak levels experienced in the 1980s.
“We are currently running at a capacity of about 10 per cent. At KVM alone, we have the capacity to assemble the entire industry’s annual volume in a matter of weeks,” said KVM in an earlier statement. Dave Williamson, factory manager at AVA, told the Financial Times in April that the assembler is currently making 2,500 units compared to a peak of 10,000 units in 1985.
The shift to South Africa is set to widen the idle capacity at GMEA’s assembly plant—which will continue to make Isuzu buses and light commercial trucks for the local and regional market.
Data from the Kenya Motor Industry Association (KMI) shows that GMEA assembled 890 Isuzu pick-ups last year. Even while assembling Isuzu pick-ups, the GMEA plant was still operating at less than 30 per cent capacity.
GMEA is, however, betting on higher demand for its Isuzu buses and trucks to keep its assembly plant busy. The firm invested Sh100 million to upgrade its plant in January. The face-lift doubled the plant’s daily production capacity to 10 vehicles from the previous five.
South Africa has a number of incentives that attracted GM to expand its plant. This includes a scheme where the government returns 20 per cent of the value of new investments in an assembly plant to vehicle manufacturers over three years.
There is also a cash grant of up to 10 per cent for vehicle manufacturers expanding their production.
Vehicle manufacturers producing more than 50,000 vehicles per year import 20 per cent of their components duty free, a figure that drops to 18 per cent over three years.
While GMEA is facing a more idle plant, the shift in Isuzu pick-up assembly is expected to sharpen its competitive edge in the lucrative light commercial truck business.
Mr Spangenberg said GM South Africa’s plant is set to produce unique versions of its new sixth generation Isuzu pick-ups for Kenya and other regional markets to take on key rival brands Toyota and Nissan.
GM’s new generation of Isuzu pick-ups are designed to carry more cargo besides an improvement in seating space and the vehicles’ off-road capabilities.
GMEA’s managing director Rita Kavashe said the company will start receiving the new generation of Isuzu pick-ups from September.
