Will General Motor’s Exit Push Your Premium Up?

The announcement that General Motors will be divesting from South Africa hit headlines last week. This has prompted concerns about job losses due to the company exiting the country.

But what are the ways in which this decision can affect local consumers?

We took look at the various scenarios…

Direct Effects For GM Car Owners

The company will stop selling its vehicles locally by the end of 2017. Luckily current owners of GM vehicles will continue to get support services.

“These changes will not impact you as existing warranties and service plans remain in place and will be honoured beyond 2017,” the company says on its local site.

Owners of Isuzu, Chevrolet and Opel vehicles will continue to receive aftersales and parts support until the end of 2017. Warranties and service plans will continue past the end of the year.

This hopefully means customers will have their full warranty period fulfilled.

Isuzu owners will experience some changes, but the car brand will continue in the country. Changes will mostly be in the number of dealerships in the network.

However, Opel was recently sold to another manufacturer – PSA. Therefore plans for the brand’s dealer network still need to be confirmed.

From 2018, Isuzu will be providing aftersales and service support for owners of Chevrolets and Opels.

Chevrolet owners won’t need to immediately worry about availability of parts for their cars. GM has said that the parts will be available for up to 10 years after the production of their vehicle model has stopped.

Insurance Premiums Will Go Up, But Not Right Now

While the company has ensured that parts will be available for customers requiring repairs on their GM vehicles, it is likely that these parts will be imported.

Many vehicle parts for various brands need to be imported already. But GM’s move means that importing parts for Chevrolet vehicles will likely become a necessity. This will happen once local production stops and local supply runs out.

Due to the increased cost of importing parts it is possible premiums could rise for GM car owners. Add the rand’s instability, and the likelihood increases.

We contacted the South African Insurance Association (SAIA), a body which represents approximately 90% of the insurers behind the short term insurance market.

Zakes Sondiyazi, SAIA’s Insurance Risks Manager and Susan Walls, SAIA’s Insurance Technical Advisor, weighed in on the topic.

“The  SAIA is of the view that the effects GMs exit would not have immediate effect to the insurance premiums. The cost of parts as dealers  (suppliers of parts to the OEMs ) and independent part suppliers (suppliers of aftermarket parts ) have not indicated otherwise. Therefore it could be business as usual,” SAIA said.

But while there won’t likely be immediate affects, there is a risk of effects in the future.

“A concern is where a situation arises that there is scarcity of motor parts, that could result to the delay in vehicle repairs which could increase costs of parts and costs of car hire and ultimately, resulting in most cars being declared uneconomical to repair,” SAIA said.

“This increased claims costs could have an effect on premiums.”

However SAIA urged customers to not panic, as insurers are required to honour all valid claims.

Effects On All Consumers?

There have been questions around whether the GM exit will motivate other companies to divest too. This would cause a domino effect on our already strained economy.

General Motors confirmed that it will be retrenching around 600 workers by July, according to IOL.

Trade union Numsa however expects over 1000 job losses due to knock-on effects on the supply chain.

The union also says that the divestment will affect the economy due to our already high unemployment rate.

The auto industry might also suffer a decline. After all, GM was among South Africa’s top seven car manufacturers.

And we all know what happens when the economy struggles – higher prices, taxes, inflation and interest rates.

Read More about how Junk Status will effect the car industry below



Junk Status to Blame?

Some have speculated that South Africa’s downgrade to junk status could be the reason behind GM’s exit.

The union Solidarity directly blamed GM’s decision on President Jacob Zuma’s cabinet reshuffle earlier this year.

“GM’s withdrawal from the South African market comes as a ripple effect of President Zuma’s ill-considered reshuffling of the cabinet in April this year,” Marius Croucamp, Solidarity’s deputy secretary for the Metal and Engineering Industry, said according to ANA.

“We are beginning to see the negative impact of this downgrade, fewer investments and lower economic growth are but the start.”

However GM has denied that the cabinet reshuffle or South Africa’s political situation factored into their decision.

In fact, GM says it is divesting from several Southern African countries as part of their global change in strategy.

Regardless, worries continue over the decision. If GM no longer sees SA as a good investment opportunity, what does this mean for other companies? After all, GM was already an established player in the industry.

Hopefully confidence is restored before any more divestment occurs.

What are your major concerns about GM’s decision to leave South Africa? Let us know in the comments below…

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Insurance Guru

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