Just as the slump and ultimate decline in the wool industry in the late nineteenth century made the future economic prospects of Port Elizabeth bleak, so too does the motor vehicle industry’s relocation to the economic hub of South Africa portend a grim future for the town.
After the booming nineteen fifties and sixties, the seventies awoke to new realities which the City Fathers had not contemplated: the decline of its manufacturing base. This process was ineluctable as the vortex of demand in Gauteng sucked manufacturers ever inward. Far from its market, aspersions were cast on Port Elizabeth’s manufacturing credentials. Instead of adapting to this reality, it persevered with the previous one. Simply put, its strategy should have been a focus on economic activities decoupled from Gauteng such as tourism, medicines manufacture and development, movie making, technology development et al.
In retrospect, the stages of development of the motor vehicle industry in Port Elizabeth are now at an end. Hence it allows one to analyse dispassionately it’s still warm corpse.
This blog deals with its stages of development as a requiem mass is held after the demise of yet another motor manufacturing icon, General Motors, at the age of 95 years.
General Motors is a fitting metaphor of this process and is replete with all these elements.
Main picture: General Motors’ factory
The interregnum between wool and vehicles
Subsequent to the rise in wool exports came industries which were closely linked to the region’s agricultural production. By the end of the 19th century, Port Elizabeth had a number of primary processing industries such as tanneries and wool washeries as well as factories producing basic consumer goods from agricultural products including soap, candles, biscuits, matches, cigarettes and harnesses. Their method of production was mostly highly labour intensive, usually employing a small number of craftsmen overseeing a large number of unskilled workers.
In only one area could Port Elizabeth claim pre-eminence: footwear. By the end of WW1, the Eastern Province could claim the distinction of being the largest in South Africa This process had been aided by the WW1 when the importation of footwear had been interrupted. Initially these firms had originated as individually owned tanneries which had gradually expanded their operations to include the production of simple, cheap footwear. War-time government contracts for saddles and boots provided sufficient demand for the industry to establish itself on a sound basis.
The first automobile in South Africa
The first automobile in South Africa was imported in 1896. As in most parts of the world, it was a curiosity item accessible only to the extremely rich. This vehicle, a Benz-Velo, was exhibited before Paul Kruger, President of the South African Republic, at Berea Park in Pretoria in 1897.
The First Industrial Phase
Other industries had witnessed the same sequence of events in the manufacturing process as the motor vehicle industry would soon experience. An exemplar of this process is the watch making industry. Before the American Civil War, watches were items of both great beauty but also required tedious manual “creation”. One cannot equate the “creation” of a watch with its successor process known as “manufacturing” as the production as each wheel, every spindle, each balance and every pendulum of the watch was individually hand crafted by the same craftsman. It might have been an object of beauty and desire, but it was unaffordable for all except the well-heeled.
This process was employed until Aaron Dennison overturned that business model to the catatonic screams of horror of the contemporary Luddites and fashionistas. So it was with automobile manufacture. The first motor cars were high-priced hand crafted machines built by skilled artisans. As late as 1906, Germany and France were the acknowledged production leaders accounting for 58% of the world production which must be stated, was miniscule.
Once again an industry was ripe for transformation and the person who stuck up his hand to undertake the unpleasant yet transformative task was Henry Ford. Apart from applying the well-founded principles developed in other mass production fields, his breakthrough was to integrate advances in new machinery and transport mechanisms in order to facilitate the continuous flow of materials. Combined with the scientific management techniques of dividing skills and routinising work, the modern assembly line led to deskilling and fragmentation of work, permitting increasing efficiency and accuracy of work. Ford’s manufacturing revolution had the outcome of overwhelming their competitors. By the early 1920s, Ford’s Highland Park plant in Detroit alone was producing 44% of the world’s output.
In order to capitalise on the appeal of the Tin Lizzie, as the Model T was colloquially known, Ford pioneered a global sales organisation for the sale of completely assembled vehicles. As a trailblazer, Ford was rapidly disabused of this idea. The transport of cars proved to be expensive, due to crating costs, freights charges and damages incurred during shipment. As the assembly process was the least amenable to automation, hence it was the most labour intensive aspect of the production process. The elegant solution was to assemble motor vehicles locally in their country of sale by supplying them with disassembled cars as completely-knocked-down [CKD] kits.
The significance of the South African market can be judged by the fact that in 1920, 10,000 motor cars were imported into South Africa when Ford’s total foreign assembly at that stage amounted to just under 69,000 cars.
To investigate the feasibility of local assembly of vehicles in South Africa, in July 1923 Ford despatched representatives to Cape Town. To circumvent restrictions regarding imports from non-empire countries, Ford formed a company which was wholly owned by Ford of Canada. Another significant decision taken was that assembly would be advantageous at a coastal town as all parts were imported. As Durban was in its infancy, Ford concluded that they should concentrate their assembly activities in Port Elizabeth. Not to let grass grow under their feet, assembly commenced early in 1924 and at the end of the first year, the company had sold 3,260 cars and trucks. The experiment had proved to be so successful that Ford of Canada advised that further developments along similar lines be instituted in their other export markets.
Even though General Motors had exported vehicles to South Africa prior to WW1, it only sent its first representative to South Africa in 1915 and established permanent offices in 1917. Like Ford, rapidly expanding volumes justified a switch to local assembly so that costs of their vehicles could be reduced. It was little surprise that their assembly plant was also located at Port Elizabeth. This decision reaffirmed General Motor’s pattern of opening rival operations in markets where Ford’s earlier penetration gave it a substantial competitive advantage.
Significantly, the linchpin of Port Elizabeth’s first industrial revolution, wool exports, was be supplanted by the motor vehicle industry which was at the forefront of the world-wide industrial revolution. Symbolically the first premises of these new assembly plants were located in disused old wool warehouses, Ford in Grahamstown Road and GM in Darling Street.
Demand for vehicles was insatiable. From their initial small production runs, both companies began a process of almost continuous expansion. Total vehicle sales increased from 13, 547 in 1925 to 20,456 in 1929. Both companies were forced to acquire larger premises. In GM’s case, it occurred two years after the first units rolled off the line. It purchased a 36-hectare plot at Kempston Road on which it erected a new factory to its own specifications. Production there commenced at the end of the following year. Ford followed suit in 1929, moving out of its original cramped location into more spacious facilities in Harrower Road.
In the aftermath of the depression and the substantial reduction in demand, sales rapidly rebounded reaching a pre-war peak of 57,536 units in 1937.
Basic Component Manufacture
During the inter-war years, the second phase in the development of the vehicle industry eventuated: the establishment of the first component manufacturers in South Africa. As the assembly plants were situated in Port Elizabeth, it was illogical for them to be established anywhere else in South Africa. The initial entrants into the component manufacturing business were based upon items with low complexity. The first international company to invest in Port Elizabeth was Firestone. It goes without saying that freight costs figured high in their consideration. To do so, they erected their plant equidistant from GM and Ford at the intersection of Harrower and Kempston Roads where production commenced in 1936.
Locally owned Shatterprufe Safety Glass commenced production in Cape Town in 1929. Realising the inanity of this decision, they relocated to Port Elizabeth in 1935. They were followed by Amourplate Safety Glass which began production in 1937.
It is fair to say that the assembly operations in Port Elizabeth bore not one iota of resemblance to their American siblings. Neither plant had automated assembly lines nor were time and motion studies conducted until after the war. Aside from the preparation of upholstery and internal trim involving cutting and sewing, few manufacturing operations were performed in South Africa.
Erratic and violent shifts in demand during that period had their genesis in annual model changes and seasonal variations in vacations. Being an agricultural country, even receipts from the sale of the farmers’ crops had deleterious consequences on sales volumes. Hence assembly work fluctuated greatly. The companies avoided carrying large stocks of vehicles, preferring instead to close the factory and lay off the workers until inventories were depleted.
In a large part due to the deskilled nature of the jobs on the assembly line, most workers could be classified as either unskilled or at best semi-skilled. Meeting peak demand by employing temporary workers did not disrupt production as the learning cycle was generally in the order of minutes. During this period, all assembly line workers and above were white, with Afrikaans workers from the platteland predominating. These were sons of the soil whose primary source of income was their lands with assembly work being a sideline. During the depression, many would relocate permanently to Port Elizabeth. Wage rates were reputed to be above the local minimums, varying between a starting rate of 2/- per hour for white male learners and 4/6d for skilled workers.
Second phase of vehicle manufacture
After the defeat of Hitler, European vehicle manufacture slowly recovered from the devastation.
None of them had mindlessly copied the Fordist production techniques. Instead their focus was on quality and continuous improvement in productivity. After decades of aggressive cost cutting, the American manufacturers ultimately adopted a different philosophy. Their new strategy was identified as “Sloanism” after the Chairman of General Motors. This strategy emphasised product differentiation through frequent superficial style changes and built-in obsolescence.
With products that could now compete with the Americans, the Europeans manufacturers cast their envious eyes to South Africa from the mid-1950s. First to do so were Volkswagen and Mercedes Benz.
Locally demand for cars rebounded sharply after WW2 due to demand being restrained by import restrictions and rationing imposed during the war.
Unit sales surged as follows:
- 1946 24,578
- 1947 58,662
- 1948 86,118
In the booming market, both Ford and GM launched major expansion programs. GM opened a new assembly plant at its Kempston Road site, more than doubling its floor space while Ford relocated from Harrower Road to a new factory in the Neave Industrial Township.
With the resurgence of the European vehicle manufacturers, they were ready to compete with the Americans across the globe but on their own terms. With far fewer resources to expend on international expansion, they deployed another business model whereby locally licensed dealers would assemble their vehicles on a contractual basis.
This post war trend was exemplified by Studebaker Corporation of America. In late 1946, a South African Company, Industrial and Commercial Holdings Ltd, launched a public company, South African Motor Assemblers and Distributors – SAMAD – to assemble Studebaker cars under a franchise agreement with the American company. To this end, they purchased a 50 acre plot from the Uitenhage Municipality in November 1946. Construction of the factory commenced the following year and CKD parts began arriving in 1948. The factory initially employing 320 workers, mostly white males, and had a production capacity of 12 units per day which they quickly expanded to 32 vehicles on a single shift.
SAMAD soon acquired the contract to assemble Austin vehicles, which continued until 1955. In 1951, Volkswagenwerk concluded a deal with SAMAD to assemble Volkswagen Beetles in South Africa. This association between SAMAD and Volkswagenwerk ultimately led to the phasing out of Studebaker assembly. Assembly of Beetles rapidly increased as follows:
- 1952 = 523
- 1954 = 780
- 1955 = almost 3,000
Having proved the viability of Beetle assembly in South Africa, the German company now opted to acquire a controlling stake in SAMAD, investing in a new paint shop, warehousing and office space while also increasing capacity from 42 to 75 units per day.
Further investment was attracted to the area. Before the war, Metropolitan-Cammell Carriage & Wagon Company of Britain had been the primary exporter of Bus Bodies to South Africa. However in 1945, they elected to become the majority shareholder in Bus Bodies which commenced assembling operations in 1946 also from CKD kits from Britain.
Many component manufacturers also selected Port Elizabeth/Uitenhage as the site of overseas manufacture. Feltex, a supplier of industrial textiles and plastics opened a factory in Port Elizabeth in the early 1950s as did Willard Batteries while existing component manufacturers were compelled to expand their manufacturing facilities in order to cater for demand. Shatterprufe opened a much larger factory in 1948 while Armourplate relocated to a new factory offering four times the space. In late 1945, Goodyear concluded an agreement with the Uitenhage Municipality for the purchase of land near the Swartkops River for the construction of a new tyre plant. Two years later, General Tyre followed suit by opening a new factory adjacent to the New Brighton Location.
Nonetheless, the industry supplying components for automobile assembly remained limited to those items most easily produced such as tyres, glass, upholstery and other non-integrated components. While both towns had felt the effect of the post war economic expansion, Uitenhage’s had been more dramatic. From a town where the major industrial concerns were a relic of different economic age – the Railways workshops and the Gubb and Inggs woolwashery – now it could boast an array of industries which were at the forefront of worldwide economic growth.
Unlike their American principals, the South African assemblers did not employ the Fordist system of manufacture. Locally the pace of assembly was determined by the worker himself. The conversion to the Fordist system would replace worker discretion with the automated assembly line. This line led to the rapid supplanting of white workers with black workers.
This was an era when the foreman enjoyed both the ability to set wages but also the ultimate discretionary authority: the power to hire and fire. The contractual basis for hourly paid workers was literally the “hourly basis.” Simply put, the worker could be fired at an hour’s notice.
In spite of the adoption of the Fordist management techniques, South African management did not wholly appropriate the American factory regime. Local plants never duplicated the level of regimentation and fragmentation associated with the American version of this technique. Hence the South African worker never suffered from the same level of deskilling. Partly this was result of having to master a number of different processes and tasks. There was a conscious management decision to develop interchangeability of staff in order to compensate for absenteeism and the number of different models produced resulting in continuous change-overs.
The pattern of instability in employment which had characterised the pre-war industry was transformed. Regularity of employment with total hours for a five-day week varying between 40 and 46 hours per week with a fixed industry shutdown for Christmas holidays, required the nearly constant engagement of workers. No longer was assembly line work a part-time or seasonal occupation, which it had in effect been previous. It was this requirement which mitigated against the seasonal use of the unskilled white farmers.
Post WW2, the motor vehicle operations remained assembly plants. This fact was highlighted by the statistic that only 18% of the materials consumed by the industry were purchased locally whereas the balance of 82% was imported. Those parts and materials which were locally sourced were relatively low value-added items which could easily be added to CKD kits.
Even now the modus operandi as regards operation had scarcely departed from the pattern established in the 1920s of labour intensive assembly. This fact was highlighted by the fact that of the total assets employed by the firms between 1955 and 1958, fixed assets constituted less than 25%. Hence the cost of depreciation on fixed assets was negligible.
Important elements within the state, particularly the Board of Industry and Trade, viewed the industry as a possible linchpin of a broader industrialisation strategy. The government could utilise the levers of tariff and non-tariff measures to induce foreign investment in key productive sectors generating a host of forward and backward linkages knitting together industries within the extractive, manufacturing and distributive sectors, thus driving South Africa to a higher stage of economic development.
The engine of this industrialisation thrust would be the substitution of the existing tariff concession on CKD kits in favour of rebates to assemblers that included a fixed percentage of local content calculated by weight. Amendments to the program gradually increased the minimum percentage of local content required to earn the rebate from an initial level of 25%, when the program was launched in 1962, to 66% in the early 1980s.
Japanese development of low cost mass production
The American and European manufacturers were challenged from the 1960s by a new competitor with its own unique brand of competition. By transforming the way in which cars are produced, Japan would alter the dynamics of world trade and concomitantly it would have a dramatic impact on the nature of the South African industry.
The Japanese organisational model was underpinned by a trio of philosophies: company based unions, lifetime employment and quality circles. These measures would allow them to mass produce vehicles while still maintaining high quality. The labour relations system was linked to a manufacturing approach now known as “just-in-time” production and Kanban – continuous improvement. By means of this approach, limited inventories were enabled by the close proximity between component suppliers and vehicle manufacturers.
The production breakthroughs pioneered by the Japanese companies gave them an important cost advantage in small car production. This enabled them to compete in international markets with their American and European rivals. The Japanese producers began exporting in earnest to all parts of the world in the late 1960s and early 1970s. In was only in South Africa that they departed from this pattern.
Instead in South Africa, they granted licences to local entrepreneurs to establish locally-owned assembly plants, forging alliances with Nationalist Party orientated businessmen. The Japanese market share in South Africa mushroomed from 8.4% in 1964 to a smidgen under 30% in 1971.
One party’s gain is another party’s loss. Port Elizabeth was the loser. The Japanese entry in to the South African market marked the decline of Port Elizabeth. Not only would no new motor manufacturer be located in Port Elizabeth but also many of the component manufacturers being established in terms of the local content programs would also locate their operations on the Reef. Simply put, Port Elizabeth was no longer the preferred location for motor vehicle production facilities. This was borne out by the fact that a number of vehicle importers were forced in terms of the local content regime, to establish plants in South Africa. None selected Port Elizabeth as their preferred location. If they did select a coastal town, the preferred location was Durban, being closer to Gauteng.
Meeting the initial requirements of the local content program proved to be relatively easy as most of the requirements could be met from what was already being produced locally. It was only during the subsequent stages that the targets could only be attained by investing in manufacturing operations either by the assembly plants themselves or by independent component manufacturers.
This was a period of growth for the industry as assemblers added press shop operations to supply body panels and other metal parts, while others began to manufacture engines. In tandem with investments by the assemblers, was investment by the component manufacturers. These investments could be justified by the rapidly surging passenger car sales which increased from 75,938 in 1961 to 229, 031 in 1975.
The effect on the Port Elizabeth/Uitenhage based plants was just as staggering, which masked their long term downward trend. GM purchased a 160 hectare site at Aloes to accommodate their envisaged engine manufacturing plant. Ford’s post-war plant in the Neave Industrial Township could not accommodate the expansion necessitated to comply with local content legislation. As a consequence, in 1963 they opened an engine plant at Struandale adjacent to African townships. In 1973, the engine plant was joined by a another new factory, this one to assemble Cortinas.
SAMAD in Uitenhage also undertook capital expansion in the form of an engine plant and a press shop. The extent of SAMAD’s expansion is indicated by their land holdings which more than tripled from 50 to 151.5 acres in the twenty years to 1967.
The demand on the component manufacturers was insatiable. They expanded relentlessly into metal-working, engineering, foundries, textiles and electrical parts operations. The expansion in Uitenhage was substantial with six new component companies opening during the 1960s. The growth in Port Elizabeth’s component manufacturers was less from new plants locating in the town than from the expansion of existing glass, rubber and textile firms supplying the auto companies.
A transformation of the component manufacturers was occurring at another level as well; the merging of component manufacturers. This was exemplified locally by the venerable old Port Elizabeth firm, Mangolds. Its foundry and engineering business which had initially grown as a repair and supply firm for the shipping trade in the 1850s, and later for local agriculture had diversified into automotive castings in 1957 to supply forgings to the auto plants. Mangolds was acquired by a national conglomerate called Ferrovorm, formed in 1970 by the IDC, Federale Volksbeleggings and General Mining which merged and centralised their foundry interests.
Fragmentation and Relocation
To be a player in the motor vehicle market, virtually all international MNC automobile producers entered the market as a manufacturer resulting in extreme fragmentation. In such an over-traded market, car companies competed on models and variants resulting in fragmentation. The industry was now characterised by high retooling costs and prolific advertising. All possibilities for economies of scale were lost. With the multiplicity of models, the labour content of the vehicle rose disproportionally as different models and variants had to be produced on the same production line.
To meet the local content requirements, many new plants had to be established. Rather than being near the sea as previously was required as the assemblers used imported CKD kits, they now located their plants near to both their customers and their source of raw materials. As the majority of the car buying consumers and the source of the steel was conveniently located in the PWV triangle, this was the logical location for their new factories. It was only in the case of the existing component manufacturers in Port Elizabeth such as glass and tyres that expanded their existing plants at the coast rather than open new facilities inland. Even locating at Durban was economically preferable to Port Elizabeth.
The local content had a perverse influence on Port Elizabeth as it was steadily reduced from the dominant manufacturer of vehicles and components to a sideshow.
The following figures illustrate the extent of the rapid reduction in Port Elizabeth’s importance in the vehicle industry. It underlines the reasons why many of the graduates from UPE, like myself, were compelled to seek our fortunes elsewhere in South Africa.
In 1954, GM & Ford accounted for:
- 80% of turnover
- Two thirds of employment
- 90% of net profit
Over the period 1964 to 1971
- Ford, GM & VW’s share of the vehicle market fell from two thirds to barely two fifths
- Durban’s share rose from 13.3% to 20.8%
- Transvaal’s percentage rose from 5% to 26%
The bias towards the Transvaal is revealed in this 1976 survey in which it is stated that comparing the PWV area with the whole Eastern Cape:
|Industry’s Attributes||PWV||Eastern Cape inc EL|
|Number of operations||>50%||<25%|
|% of Workers||>50%||30%|
The regional shift from the Eastern Cape to the PWV area reflected not only the locational advantages of the PWV area but also the ascendancy of the Japanese manufacturers. Like their American counterparts in South Africa, none of the trio of Japanese manufacturers – Datsun, Toyota or Mazda – slavishly adopted their parent company’s manufacturing philosophy; in this case – “just-in-time.” Instead, as a group, they followed the pattern of low volume, low productivity and low economies of scale as practiced by the other American and European manufacturers.
The impact of the Japanese companies on the local industry was huge as they intensified competition in the industry and they accelerated the shift away from the traditional automotive centre. No longer could Port Elizabeth bear the appellation of the “Detroit of South Africa.” That sobriquet should rightly have been re-awarded and bestowed upon the PWV area.
It was only in the later 1980s that the Japanese companies began to transform their labour processes in order to align them with their parent companies by adopting the “just-in-time” as their mantra.
The expansion of the industrial base in Port Elizabeth and Uitenhage during the 1960s masked the full extent of the new developments in the industry which would ultimately have debilitating long term effects on the Eastern Cape as it lacked two key ingredients for a deep-rooted manufacturing sector: steel production and the market.
The Winds of Change in the global vehicle industry never ceased to howl. Two of the trio of manufacturers were themselves being subjected to the winds of change. The revolution wrought by the Japanese was being played out in America’s back garden as Japanese manufacturers were compelled for political reasons to establish assembly plants in the USA.
Politics was to strike Port Elizabeth next in the form of disinvestment. Only one vehicle manufacturer was to capitulate: Ford. When it reopened in another guise, it selected Silverton in Pretoria. Ford formed part of Samcor which also produced Mazda. The causes of this relocation were political as well as economic. The motor industry in SA was suffering serious hardships under the economic strictures of the 80’s and simultaneously Ford and Mazda had co-operated worldwide to produce small world cars. As an example, the Ford Laser and Mazda 323 differed only slightly in trim. GM suffered disinvestment pressures from the USA but did not leave Port Elizabeth. It entered into a MBO to become Delta which salved the consciences of the disinvestment fraternity. Ultimately GM was compelled to repurchase its plant in PE after 1994.
The weak link in the duo of remaining vehicle plants in Port Elizabeth was General Motors. They had failed to adapt to the new manufacturing and demand realities in the industry. In spite of the all the warning signs, this behemoth was unable to evolve into a lithe, agile competitor. In this reality, its focus has to be internal, to re-imagine the company. In dire straits, in May 2017 it cast aside its weakest siblings including its 95 year old one in far-off Port Elizabeth. One can lament that union pressure or a kleptocractic government in South Africa was the ultimate cause of its demise, but it was rather a weak demand of less of 50,000 vehicles per annum which was the straw that broke the camel’s back. That, conflated with navel gazing by GM, did not permit a focus on its weaker underlings but rather a focus on its own health and viability.
From the “Liverpool of the Cape” to ”The Detroit of South Africa”: The Automobile Industry and Industrial Development in the Port Elizabeth-Uitenhage Region. By Glenn Adler in Kronos no 20 November 1993, pp17-43
An interesting aside
Port Elizabeth used to have a (coal) gas works and there was a gas line to the Struandale area. In 1978 the oil saga was really biting in SA and government funds were made available for any project that could save petrol. Each engine produced at the engine plant was subject to a 5 or 10 minute run-in. They proposed to use the gas for that and then fit the carb and do a quick run with petrol to adjust the carb. Ultimately, the project was not pursued.