The strange deal where General Motors paid four South Africans to take its factory

General Motors (GM) paid four South African businessmen to take over its local operations in 1986 as it was forced to divest from the country by the United States government. 

This would prove costly for the American giant as it would later buy back the company, then called Delta Motor Corporation, in 2004 to reenter the South African market. 

GM has since left South Africa, with it exiting the country in 2017 and selling its local factory to Isuzu. 

The deal in 1986 is seen as one of the strangest in South African business history, with General Motors paying the buyers to take its assets. 

Mark Barnes, who was then at Standard Merchant Bank, explained how the deal came about in a recent Podcasts from the Edge episode. 

“General Motors was required in 1986 to divest its South African operations because of sanctions. Had they not divested, there would have been a big tax consequence for them,” Barnes explained. 

This created a unique situation where GM  was a forced seller, giving significant leverage to any potential buyer. 

The situation was created by the Comprehensive Anti-Apartheid Act, signed into law by the US Congress in October 1986. This legislation banned new US investments and loans to South Africa. 

This was a problem for GM, which had to provide ongoing financing to its South African operations as it had lost $200 million in the five years leading up to 1986. 

Now, no longer able to provide financial support and facing a shareholder revolt, GM had become a forced seller. 

This did not mean a deal was a foregone conclusion at the time, with the American giant still holding some cards. 

It could try to find alternative ways of funding the business through entities outside of the United States, find local financiers, or simply shut up shop as the business was struggling. 

Pressure from the National Automobile and Metalworkers Union (NAWU) was intense at the time as it saw an opportunity to take its pound of flesh. 

Demanding severance pay from GM, the workers launched strikes at its manufacturing plant in Port Elizabeth. 

This pushed the American giant’s hand. With it refusing to pay severance packages to workers, it decided to try to transfer ownership of the South African operations to local management. 

Four South Africans vs General Motors

This is where Barnes and Standard Merchant Bank got involved, with them being chosen to facilitate a deal to transfer ownership to South African management. 

GM’s local management included an American, Bob Price, alongside four local executives. Standard Merchant Bank was tasked with getting ownership into its hands. 

“We were summoned to New York, a team of four South Africans, to go and negotiate a deal for the purchase of what became Delta Motor Corporation,” Barnes said. 

Barnes said the deal was never going to be easy, with GM being one of the largest companies in the world at the time and willing to throw its weight around to get what it wanted. 

He estimated that, at the time, GM’s turnover was four times the entire GDP of South Africa. 

“They had this fabulous office overlooking Central Park where we went to negotiate. It was four little guys from South Africa and Port Elizabeth against General Motors,” Barnes said. 

“We went into these wooded offices, and they had 30 advisers with them. But we had the advantage. They were forced sellers, and we were keen buyers.” 

Barnes recalled that the negotiations were intense, with GM not being keen on giving away its South African operations for free. 

The American company had poured millions into its local operation to keep it going, and now it was looking to recoup some of its investment. However, the South Africans were not going to back down. 

“I won’t go into the details because it involves language that is not acceptable, but eventually we said that we were not going to do this,” Barnes said. 

“We forced the issue, and they had no choice but to cut a deal with us. Eventually, we had a negative purchase price. They paid us to take it.”

Not only did GM pay them to take it, but they agreed to absorb and completely wipe out the South African operations’ existing debt worth $90 million. 

This kept alive the local operations, which became Delta Motor Corporation and manufactured Opel, Isuzu, and Suzuki vehicles under licence. 

In 1997, GM bought 49% of Delta to reenter the South African market and snapped up the remaining 51% in 2004. 

However, just over a decade later, GM would exit the country once again and sold its Port Elizabeth plan to Isuzu in 2017.