MOTOR INDUSTRY FACES TOUGH CHALLENGE TO MEET GOVERNMENT TARGET

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    The South African automotive industry faces a number of tough challenges if it is to meet the government’s stated objective of more than doubling output to 1,2-million vehicles per annum by 2020. This became evident from a number of presentations made at the CAR Conference, which took place yesterday (Wednesday, October 12) at the Johannesburg International Motor Show, being held at Expo Centre, Nasrec.

    At present the local industry produces less than 1% of the world’s vehicles – 0,61% in 2010 to be exact. Although production improved by 26% in 2010 over 2009 to 472 000 units, it was still almost insignificant in the light of global production of 77,9-million vehicles.

    However what is important is that major growth has taken place in terms of exporting fully-built up vehicles. The total last year was 239 465 and it is expected to reach a record high of about 300 000 units this year.

    The value of overall automotive exports (vehicles and components) has grown substantially since 1995, when exports were worth only R4,2-billion. Last year this had grown to R69,5-billion and amounted to 11,9% of total exports from South Africa.

    However, several of the speakers, including the president of General Motors’ International Operations, Tim Lee, the president of NAAMSA and CEO of the Volkswagen Group SA, David Powels, and the president of NAACAM and CEO of the PG Group, Stewart Jennings, highlighted a number of major stumbling blocks that were out of their control.

    Among these were labour rates, strikes, the high costs of electricity and water as well as high costs related to the operations of Portnet and Transnet. When viewed in the context of global competitiveness, especially in the BRIC and Asian countries these were serious inhibitors to building and growing a sustainable industry.

    In terms of labour rates it was pointed out that a junior worker in an SA assembly plant was paid the same rate of pay as a teacher, while artisans in SA are paid seven times more than an artisan in Thailand.

    David Powels pointed out that South Africa fared very poorly in terms of days lost to strikes. Last year 20,6 million days were lost due to labour disputes and when this figure is linked in to the country’s GDP then the strike record is one of the worst in the world.
    “For instance, industrial action resulted in us being unable to ship vehicles built in Uitenhage to Japan for three weeks, which was a great embarrassment,” related the Volkswagen senior executive.

    Powels also pointed out that electricity costs had rocketed by 160% between 2007 and 2011, while CPI has risen by only 25% in the same period. Water costs have also risen, while Stewart Jennings says SA’s ports are the most expensive in the world while port and rail inefficiencies cause congestion. He said that the strong Rand has eroded competitiveness and cost jobs.

    “Decisions on vehicle build contracts and component production are made globally, mainly based on price,” explained the NAACAM president.

    “The South African automotive manufacturing and component supply industry, along with other manufacturers, are facing a very tough period, exacerbated by the global nature of the sector,” continued Jennings.

    “It is important for the authorities to address the barriers to competiveness as well as infrastructure investment and to provide temporary relief where appropriate and to facilitate improved productivity and skills development. We need a more competitive and stable currency and then the industry itself will be able to improve its own competitiveness.”

    On the positive side there was gratitude from the senior executives for a stable and consistent government policy for the automotive industry, which will see the successful Motor Industry Development Programme (MIDP), which began in 1995, being phased out at the end of next year and replaced by the Automotive Production and Development Programme (APDP), which is due to run until 2010.

    Between 2000 and 2011 vehicle production in SA had soared by 59% compared to 35% for the global industry, while vehicle exports were up by 343% and component exports had increased by 186%.

    They said that the MIDP had been beneficial in many aspects including increasing employment and rationalising locally-made models, but it had resulted in a huge inflow of imported  vehicles, which had increased competition substantially,

    There was general support for the APDP, although both vehicle and component makers are hoping the regulations will be tweaked somewhat before the programme is implemented.

    General Motors’ Tim Lee concluded by saying that the emerging markets are now the driving force in the global automotive industry and this situation has created new opportunities. He said he sees winners being those companies that capitalise on opportunities and offer quality products and new technology.

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