South African Automotive Industry in a Global Context
The SA Motor Industry in a Global Context
Every two years the South African motor industry presents the Johannesburg International Motor Show where the industry displays new technologies and products and gives us all a glimpse into the future of motoring. But before the spotlight falls on the cars themselves let us put the spotlight on the industry and see how important it is to our South African economy.
So far it’s just a huge fish in a small local pond. Can the SA motor industry swim with the big fishes in the global sea as well?
No one can accuse the industry of lacking ambition. By international standards, it’s tiny, accounting for just over 1% of world vehicle production. Statistics from The International Organisation of Motor Vehicle Manufacturers (or Organisation Internationale des Constructeurs d'Automobiles, to explain the Oica acronym by which it is known), show that in 2012, the global industry built 84 141 209 vehicles — 63 069 541 cars and 21 071 668 commercial vehicles.
South Africa’s 539,424 was a fraction of that produced by the likes of China (19,27-million), United States (10,33-million), Japan (9,94-million), Germany (5,65-million), South Korea (4,56-million) India (4,15-million) and Brazil (3,34-million).
However, under the Automotive Production and Development Programme (APDP) — a government-administered strategy that came into force at the beginning of 2013 and will run until 2020 — the SA industry hopes to more than double domestic production to 1,2-million.
If it can do that, it will not only transform itself in global terms but also potentially have a big impact on the SA economy.
Its domestic importance is already significant. The motor industry last year accounted for 7% of South Africa’s gross domestic product (GDP), 12,1% of exports and 16,3% of imports.
Vehicle manufacturers and their components suppliers employ over 100 000 people directly. Add their service suppliers — caterers, security, cleaning companies and the like — and, based on government figures estimating the number of people supported by every SA job, it is apparent that the industry underwrites more than one million people.
Then there is its role around the country. Take away the motor industry from the Eastern Cape and you will have an economic meltdown. General Motors SA builds vehicles in Port Elizabeth and Volkswagen SA in nearby Uitenhage. PE is also home to Ford SA’s export-focused engine plant, most of the SA tyre industry and scores of other components suppliers. They include Tenneco, which recently concluded a deal with GMSA to export R6bn of catalytic converters to GM in the US.
In East London, Mercedes-Benz SA (MBSA) is by far the biggest private-sector contributor to the local economy. Its car and truck assembly plant not only provides business for local suppliers, but it is also the main customer for East London’s harbour.
The town is aware of its over-dependence on the motor industry but it also recognises that the presence of Mercedes-Benz — whose East London cars have won top international awards for quality — is a huge investment drawcard. So the local industrial development zone is actively looking for ways to bring more automotive business to the town.
Until government pulled the plug on the project, SA’s own electric car, the Joule, looked certain to be built in East London. Now the focus has moved to Chinese and other new Asian producers interested in assembling in SA.
Along the coast in another industrial development zone, at Coega, Chinese motor company FAW has already taken the plunge and is spending R600m on a factory to build trucks and cars.
Tshwane, or Pretoria, also owes a large slice of its prosperity to the motor industry. Ford SA builds Ranger bakkies at Waltloo, next to Mamelodi. On the other side of town, BMW SA and Nissan SA are in Rosslyn, along with truck-makers Tata and UD, who will shortly be joined by Iveco. A supplier park is home to components producers.
Durban is less dependent on Toyota SA, which builds cars, bakkies, trucks and minibuses at Prospecton, but welcomes the considerable employment and economic benefits.
All this influence is bound to grow if the motor industry succeeds in increasing annual production to 1,2m. But now there are increasing fears that, in its haste to imprint SA’s name more deeply on to the global automotive map, government is creating a monster.
In 2012 the SA motor industry racked up a record trade deficit of R49,2bn, after importing R136,1bn of vehicles and components, and exporting R86.9bn. That was equivalent to nearly 40% of the SA economy’s total deficit.
This means that over the life of the Motor Industry Development Programme (MIDP) — the APDP’s predecessor which ran from 1995 to 2012 — the industry ran up a combined deficit of R321,8bn, without once reporting an annual surplus.
Critics say automotive incentives are running the country into debt — ignoring the fact that without incentives there would be no industry, and therefore a much greater deficit if everything were imported and nothing exports.
Garth Strachan, trade & industry chief director for industrial policy, says: “The size of the deficit should not be used as the basis for arguing the case against the automotive support programme. No country in the world with a significant automotive industry does not provide substantial support to its automotive sector.”
There were some reasons for last year’s inflated deficit: the European Union’s seemingly never-ending economic crisis has hurt SA exporters, for whom the EU is an important market.
It’s also true that two of SA’s big exporters, Ford SA and BMW SA, lost several months of production early last year while they were ramping up for the production of new models — the Ranger bakkie and 3-Series sedan respectively.
However, Roger Pitot, outgoing director of the National Association of Automotive Components and Allied Manufacturers (NAACAM), is having none of the latter excuse. With seven major vehicle manufacturers, there will always be one in a state of hiatus between new models, he says. This year GMSA launched the new Isuzu KB bakkie, MBSA will effectively halt production for five months from November to prepare for the new C-Class, and next year Toyota SA will start building its new Corolla.
Johan van Zyl, president of Toyota SA and of the National Association of Automobile Manufacturers of SA (NAAMSA), believes the gap will narrow as the APDP takes hold — though there seems little likelihood of a turnaround in the near future.
As the industry approaches its 1,2-million production target, he says, so local content will rise. Depending on the manufacturer, current local content (the value percentage of SA-sourced parts and manufacturing inputs) of SA-built light vehicles ranges anywhere from 20% to 70%. Van Zyl says 1,2-million will add at least 10 percentage points.
Pitot, who retires from NAACAM at the end of August after eight years, says motor companies can do more immediately to narrow the deficit. He argues that the nature of the MIDP — which rewarded vehicle and components exports with duty-free import credits, discouraged localisation. The only things credits could be spent on were imports. He says the APDP, though it rewards domestic production rather than exports, won’t change that.
Despite his misgivings, Pitot doesn’t deny the positive impact which the MIDP brought to the motor industry. Before 1995, anti-apartheid sanctions had left it isolated and under-invested. Some global companies pulled out completely. Technology and production equipment were out of date. The industry was notoriously inefficient.
The MIDP was the first, extended stage of a renaissance. It encouraged multinationals to reinvest and modernise. It lowered protective barriers and reintroduced competition. It taught the industry there was a world beyond SA’s borders. Despite severe challenges like geographical distance from major markets, overpriced and inefficient transport infrastructure, and low volumes that raised unit costs to often uncompetitive levels, the industry has continued to grow and develop.
As Van Zyl puts it: “The MIDP created the platform for survival.” The APDP is designed to build on that by increasing localisation and creating a genuine local manufacturing industry rather one reliant on imported components.
That, in turn, will create another platform, for long-term growth. Van Zyl says: “To produce over 1-million vehicles is a massive task so we have to look beyond 2020 in terms of further development and expansion.”
To get closer to all facets of this dynamic industry do not miss the opportunity to visit this industry showcase in Johannesburg over the period 16 – 27 October 2013. Wednesday 16 and Thursday 17 October are media and industry preview days whereafter the show opens to the public on Friday 18 October 2013.