Uncertain times for car companies

Downgrade could put brakes on vehicle makers

MULTINATIONAL vehicle and components firms may be investing in the South African motor industry at unprecedented levels, but will their largesse survive the fallout from South Africa’s credit downgrade to junk status and government’s apparent abandonment of sound economic principles?

The local new-vehicle market has gone from feast to famine in just a few weeks.

In mid-March, analysts were predicting a quicker-than-expected recovery from three years of declining domestic new-vehicle sales.

Now, with the country’s downgrade and President Jacob Zuma appointing a cabinet that fills few with confidence, the mood has changed.

There are warnings of further market decline that could extend into next year and beyond.

Government is taking steps that include possible punitive measures to accelerate the pace of change in the development of black suppliers to vehicle manufacturers.

African automotive head at the Frost & Sullivan business consultancy Craig Parker said downgrade-induced rand weakness, rising interest rates, reduced returns and general pessimism about South Africa’s economic sustainability are likely to undermine the confidence of foreign investors.

While describing his views as a “worst-case scenario”, he said the industry cannot afford to ignore the potential for disruption caused by South Africa’s junk status.

Multinational motor groups, expected to invest a record R8.2-billion in local manufacturing operations this year, say they are ignoring nothing.

President of General Motors Sub-Saharan Africa operations Ian Nicholls said: “We are deeply concerned about the current instability in the political environment as it has far-reaching negative repercussions on the economy, including a major negative impact on consumer confidence and business confidence and therefore on the automotive industry.”

However, BMW SA MD Tim Abbott said the current imbroglio is “just a moment in time” and that foreign investors will not be panicked by short-term events.

BMW SA this week showed off progress with the R6-billion investment at its Rosslyn, Pretoria, assembly plant, to build the X3 vehicle from next year.

At present it makes the 3-Series sedan. The X3 investment will tie BMW SA and its German parent to South Africa until at least 2025.

Other companies are also committed to manufacturing plans stretching well into the next decade.

Abbott said: “Economic circumstances in countries go up and down. That’s life.”

Although the domestic market is down, exports of South African-made vehicles are likely to set new records this year, he points out.

Dubai-based head of Ford Motor Co’s Middle East and Africa region Jacques Brent said South Africa faces two major manufacturing challenges: investors’ assessment of local demand, and the market’s competitiveness as a sourcing locality.

Though a weaker rand might make South African automotive exporters more globally competitive, the fact that 62% of the value of South African-made vehicles is imported, would also increase the cost of local assembly. — TMG