Tax carrot offered for more cars
State seeks firms to up production
THE government is proposing car makers, including Toyota, Ford and BMW, to more than double production in return for tax breaks so generous the companies can ship the cars to Europe.
The automotive industry accounts for about 7% of SA’s GDP and has been one of the few highlights of a period of sluggish economic growth, according to the National Association of Automobile Manufacturers of SA (Naamsa).
This can be put down to a state incentive programme that expires at the end of 2020, which both the car makers and the Minister of Trade and Industry Rob Davies are keen to extend for another 15 years.
At stake is a potential reversal of a steady flow of new investment by car makers. BMW has spent more than R6-billion on a plant in Rosslyn, north of Pretoria, and last month started production of the X3 SUV at the site, the first time it’s been made outside the US.
Volkswagen and Nissan both announced major expansion plans in 2015, while China’s Beijing Automotive International Corporation (BAIC) is constructing an R11-billion facility in PE.
With talks under way, the two parties are at odds on a number of issues – especially the state’s targets for what it wants the industry to achieve by 2035, according to Naamsa director Nico Vermeulen.
A production increase over that period to 1% of global output, or as many as 1.5-million vehicles a year, is over-ambitious, he said. SA produced about 600 000 units in 2017, the majority for export, and Naamsa forecasts an increase to 850 000 in 2020. “The levels of support proposed are inadequate and insufficient to realise the ambitious targets,” Vermeulen said. “We need internationally competitive levels of support.”
A second point of contention in the negotiations is a government demand for the car makers to double the size of their combined workforce to about 225 000. This is unrealistic given the global industry’s shift toward robotics and automation, he said. The manufacturers are committed to increasing production and employment if the incentives are adequate, Vermeulen said, but are reluctant to agree to specific targets.
“What we are saying to government is, ‘Let’s work closely together on a programme that’s going to keep us active in the country’,” BMW SA CEO Tim Abbott said in an interview.
“We are a long way from our customers,” he said, referring to export markets. “In a majority of cases we’re about 9 000km away. The logistics costs are much higher, therefore we have to make sure a programme is in place that helps us sustain our business.”
Speaking in PE, where VW is the biggest employer, Davies said he’s “more or less at the point where we will take a decision as to what the government programme will be”.
There will be some changes to the present programme, such as deepening the incentives related to component manufacturing, though it will build on the present framework, he said.
Losing car makers would deliver an economic blow to SA, which must be careful to avoid a scenario similar to what’s unfolded in Australia, according to BMW’s Abbott. General Motors, Ford and Toyota have all closed plants in Australia over the past two years, leading to hundreds of job losses.
This was mainly due to a strengthening currency and competition from lower-cost labour markets.