Rolling on

In­vest­ments of R10bn in pro­duc­tion/spares will help reach m/ve­hi­cle tar­get

Finweek English Edition - - INSIGHT - SVET­LANA DONEVA svet­lanad@fin­week.co.za

THE PRO­DUC­TION tar­get of 1m ve­hi­cles/year may again be­come the key mo­ti­va­tor for South Africa’s au­to­mo­tive in­dus­try less than two years af­ter Volk­swa­gen SA head David Pow­ell’s sober­ing ad­dress at the Port El­iz­a­beth Au­to­mo­tive Week, when he warned of the demise of lo­cal car mak­ers.

Over the past 18 months al­most all of SA’s ma­jor car man­u­fac­tur­ers – in­clud­ing VWSA – have an­nounced in­vest­ments in their pro­duc­tion and dis­tri­bu­tion fa­cil­i­ties to the col­lec­tive value of al­most R10bn. The most re­cent is Toy­ota South Africa, which last week voiced plans to build a R363m parts and dis­tri­bu­tion out­let east of Jo­han­nes­burg that will serve 56 coun­tries in Africa and Europe and is ex­pected to have a turnover of R3bn, with 20% of that com­ing from ex­ports.

“The 1m pro­duc­tion tar­get is am­bi­tious but we shouldn’t give up on it,” says Toy­ota SA head Johan van Zyl. “Man­u­fac­tur­ers have ad­justed to the change in lo­cal de­mand. Now we need to in­crease our ex­ports.”

Tony Twine, se­nior econ­o­mist at Econometrix, says the tar­get is still a pos­si­bil­ity – the key ob­sta­cle be­ing the slow­down in global de­mand. He added SA has nonethe­less man­aged to sharply re­bound ex­ports by 35% last year, de­spite the still slug­gish eco­nomic con­di­tions in many ma­jor ex­port desti­na­tions.

The cat­a­lyst be­hind the bil­lions be­ing poured into pro­duc­tion ca­pac­ity in SA has been Govern­ment’s Au­to­mo­tive Pro­duc­tion and Devel­op­ment Plan, which of­fi­cially comes into play in 2013 and will of­fer in­cen­tives to ve­hi­cle man­u­fac­tur­ers to in­vest in SA in­stead of the al­ter­na­tive bur­geon­ing mar­kets in South Amer­ica and the East.

The re­cov­ery in ve­hi­cle sales has also served to boost the con­fi­dence of pro­duc­ers, par­tic­u­larly the fore­casts for sales this year. Last year’s growth rate in sales of 24,7% looks im­pres­sive at first glance but in ef­fect only brings the to­tal num­ber of units sold – 492 956 – to a level just be­neath the to­tal unit sales in 2008, when the in­dus­try de­clined by 21%.

McCarthy’s out­go­ing CEO Brand Pre­to­rius sees an in­crease in sales of 11,6%, while oth­ers – such as the Re­tail Mo­tor In­dus­try Or­gan­i­sa­tion’s CEO Jeff Os­borne – are even more up­beat, with a sales fore­cast of a min­i­mum of 13% growth for the year.

But the real chal­lenge for 2011 is whether the in­dus­try will be able to in­crease jobs, and any move closer to that 1m tar­get and higher sales would help. Pre­to­rius says ex­ports would need to be upped by an ad­di­tional 25% and do­mes­tic sales by 10% to see any mean­ing­ful in­crease.

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