SA ve­hi­cle in­dus­try rid­ing on ex­ports

With ve­hi­cle ex­ports soar­ing, it ap­pears the ef­fects of gov­ern­ment’s Automotive Pro­duc­tion and De­vel­op­ment Pro­gramme seem to be mak­ing an im­pact. And de­spite lo­cal ve­hi­cle sales fig­ures re­main­ing de­pressed, man­u­fac­tur­ers con­tinue to in­vest in pro­duc­tion c

Finweek English Edition - - INSIGHT - BY MAR­CIA KLEIN

Lo­cal ve­hi­cle sales f ig ures, which are yet to reach lev­els achieved a decade ago, tell the story of an in­dus­try un­der im­mense pres­sure. But buoy­ant ex­port f ig­ures and re­cent in­vest­ments by auto man­u­fac­tur­ers tell a dif­fer­ent story: de­spite a plethora of head­winds, the ve­hi­cle man­u­fac­tur­ing in­dus­try has re­mained re­silient.

This is due, at least i n part, to t he Automotive Pro­duc­tion a nd De­vel­op­ment Pro­gramme (APDP), in­tro­duced in Jan­uary 2013, to re­place the Mo­tor In­dus­try De­vel­op­ment Plan, im­ple­mented in 1995. It has helped South Africa’s auto man­u­fac­tur­ers re­tain and grow their mi­nor, but fairly com­pet­i­tive, place in a global in­dus­try.

SA-BASED MAN­U­FAC­TUR­ERS

While many big com­pa­nies are hold­ing off on in­vest­ment in SA’s prob­lem­atic econ­omy, Volk­swa­gen Group South Africa (VWSA) last month an­nounced plans to in­vest over R4.5bn to pro­duce new mod­els at its Uiten­hage fac­tory in the Eastern Cape by 2017.

This in­vest­ment in­cludes over R3bn in pro­duc­tion, R1.5bn in lo­cal sup­plier ca­pac­ity and R22m for train­ing and de­vel­op­ing em­ploy­ees. Man­ag­ing di­rec­tor Thomas Schafer said at the time of the an­nounce­ment that SA, with only 0.6% of global ve­hi­cle pro­duc­tion, is “not a log­i­cal pro­duc­tion lo­ca­tion” for the in­dus­try, but VWSA’s in­vest­ment ref lected the po­ten­tial of Africa as a fu­ture mar­ket for ex­ports and the se­cu­rity the APDP pro­vides for in­vestors. Ex­port vol­umes of VW’s Polo range were ex­pected to in­crease 21% in 2015.

Matt Gen­nrich, gen­eral man­ager group com­mu­ni­ca­tion at VWSA, said the com­pany has “taken a leap of faith in South Africa and the po­ten­tial fu­ture of Africa”, and is en­sur­ing it main­tains or im­proves its mar­ket share and po­si­tions it­self for pos­si­ble ex­pan­sion into subSa­ha­ran Africa.

As Fin­week was go­ing to print, Goodyear also an­nounced a R670m in­vest­ment in its Uiten­hage plant to in­crease pro­duc­tion of high-value-added con­sumer tyres.

While South African ex­ports to other African coun­tries have been un­der pres­sure, there are signs that mo­tor com­pa­nies con­tinue to have faith in the con­ti­nent.

Last month Ford an­nounced that it will as­sem­ble the Ford Ranger bakkie in Nige­ria from the last quar­ter of this year. Its in­vest­ment in Nige­ria, the f irst African coun­try out­side SA to pro­duce Ford ve­hi­cles, is part of the com­pany’s Mid­dle East and Africa growth plan. Ford South Africa, which pro­duces the Ranger for 148 mar­kets, will ex­port kits for assem­bly to the Nige­rian plant, which will have pro­duc­tion ca­pac­ity of 5 000 units a year. Ford also an­nounced that it would start pro­duc­ing a new gen­er­a­tion Du­ra­torq TDCi en­gine for the new Ford Ranger at its Port El­iz­a­beth plant.

Last year Toy­ota South Africa started lo­cal vol­ume pro­duc­tion of the new 11th gen­er­a­tion Toy­ota Corolla at

its Prospec­ton man­u­fac­tur­ing fa­cil­ity fol­low­ing an in­vest­ment of over R1bn in pro­duc­tion ca­pa­bil­i­ties. In July Toy­ota launched its R476m Quan­tum Ses’fikile Com­plete Knock Down (CKD) plant. At the time, min­is­ter of trade and in­dus­try Rob Davies said in­vest­ments by the ve­hi­cle and com­po­nents man­u­fac­tur­ing in­dus­try had to­talled R24.5bn since the launch of the APDP.

In a mid-year pre­sen­ta­tion by the depart­ment of trade and in­dus­try (dti) to the eco­nomic de­vel­op­ment par­lia­men­tary port­fo­lio com­mit­tee, it said auto ex­ports worth R115.7bn in 2014 rep­re­sented 12.7% of to­tal ex­ports.

Gov­ern­ment had paid out R4.1bn since the start of the APDP, in­clud­ing R1.2bn in 2014/15 and recorded a “the­o­ret­i­cal duty loss” of R7.1bn in 2013. It did not pro­vide a 2014 to­tal.

SALES DROP, EX­PORTS SOAR De­spite t he s e ne w i nv es t ment com­mit­ments, there is no doubt it is tough for the mo­tor in­dus­try right now. The latest fig­ures show that new ve­hi­cle sales dropped 8.2% year-on-year in Au­gust to 51 055 units, with pas­sen­ger and light com­mer­cial ve­hi­cles both los­ing 7.8%. Do­mes­tic sales have been poor, but ex­ports of 28 069 units in Au­gust were 12.3% up year-on-year, and on track for a 20% growth this year to a record of around 330 000 − at a per­fect time to make full use of a weak­en­ing rand.

The in­dus­try’s lack­lus­tre per­for­mance is not a re­cent phe­nom­e­non. In­dus­try pro­duc­tion, which is still fail­ing to match 2008 lev­els, rose just 3.7% or by 20 417 units in 2014 although fore­casts look bet­ter.

SA is also not alone. A re­cent re­port by PwC said 2015 will be “a mod­est year” for the global automotive in­dus­try. Light ve­hi­cle assem­bly is ex­pected to in­crease 2.7% to 88.6m units in 2015. Be­tween now and 2021, PwC fore­casts a 3.7% com­pound an­nual growth in pro­duc­tion, with the lion’s share of new assem­bly vol­ume com­ing from de­vel­op­ing mar­kets, par­tic­u­larly in the Asia-Pa­cific re­gion.

PwC said SA’s ve­hi­cle and com­po­nent man­u­fac­tur­ing in­dus­try ac­counted for 30.2% of the coun­try’s to­tal man­u­fac­tur­ing out­put and 7.2% of GDP in 2014. SA ex­ported cars and com­po­nents worth R115.7bn to 148 coun­tries in 2014.

De­spite low do­mes­tic sales f ig­ures, there has been a sig­nif­i­cant in­crease in cap­i­tal ex­pen­di­ture which had slumped from over R6bn in 2006 to R3bn the fol­low­ing year. It picked up to R3.9bn in 2011, R4.6bn in 2012, R4.4bn in 2013 and a record R6.9bn in 2014, with another record R7.5bn pro­jected for this year .

While pro­duc­tion and sales fig­ures have been slug­gish, ex­ports con­tinue to grow strongly, in­di­cat­ing lo­cal man­u­fac­tur­ers’ abilit y to pro­duce to glob­ally com­pet­i­tive stan­dards. Na­tional As­so­ci­a­tion of Au­to­mo­bile Man­u­fac­tur­ers of South Africa (Naamsa) fig­ures show that ex­ports con­tinue to grow strongly to Europe, Aus­trala­sia, South Amer­ica and Asia while ex­ports to North Amer­ica have shown mod­est growth. Ex­ports to the rest of Africa, how­ever, dropped 18% in the first half of this year, ref lect­ing the ef­fect of reg­u­la­tory changes in Al­ge­ria and im­port duty and levy in­creases in Nige­ria.

The long-term growth in ex­ports has been re­mark­able. A decade ago, lo­cal sales of pas­sen­ger cars were dou­ble those of ex­ports. In 2008, the num­ber of ex­port units over­took lo­cal sales units for the first time and ex­ports have grown since then to the ex­tent that in 2015, Naamsa has forecast lo­cal sales of pas­sen­ger ve­hi­cles of 115 000 and ex­port sales of 205 000.

THE APDP FU­ELS GROWTH Growth in ex­ports, and ex­pec­ta­tions of record pro­duc­tion and cap­i­tal ex­pen­di­ture this year, are in no small part due to the APDP, which has been crit­i­cised by some com­po­nents man­u­fac­tur­ers. Naamsa said

The Ford Ranger Wild­trak, which will be launch­ing in SA in the com­ing months.

Ford Ranger Wild­trak in­te­rior

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