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
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.
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