Exports keep car industry’s motor revving
The government can’t afford to cut incentives for carmakers
● One message rings loud and clear from new-vehicle sales figures: the South African market cannot sustain a motor industry.
This is no sudden epiphany. Motor companies have known for years that their future lies in exports. But the extent to which it does has been brought into sharp relief by recent market shifts.
Sales numbers released this week show that in September the industry sold 49,670 new vehicles in SA. Its overseas market was 36,781.
September’s figures were slightly skewed by exports hitting a monthly record. But if forecasters are correct, the 4:3 ratio of local sales to exports will narrow further.
A decade ago, SA was exporting fewer that 175,000 vehicles annually. This year’s prediction is 340,000, rising to more than 400,000 in 2020.
Meanwhile, the domestic market is shrinking. It is only temporary (everyone hopes), but the rate of recovery is expected to be slower than export growth.
September sales continued the gradual decline of the past few months. They were down by 1.9% from the previous September. For the first nine months of 2018, the yearon-year decline was 0.8%. That’s hardly calamitous but definitely disappointing, after the year started with bold forecasts of full-year growth of up to 4%.
Now analysts are divided. WesBank marketing head Ghana Msibi hopes for 0.75% growth, Standard Bank’s Cyril Zhungu expects none, while the director of the National Association of Automobile Manufacturers of SA (Naamsa), Nico Vermeulen, won’t be surprised by a slight decline from last year’s 557,701. And what of the future? In June, Naamsa was predicting a 2018 market of 572,000. Now most bets are off. None of the economic constraints dampening demand — recession, fuel prices, a weak rand, shrinking
If you endanger that, there is no reason we should have a plant in SA
Oliver Zipse
BMW SA chairman
consumer and business confidence, limited disposable income and economic uncertainty — are going away soon.
Zhungu says finance minister Nhlanhla Nene’s midterm budget later this month may give some direction but next year’s national elections, with all their politicking and unpredictability, will muddle the situation.
This all highlights the need for exports. Industry executives make no secret of the fact that, without them, there is no reason to remain in SA. BMW, for example, would not have spent more than R6bn to build the X3 in SA for the sake of a handful of local sales.
Local MD Tim Abbott says that of the 50,000 vehicles built this year, nearly 98% will be exported. That won’t change much next year, when production rises to 76,000.
Mercedes-Benz SA this year announced a R10bn investment in its East London assembly plant to build the next C-Class. Most of that production will leave SA’s shores.
Ford, Toyota, Nissan and Isuzu are all looking for foreign customers, with the emphasis on Africa. But the virtual collapse of many markets means it will take time for most to hit significant figures. To accelerate the process, Volkswagen SA MD Thomas Schäfer is criss-crossing the continent, creating a network of sales and reassembly joint ventures.
Exports are the lifeblood of nearly all major South African motor companies. Of 601,000 vehicles built here last year, 338,000 found foreign buyers.
Annual manufacturing capacity at SA’s seven major motor companies is estimated to be about 800,000. This will rise once Chinese manufacturer BAIC pulls its finger out at the Coega industrial development zone, near Port Elizabeth.
A new assembly plant, which the company says will eventually have capacity for 100,000 vehicles, should have begun production midyear but is many months behind schedule. A much-touted first “SA-built car”, which rolled off a hastily built assembly line during a visit to SA in July by Chinese President Xi Jinping, was actually imported.
The planned 100,000 is needed. SA accounts for about 0.6% of global vehicle pro- duction. To be sustainable long term, it needs to approach 1%. That is the supposed target of the government’s Automotive Masterplan — the 2021-2035 policy successor to the current Automotive Production and Development Programme (APDP).
Given long-term global forecasts, that would require SA to more than double current production to about 1.4-million by 2035. Lately, however, government officials have lowered their sights. In August, trade & industry director-general Lionel October proposed one million as an objective.
Whatever the target, much of the increase will have to come from exports. That’s why there is unease around the masterplan. The APDP has attracted more than R50bn in foreign investment since its launch in 2013, and trade & industry minister Rob Davies has spoken repeatedly of policy continuity.
But there is government talk of reducing some allowances which, according to one executive, “will take a few billion rands out of the export-facilitation pot”.
Davies plans to outline the new policy by year-end but may want to heed the words of BMW SA chairman Oliver Zipse, who is also head of production for the global BMW group. He’s the man who decides in which countries the group spends its money.
He said in an interview this year: “The South African market works for us because we get export credits for cars built there and use them to import others. If you endanger that, there is no reason we should have a plant in SA.”