Carmakers tune up for new deal
Handsome subsidies tied to local content in Davies’s master plan
● Carmakers are going to have to raise their game if they hope to meet stiff new localcontent targets, says Andrew Kirby, president and CEO of Toyota SA and chair of the National Association of Automobile Manufacturers of SA.
If they don’t, the government support they’ve relied on for years will no longer be there for them.
“Levels of support for vehicle manufacturers will reduce significantly,” he says.
“It’s going to be a lot harder, and we’re going to have to be really clever and innovative in order to achieve this growth in local content while remaining internationally competitive.”
The targets, revealed last week by trade & industry minister Rob Davies, are part of his latest master plan for the motor industry.
This comprises an extended Automotive Production and Development Programme (APDP) that will take over from the existing APDP in 2021 and run to 2035.
In terms of the existing APDP, which replaced the Motor Industry Development Programme in 2013, manufacturers earn duty rebates according to the number of vehicles they build. From 2021, rebates will be measured on local content.
Though Kirby says the current industry average is just over 39%, the 60% target demanded by Davies is twice the level achieved by some manufacturers.
Davies also wants SA’s share of global vehicle production to rise from its current level of less than 0.7% to at least 1%. Based on estimates of future global demand, this would mean doubling production from 600,000 now to at least 1.2-million in not much more than 15 years.
The aim is to grow the number of blackowned enterprises in the value chain.
“We recognise that these are really aspirational targets,” says Kirby.
Meeting them will require getting significant volume growth in South African, African and global markets.
“We all recognise that it’s a stretch. But we understand that if we want to make a bigger contribution to SA, this is the key way to do it.
“Whether it will make life tougher for the industry or not, we really want to embrace the National Development Plan [NDP] and play a part in helping government to deal with some of the challenges in SA.”
Increasing local content will create “a significant number of opportunities and benefits” for black industrialists as well as more jobs. Davies wants jobs in the industry to double.
But it all hinges on selling more vehicles. Kirby agrees that growing the domestic market in a moribund economy “will certainly be a challenge. We need GDP growth of at least 3% or 4%.”
Improving volumes, however, will be essential, “because without scale it’s very difficult to achieve some of these targets”.
“We all recognise there are changes that need to be made. We need to find smarter, more innovative ways of doing business.”
Upping local content will be the only way to “claw back” some of the government benefits that are going to be lost with the new programme.
“The onus is on OEMs [original equipment manufacturers] to make sure they remain competitive through very stringent productivity improvements, better cost management, working with local suppliers but also sourcing parts globally that can be more competitive.”
There’s a lot of room for improvement, he says.
“We have improved; it’s just a case of improving as fast as the rest of the world is improving.”
There are a lot of new countries with burgeoning carmaking industries that are super competitive.
“We’re now competing against the likes of Turkey, Thailand, India, Mexico and Brazil, and we need to keep up with them.”
Developed markets are seeing a decline in new vehicle sales, while the countries just mentioned are seeing big increases. They all have “very aggressive” industrial policy support from their governments, says Kirby.
“But we don’t want to be saying that because of the reduction in duty rebates we can’t be competitive with the new countries.”
He says the local industry has “endorsed” the extended APDP and master plan Davies has come up with, which is the culmination of a two-and-a-half-year process of consultation.
“We have had some very robust discussions. It wasn’t easy and we’ve all had to find ways of agreeing to a balanced approach.”
The initial targets were a lot higher and the timeframes a lot shorter, he says.
“We’ve certainly been able to influence that.”
If, as he says, the industry is so supportive of the need to embrace the NDP, which has been around for a long time, why haven’t we seen more black participation in the industry and a more robust local supply chain?
“Good question. There has been development, but if we are honest it hasn’t been fast enough.”
The industry is going to have to make “more effort” to develop new black-owned businesses, and the people who can manage them.
“That’s going to be a challenge. It’s not just about finding the business opportunities, it’s about finding the people.”
He concedes that, until faced with the threat of losing their handsome rebates unless they increase local content, there wasn't enough incentive for the industry to do what it now recognises as a national imperative.
“That’s probably true. We have increased our local content but not fast enough. This change in the APDP programme does create a lot more incentive to do that.”
Some in Davies’s department feel the rebates have grown faster than expected, resulting in import-duty revenue being lower than anticipated.
But Kirby denies that the industry has been pampered.
“I don’t think that’s the case at all.
“Any country with an auto-manufacturing industry has to have a support programme. There are no countries with automanufacturing industries without a support programme.”
The rebates made it possible for the industry to develop a deep manufacturing base in SA “despite the obstacles”, he says.
But it took a lot of “resilience”.
“It would be inappropriate to give the impression that rebates are the answer to all our challenges. They aren’t. They’re a critical component, though.”
We’re going to have to be really clever and innovative to achieve this growth in local content Andrew Kirby
National Association of Automobile Manufacturers of SA chair