Car industry must gear down change
Powels: ‘Don’t alarm foreign investors’
THE GOVERNMENT has been warned about alarming foreign investors by making too many changes to the Automotive Production and Development Programme (APDP).
Volkswagen South Africa (VWSA) managing director David Powels, who takes over as president of Volkswagen do Brasil in February, said on Friday major changes to the programme would indicate to foreign investors a reversal of the government’s excellent track record over the past 20 years of policy stability and predictability.
There were also too many other issues from a South African perspective, such as labour stability, political tensions and sovereign downgrades, which together with any changes to the APDP would “put further doubt in the minds of foreign investors”, Powels said.
He was not prepared to comment on any specifics of the APDP review process, because discussions were still taking place.
But Powels said the industry had a good and mature relationship with the trade and industry department and expressed confidence they would come up with a meaningful compromise and changes to the programme, if any.
The APDP was implemented at the beginning of last year. An early review of the programme commenced early this year, largely to try to address difficulties some component manufacturers were facing in the transition from the Motor Industry Development Programme to the APDP.
Roger Pitot, the adviser on the APDP review to the department, expressed confidence in October that there would be an announcement about the review before the end of this year.
Powels said the major challenges facing the automotive industry were improving its global competitiveness, increasing production volumes to achieve economies of scale, labour stability and growing the local new vehicle market.
South Africa’s automotive industry was still not globally competitive, which related to the lack of scale, he said.
Powels said about 600 000 vehicles were produced a year by multiple brands, which averaged out at about 100 000 a plant a year, which was too low to get real economies of scale.
Powels questioned whether the industry was doing enough to grow local demand for new vehicles, which linked back to higher production volumes to get economies of scale.
He said the scale of industry could be improved by increasing local demand through innovatively improving the overall cost of ownership, with various stakeholders working together and focusing on issues such as insurance, maintenance costs and different levels of tax for different points of entry to the market.
Powels said taxes accounted for about 35 percent of the retail price of some cars and believed preferential or reduced taxes on some vehicles, not luxury models, would make cars more affordable and hopefully still lead to incremental tax to the fiscus through more cars being sold at a lower tax rate.
The industry also needed to ensure it grew demand by improving its access into sub-Saharan Africa and North Africa through preferential trade agreements.
Powels said South Africa must not lose the opportunity to participate in the markets of other African countries.