Motor industry considers charter to ease its compliance
Ownership pillar in new BBBEE codes trouble OEMs
SOUTH Africa’s motor industry is considering establishing an automotive industry sector charter because of the difficulty multinational original equipment manufacturers (OEMs) have in complying with the ownership pillar of the new broad-based black economic empowerment (BBBEE) codes.
Nico Vermeulen, the director of the National Association of Automobile Manufacturers of South Africa (Naamsa), the representative body of new vehicle manufacturers, said the association had a major workshop last month attended by automotive companies, representatives from suppliers in the industry, as well as the Department of Trade and Industry’s (dti) motor and BEE desks.
Vermeulen said the acting head of the department’s BEE desk had put forward the case for the industry to consider an automotive industry sector charter for a number of reasons, including that a charter could be structured and tailored to the unique circumstances of the industry.
Recommendations
“We went back and asked him to confirm in writing what was stated at the meeting and are waiting for a response.
“We are planning a further industry meeting this month at which we will make recommendations to the chief executives. The position up to now was that it was each company to itself,” he said.
Ownership became a more important requirement in the updated BBBEE codes of good practice that came into effect from May 1, although the ownership target remained unchanged at 25 percent plus 1 share.
The updated codes mean companies will be unable to achieve a BBBEE compliance rating of level 4 or above without doing some sort of ownership transaction.
Ownership is also one of the priority elements in the updated codes and non-compliance will result in a company’s rating dropping by one full level.
Jeff Nemeth, the chief executive of the Ford Motor Company of South Africa and president of Ford sub-Saharan Africa, said multinationals did not like to dilute their brands and found the ownership pillar in the new codes “very onerous”.
Nemeth said most sector specific codes had been more onerous than the general codes and this was one of the issues the industry would have to work its way through.
Nemeth said he had talked to Ford’s US parent company about the issue and confirmed that Ford was interested in some sort of employee ownership programme.
But Nemeth was sceptical about the company entering into a partnership or joint venture with a single partner to buy a part of the company because of the administrative burden it placed on Ford’s parent company.
Nemeth said the value of the business was one of the toughest things for the motor industry because all the motor manufacturers worked with incredibly high gearing and incredibly small margins.
“We are looking at equity equivalents because I’ve got $1 billion (R13.5bn) invested here and I’m not going to find someone to come and give me $250 million for the revenue stream that we generate in this plant,” he said.
Vermeulen said equity equivalents or special initiatives that counted towards ownership points could be accommodated in an automotive industry sector charter.
“There are some innovative proposals that are on the table that could be looked at to ensure the industry complies with the spirit and intent of transformation, but it would not be right for me to discuss them now,” he said.
Nemeth said Ford did not have a business in any country in the world where it owned 100 percent of the business and had “to sell 50 percent of it”.
BBBEE ratings
He said the only countries where Ford had joint ventures were where this was legislated, such as in China, or where from a strategic viewpoint Ford had decided to start the business in those countries with that type of arrangement.
Vermeulen said the old BBBEE ratings applied until the end of April, when companies would have to confirm their BBBEE status in terms of the new codes.
However, he said there might be some flexibility if the industry decided to go the sector charter route because it could get 12 to 18 months to formulate an industry charter.