Sunday Times

Ex­ports keep car in­dus­try’s mo­tor revving

The gov­ern­ment can’t af­ford to cut in­cen­tives for car­mak­ers

- By DAVID FURLONGER

● 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.”

 ?? Pic­ture: Masi Losi ?? Some of the last 3-Se­ries sedans to be built at the BMW plant in Ross­lyn, Tsh­wane, be­fore this year’s switch to the X3 sports util­ity.
Pic­ture: Masi Losi Some of the last 3-Se­ries sedans to be built at the BMW plant in Ross­lyn, Tsh­wane, be­fore this year’s switch to the X3 sports util­ity.

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