SA MOTOR INDUSTRY SET TO GET HIT HARD BY COVID-19 LOCKDOWN, THE DTI WARNS

THE DEPARTMENT of Trade and Industry yesterday warned that the local motor industry would be severely hit by the coronavirus pandemic lockdown. The department said its Industrial Policy Strategy report showed that the industry, which remained closed as a result of the lockdown, would be affected way beyond the pandemic. It said the report, compiled by Professor Justin Barnes, showed that the overwhelming majority of firms would push out investments and continue to operate in a guarded manner for at least six more months. “The expectation is that domestic and export production volumes would remain muted for an extended period, resulting in job losses and subdued investment,” the report said. The report said a severe liquidity drain was already threatening the survival of smaller second tier autocomponent manufacturers, which would not be able to restart operations if the lockdown went beyond April. “While this will not cripple the industry, it will reduce local content in South African vehicles, amplify pandemic-related employment losses, and reverse the localisation gains made over the past two years,” the report said. It said the biggest threat was a drop in automotive value addition that rendered the industry less important in global value chains, and moved it to the margins of global production activity. “To limit this negative impact, the industry needed the government’s planned UIF support to deliver payments to workers timeously, firms needed to receive direct liquidity support when required, and the government needs to allow at least some level of automotive production to start as soon as possible to cater mainly for restarting export production,” the report said. It said manufacturers appeared confident of coping with possible changes in operating models and the health and safety protocols they would need to follow after the pandemic. Smaller and second-tier component makers appeared most affected, mainly due to their lower operating margins, and limited access to credit. “These firms see their ability to survive the lockdown as almost entirely dependent on the provision of some form of credit relief, and the extension of UIF support to (at least partly) cover employee wages.” Larger multinationals did not see the lockdown as an existential crisis, but were losing large amounts of money. No major South African vehicle assemblers or automotive component manufacturers had indicated plans to retrench, but this was an inevitable consequence of the pandemic, the report said.