DAVID FURLONGER: A key milestone for Toyota SA

A shipload of Hilux bakkies is due to leave Durban harbour for Europe today — the first export vehicles built by Toyota SA since its assembly plant in Prospecton, Durban, was flooded on April 12.

It’s a bittersweet moment for the company. While it is relieved that the plant is operational again, it will be some months before it is able to function at full capacity. Repairs to machinery and manufacturing robots are still under way.

At the plant’s official reopening this week, Toyota SA CEO and president Andrew Kirby said: “This is not the end of the recovery process but a key milestone.”

It will also take time for the company to assess the financial cost of the disaster, which Kirby calls “the biggest crisis in the history of this company”. Japanese parent company Toyota Motor Corp (TMC) describes it as “the most comprehensive damage to one of our global production facilities as a result of a natural disaster”.

Local CFO Bronwyn Kilpatrick says lost revenue from unbuilt and scrapped vehicles will amount to “tens of billions of rands”. The company had budgeted to build 203,700 vehicles this year. Now the number is likely to be about 135,100 — a loss of 68,600.

At an average price of about R400,000, as calculated by Kilpatrick, that amounts to just over R27.4bn. Add 4,000 completed vehicles that had to be scrapped after Toyota’s low-lying stockyard was inundated, and another 270 bought back after being damaged at nearby dealerships, and the losses keep mounting.

Some revenue will be won back. Sales and marketing head Leon Theron says Toyota customers have been “incredibly loyal” in being prepared to wait for new vehicles to become available — even if it means a delay of months.

That delay applies to both local and export customers. Besides Hilux and the Fortuner SUV, Prospecton builds Quest and Corolla Cross cars, HiAce minibuses and Hino trucks and buses. About 50% of total production, primarily Hilux, is exported, mainly to Europe.

Kirby says TMC has decided not to allocate Prospecton’s export volumes to other Toyota plants — partly to protect the SA company but also because other plants would have to re-engineer their vehicles to European specifications. As a result, European customers face a potential wait of up to six months for a new Hilux.

Some SA customers have run out of patience and bought used, low-mileage vehicles at inflated prices — sometimes higher than those for new vehicles. They will regret it, says Theron. As new stock enters the market, the value of these old vehicles will plunge and buyers will take a loss.

He says franchised dealers have been told not to engage in this short-term profiteering. “This is not behaviour we condone.”

The other financial imponderable is insurance. While Kirby says insurers have paid about half the company’s flood-damage claims so far, they will be cautious about the terms of further coverage. The Prospecton industrial suburb, near the old Durban airport, is on a floodplain (it used to be a swamp). This is the second time in five years that Toyota’s plant has flooded.

In 2017, damage was limited because only water got in and mopping up did not take long. This time, the water was accompanied by thousands of tons of silt and clay. Contrary to what was thought at the time, flooding was not the result of heavy rainfall in Durban but of the unexpected release of water from the Shongweni Dam, about 30km upstream on the uMlazi River.

Water levels on the dam, a popular leisure site, were not being monitored by national or provincial water authorities despite the torrential rain, and when water started pouring through overflow gates, no-one was ready.

By the time it reached Prospecton, the flow overwhelmed the concrete channels supposed to carry the uMlazi the final stretch into the sea, and dumped its silt and clay in the plant.

Kirby says that at 5.30am on April 12, he and executives were congratulating themselves that Prospecton had escaped damage from the heavy rainfall. An hour later, after Shongweni was breached, it was inundated. In some places, water and dirt was up to 1.8m deep.

He says: “There was not a single square metre of the entire 87ha facility that was not affected.”

KwaZulu-Natal provincial government officials immediately sought to downplay the risks from the dam. They said the overflow was a safety mechanism to manage excessive dam water. They insisted that “there is no need to be concerned” and that the overflow “poses no safety risk”. Toyota and its 21 employees whose houses were damaged might disagree.

With vehicle manufacturing suspended, Kirby sent an immediate SOS to TMC. It responded by dispatching hundreds of engineers and technicians from around the world to lead the plant’s rehabilitation.

The big problem was the silt that had made its way into the machinery and robots. Every part of every item (a single robot contains thousands of working parts) had to be disassembled and individually cleaned. Some were too damaged to repair and replacements were ordered. Others were as good as new. Many more could work but at limited capacity.

To replace all these would take many months, says Kirby, so a compromise has been reached. These parts, and the machines they fit into, will work at partial capacity until everything has been replaced. While Prospecton production will increase progressively from now on, it could be early 2023 before it is working flat-out again.

Kirby says: “We are taking a systematic and deliberate phased approach.”

TMC’s response was also financial. It provided loans to help the company over its immediate revenue crisis — “to help us survive”, says Kirby.

The scale of operating losses is still unclear. He adds: “If we can break even this year, we will be pleased.” That’s unlikely but not impossible. Theron says Toyota SA had planned to sell 150,000 new vehicles in SA this year. Having seen sales slide from 15,000 in March to 7,110 in July, he thinks a realistic full-year target now is 120,000-130,000.

That is also ambitious but, once again, just about feasible. TMC has diverted thousands of vehicles from other countries to feed the SA market. As a result, Toyota has remained the top-selling brand every month — a feat that surprises even Kirby. The brand remains on track to retain its crown as the country’s best-seller for another year.

Despite two floods in five years and the threat of more as climate change affects weather patterns, Kirby says there is no question of Toyota SA seeking another site for its assembly plant — despite a number of suggestions that it do so.

The solution, he says, is to be prepared and proactive. Shongweni Dam must never again be left to its own devices but be properly monitored and managed. The Prospecton area needs better water reticulation through its canals and channels. And Toyota must improve its own defences and water storage. A simple thing like storing completed vehicles on higher ground would have been a big help in April.

Kirby says: “We’re going nowhere. Other countries have successfully managed low-lying areas and we must learn from them.” ​