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Volkswagen Group Africa MD Martina Biene. Picture: SUPPLIED
Volkswagen Group Africa MD Martina Biene. Picture: SUPPLIED

For a company that, a few months ago, was widely rumoured to be on the brink of disinvesting from SA, Volkswagen Group Africa (VWA) shows a remarkable reluctance to die quietly. Last week’s announcement of a further R6bn investment in the company’s Kariega, Eastern Cape, assembly plant suggests it has not given up on SA.

However, despite the celebrations that accompanied the news that a compact sports utility vehicle (SUV) will be assembled in Kariega from 2027, on the same assembly lines as the existing Polo and Vivo car ranges, there’s no doubt that the company faces formidable challenges.

One is highlighted by a throwaway line in last week’s press release on the investment, stating that Polo and Vivo are “the top-selling passenger models for the VW passenger cars brand in SA”. Not long ago, the company could boast they were the top selling cars of any brand in SA. But the influx of cheaper imports from Asia (Suzuki is hot on VWA’s car-sales heels) and the absence of a true entry-level car (remember CitiGolf?) in the local VW product portfolio has changed that.

There are no immediate plans to remedy the situation. VWA MD Martina Biene says the new SUV is likely to be priced below Polo but VW seems destined to be a mid-market brand. Vivo production is due to end in 2029 and Polo in 2030. Potential replacements, says Biene, include a small bakkie and second SUV. There could even be another Vivo which, traditionally, is based on the previous-generation Polo.

What there won’t be in the medium term is anything electric. Polo has been an enormous export success for VWA but its main destinations, the UK and Europe, will ban the sale of petrol- and diesel-powered internal combustion engine (ICE) vehicles after 2035. SA’s slowness in devising a workable electric vehicle (EV) policy has deterred several multinational motor companies from investing in the technology here but, in any case, the VW group prefers to supply Europe’s EV needs from European plants.

Kariega, therefore, will remain strictly an ICE producer for the next few years. EV imports are beginning but Biene says local production is unlikely before 2035. As Polo and Vivo volumes wind down towards the end of their lives, SUVs will fill the gap. The vehicle will be exported potentially anywhere that doesn’t fully embrace the EV revolution. That includes the rest of Africa, which will be a primary export focus for Kariega. Biene describes Africa as “the last frontier for automotive development”. The renaming of the company “represents ... our ambitions to grow the Volkswagen brand on the continent. The new model has the potential to be sold in other African markets where Volkswagen has a presence.”

She adds: “My focus is on Africa now.”

Like most SA-based motor companies, VWA has made progress in Africa. Subsidiary operations in Ghana, Kenya and Rwanda are growing. But for the new SUV and, indeed, vehicles made by any SA companies to achieve wholesale success, requires the whole continent to be a market.

The African Continental Free Trade Area is intended to help achieve that. In 2023, African ministers agreed a Continental Automotive Manufacturing Strategy to create the conditions for a pan-African motor industry. Biene believes it will succeed but that it could take 10-15 years to be fully effective. That means at least 2034, by which time, based on typical seven-year vehicle life cycles, the new VWA SUV, launching in 2027, will already be due for replacement.

Will that be enough time to create the African demand Kariega seeks? Dave Coffey, CEO of the African Association of Automotive Manufacturers (AAAM), thinks so. Besides advising African governments on automotive industrialisation, the AAAM (of which Biene is president) is also trying to create market conditions that will allow annual African new-vehicle sales to reach at least 3-million by 2035. At the moment, they are barely
1-million. The biggest obstacle is that many countries allow unfettered access to dumped, used cars from other markets around the world.

Coffey says that not only are some countries tightening their import rules but there are also efforts to accelerate preferential trade deals between major markets. In addition, financial institutions, some from SA, are stepping up efforts to offer affordable finance to new-vehicle buyers across the continent.

In answer to the question of whether the new VWA SUV will have access to a sustainable African market from 2027, Coffey responds: “Yes, very much so.” Creation of an African vehicle sector was never going to be easy because of unregulated imports. “We now have an agreed strategy,” he says. “The right players are in the room and never before have we had such positive momentum and progressive policy development in Africa.”

Most of the R6bn Kariega investment will be spent on plant upgrades and tooling. About R1.2bn will help components suppliers prepare for the new product. Existing suppliers have received a boost with the news that the only other VW plant producing the current Polo range, in Spain, will stop doing so in July, leaving the whole global market to Kariega. That will add an estimated 20,000 to current annual Polo exports.

Biene hopes Kariega will build 165,000 vehicles in 2024, of which 127,000 will be Polo exports. Whether those targets are met will depend on the government meeting its promises to improve electricity supply and the import-export performance of its railways and harbours.

The lack of reliable energy and infrastructure was the reason for rumours in 2023 of VWA disinvestment, when Thomas Schaefer, CEO of the VW group’s global passenger car operations, said they were a major disincentive to further investment by VW and other companies.

Biene admits that a thorough business case was required to persuade the German parent company to stump up another R6bn but there was never any doubt that the company, which has built vehicles in Kariega for more than 70 years, would remain. She says: “VW belongs in Kariega. We plan to build cars here for years to come.”

Still, despite promises from the government to improve the failings that led to questions about VWA’s future, Biene is taking out insurance. The company is spending R130m to hire two huge generators to supply Kariega with electricity in the event of further load-shedding for the next two years. “We’re taking nothing for granted,” says Biene.

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