The government must amend its support for the industry if SA is to avoid being marginalised in a post-Covid-19 global motor industry, says Prof Justin Barnes, one of the chief architects of government’s long-term strategy for the SA motor industry.

In a policy brief to President Cyril Ramaphosa and the department of trade and industry, Barnes says years of progress in turning the SA industry into an effective global competitor may be undone if the industry is unable to respond to changing conditions caused by the pandemic.

The urgency is particularly acute now — less than nine months before the launch of a new industry policy that aims to double employment and production, increase local content by 50% and create a new generation of black automotive industrialists.

The SA Automotive Masterplan, starting in January 2021, will run to 2035. At its heart will be a revised version of the 2013 Automotive Production and Development Programme (APDP), which offers manufacturing and investment incentives.

The immediate priority, says Barnes, is to provide clarity on restarting vehicle assembly. He said local motor companies should be allowed to restart the manufacture of export vehicles as soon as possible. The SA motor industry exports about 64% of vehicle production. While companies are in the dark about when they can go back to work, some other countries are already making plans.

There’s no doubt that global demand will be a shadow of pre-Covid-19 levels. SA sales, says Barnes, will be “disastrous” until at least June. The US market is forecast to shrink by as much as 40% in 2020 and the European market by 38%.

But SA can’t sit back. “SA operations are part of complex global value chains and will need to meet their export obligations once global lockdowns are concluded,” he says. “If SA operations are unable to supply vehicle models or components, they risk being displaced by sister companies or competitors that can supply into the value chain.”

That’s why he suggests an early resumption of export manufacture — perhaps even deeming it an essential service. Besides providing revenue to manufacturers and suppliers, it can be used as a test run for full production later.

He says: “General production could then commence once operational learnings have been bedded down and firms have proved they have controls in place to operate at higher capacity levels.”

Tim Abbott, MD of BMW SA, which exports over 90% of its production of X3 cars, says: “As an industry, we have to show government we can be responsible enough to go back to work.  If we don’t all get things going soon, we will run into serious problems.”

Abbott, who is also president of the National Association of Automobile Manufacturers of SA (Naamsa), says companies are ready to return to work as soon as they get the go-ahead. “We will do whatever is necessary: social distancing, suits, masks and protective suits for all our workers … we won’t take any chances.”

Without a return to work, industry bodies have warned in recent days of the potential wholesale collapse of small and medium companies, mainly in the components supply industry. The lockdown is starving them of income and cashflow.

Renai Moothilal, director of the National Association of Automotive Component and Allied Manufacturers, says: “Smaller companies’ ability to withstand such financial shocks are obviously not the same as bigger companies.”

NAAMSA CEO Mike Mabasa estimates 21%-30% of SMEs could go out of business if the national lockdown extends into May, and up to 20% of industry jobs lost. Vehicle and components manufacturers currently employ about 120,000 people.

Barnes says the resultant loss of local content in SA-made vehicles will reverse gains achieved in the last two years, and reduce APDP incentives that have attracted nearly R50bn in foreign investment since 2013. A further R40bn has been committed, in principle, over the next few years — though some of that will now be delayed.

The biggest threat could come from job losses. Vehicle and components companies need to sustain workforce levels to access the APDP’s automotive incentive scheme, which allows them to claim back up to 35% of production-related investments. Vehicle and components companies “will not be able to sustain employment levels post the lockdown,” says Barnes.

He adds that reduced incentives across the APDP “will render the industry less important within global value chains and that moves the industry further to the margin of global production activity”.

In 2019, the SA motor industry accounted for less than 0.6% of global vehicle production. The Masterplan hopes to grow this to at least 1% by 2035.​