Speed bumps ahead for SA’s motor industry
Complications just keep piling up for SA motor companies as a struggling economy, political uncertainty and looming labour difficulties take their toll. The export market is the one bright spot
This year was always going to be a challenging one for the SA motor industry — and it has just become even more complex. Horrible new-car sales figures released on March 1 suggest the market performance this year could be considerably worse than the negative figures already bandied about by analysts.
That’s bad news for an industry also facing the prospect of strikes, tariff penalties in a valuable export market, and the need to redesign its business model for a new production incentive regime.
Political uncertainty ahead of the elections in May was bound to affect buying activity — particularly when mixed with economic stagnation, soaring fuel prices and Eskom’s inability to keep the lights on.
Everyone hopes optimism (and electricity) will return after the elections, but that’s precisely when the industry will face its next challenge. The current three-yearly agreement with the National Union of Metalworkers of SA (Numsa) expires mid-2019 and there are already rumblings of potential conflict.
Andrew Kirby, CEO of Toyota SA and president of the National Association of Automobile Manufacturers of SA, says: "We are expecting tough negotiations. The union environment has been more agitated during this … period of tension and uncertainty."
Volkswagen SA MD Thomas Schäfer adds: "Numsa has told us the gloves are off."
While all this is going on, motor companies and their components suppliers are preparing for the next phase of the automotive production & development programme (APDP), starting in January 2021 and running until 2035. Launched in 2013, the APDP has improved the industry’s competitiveness. But trade & industry minister Rob Davies is unhappy with progress in some areas.
Numsa has told us the gloves are offThomas Schäfer
The next phase will require motor companies to increase average local content in their vehicles to at least 60%, from current levels of below 40%. Davies also wants the industry to drastically increase the number of black suppliers. Simultaneously, he wants to grow SA’s share of global vehicle production from below 0.7% to 1%. That would virtually double current production of just over 600,000.
Some companies have already begun to overhaul the way they do business. With so much going on, the last thing they need right now is to see their local market in trouble.
Car sales in February fell 13.3% compared with a year earlier, from 31,139 to 27,000. The total for the first two months of 2019 was 56,015 — a 12.1% drop. The picture for commercial vehicles is better, but the combined market for all new vehicles is down 7% so far this year.
That’s much worse than anyone forecast. WesBank, which predicted a 1% decline for full-year 2019, is preparing to lower its sights further. The consensus among analysts is that the market will shrink for the fifth time in six years.
There is some good news. Export shipments this year are 24.8% up on 2018. By the end of February, the number had risen from 41,658 to 51,981 and there is every prospect that 2019 will set a new record.
One reason for the rise is that a year ago, Volkswagen SA and BMW SA had just started ramping up production of new vehicles. Now they and their competitors are at full stretch.
Schäfer says he can barely keep up with demand. "If we could assemble more, we would."
What it means
Analysts say the SA car sales market is likely to shrink for the fifth time in six years
Of the 126,413 VW Polo and Vivo cars built at Uitenhage in 2018, 75,900 were exported. This year, the target is to build 161,900 and ship 108,000.
The biggest markets for SA vehicles include UK, Europe, Japan and Australia. Some are due to be sold in the US, but President Donald Trump’s pronouncements on protecting US car companies against imports could affect numbers. SA vehicle exports to the US have decreased sharply in recent years, and no-one wants to see them go any lower.
The same applies to Sub-Saharan Africa, which, in theory, should be the main target for SA exports. Markets have collapsed across most of the region. This is partly due to failing economies but also because governments are failing to curb the dumping of used vehicles from the northern hemisphere.
Few doubt that the Sub-Saharan region will eventually offer significant sales opportunities. But Martyn Davies, head of Deloitte’s Africa auto division, plays down the idea of Africa becoming a cohesive mass market to rival others around the world.
Many global motor executives look at the continent’s total population of about 2-billion and talk of the limitless potential of the "African market".
For Davies, there is no such thing. "It is a fragmented continent. Some countries will emerge, others will not. There will be pockets of purchasing."