Hard slog ahead for SA’s motoring sector
There are reasons for SA’s motor industry to be cheerful — but even more to be nervous
Motor industry executives are putting on a brave face at the start of a potentially pivotal year for the sector, still the poster child of the government’s reindustrialisation policy.
On the surface, there are plenty of reasons to be positive. The industry exported a record number of vehicles in 2019. Toyota SA said recently it is spending R4bn to introduce new models and upgrade its vehicle assembly and warehousing facilities. Isuzu SA has begun exporting locally built bakkie kits for reassembly in Kenya. Volkswagen SA boasted record vehicle production in 2019 and hopes to improve further this year.
The launch, every week, of shiny new car and commercial vehicle models enhances the impression of a vibrant industry and market.
Dig a little, however, and the picture is less alluring.
Toyota SA CEO Andrew Kirby thinks the domestic new-vehicle market could shrink another 4% in 2020, its sixth contraction in seven years. The market is already 17% smaller than it was in 2013, and 25% below its 2016 peak.
Kirby isn’t alone in his pessimism. Rand Merchant Bank chief economist Ettienne le Roux says all the economic indicators point to further market decline.
And Mike Mabasa, CEO of the National Association of Automobile Manufacturers of SA, says: "The new-vehicle market is expected to face further consolidation until SA breaks out of its low-growth trap."
This was all underscored last week, when January sales figures showed the market significantly weaker than a year earlier — though the decision by German carmaker BMW, for reasons known only to itself, to bar its global operations from revealing monthly sales numbers has clouded the exact size of the decline. In future, BMW SA, like the rest of the group, will release aggregate figures every three months.
Repercussions of the smaller market are being felt everywhere. Mark Dommisse, chair of the National Automobile Dealers’ Association, says the pace at which independent dealerships are closing or being swallowed by groups may accelerate.
Imported vehicle brands, which used to insist on exclusive dealer representation, are increasingly open to multifranchise deals, through which one dealer sells multiple brands.
SA’s new vehicle market is 17% smaller than it was in 2013, and 25% below its 2016 peak
Local parts producers are also feeling the heat, says Renai Moothilal, director of the National Association of Automotive Component & Allied Manufacturers. Most of their sales go into SA-built vehicles, so any domestic market slowdown is bad news. Last year the decline in sales was offset by exports.
Mabasa thinks 2020 could produce another record, but January’s numbers — 37.7% down on a year earlier — suggest it will be a hard slog. Once again, the absence of BMW from last month’s figures makes it hard to measure the real state of play.
All this is happening against the backdrop of an industry realigning itself for a new government motor industry policy. The updated automotive production & development programme (APDP), starting January 2021, is supposedly a "tweak" of the model running since 2013.
But with barely 10 months before the new version arrives, the industry is still waiting for the final details of how it will work. The broad outline is known, but the nuts and bolts — the minutiae that determine category definitions and potential payments — have yet to be published.
Moothilal says government officials hope to gazette them by the end of March. But, having previously been told to expect them by the end of 2019, the sector is unsure when it will actually happen.
"The industry really needs this final step in order to complete its preparations," says Moothilal.
It’s important to the SA economy that the plan works. The motor industry accounts for 30% of the country’s industrial output. It has attracted R50bn in investments since 2013 and immediate future commitments of a similar size.
By 2035, if the updated APDP succeeds, annual vehicle production will more than double, from 600,000 to 1.4-million, vehicle and components manufacturers will double employment from 120,000 to 240,000, and local content in SA-made vehicles will grow 50%.
However, there is a view — not disputed by the government — that these are aspirations rather than firm targets.
What isn’t up for compromise is the creation of a strong, sustainable black presence in what has been an overwhelmingly white industry.
Foreign-owned motor companies have been allowed to sidestep black ownership rules by creating a R6bn empowerment fund to identify and nurture black-owned companies. Most are likely to be producers of components and subcomponents.
Moothilal confirms that foreign-owned components companies are talking to the government about joining the fund.
"Not only will it provide more money for the development of black industrialists," he says, "but it could also encourage investment from multinational suppliers who have been put off by empowerment and local ownership rules."