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As the SA motor industry drifts off into its annual holiday break, executives and workers (trade unions will tell you the former don’t qualify in any way as the latter) can reflect on a year that has turned out a hell of a lot better than they expected – but, perversely, also a hell of a lot worse.
New-vehicle sales have exceeded most forecasts, a new automotive policy has been introduced with relatively little drama, the government has finally committed – almost – to the encouragement of electric cars, and some African governments are taking seriously the idea of a continental motor industry.
On the downside, exports – on which local vehicle manufacturers depend – have been abysmal. Strikes and riots and have played havoc with production in the second half of the year. And one key partner in the new automotive policy has been slow to understand the urgency of making it work.
Also, let’s not forget Covid. While the worst of lockdown may (we hope) be behind us, it still has the capacity to disrupt. Just look at the antics of UK Prime Minister Boris Johnson, who has performed so many Covid policy U-turns he could give Lewis Hamilton lessons on cornering. Not only has his interminable dithering done enormous damage to the SA tourism industry but also, by extension, to the motor industry, by slashing sales to car rental companies. Add lost sales to the UK, SA’s main vehicle export market, because of uncertainty among confused consumers, and the “Boris factor” has been very negative for SA.
Despite this, the domestic new-vehicle market has done better than expected. By the end of November, aggregate sales of cars and commercial vehicles were 24.8% ahead of where they were at the same stage last year. This gap is expected to narrow by year-end towards 20%. At the start of 2021, most growth forecasts were 12%-15%.
Low interest rates have helped, though these savings have been dashed into insignificance in recent weeks by record fuel prices. Maybe this is a good time to go electric – or possibly not, when the alternative to selling your children in order to buy a tank of fuel is to trust your future to Eskom.
However much motor companies, with their vested interest in saying so, insist that Eskom’s unreliable power supply need not be a deterrent to buying an electric vehicle (EV), it is. It may well be true that SA has the highest ratio in the world of stations to EVs, but that has nothing to do with infrastructural planning. It simply reflects the fact there are so few EVs on the road.
It remains to be seen whether the government’s imminent white paper, intended to encourage local EV sales and manufacture, can change the pattern. Something has to give. Many of the overseas markets to which the SA motor industry exports over 60% of vehicle production will ban the sale of new petrol and diesel vehicles from 2030.
Of SA’s seven major vehicle manufacturers, only Mercedes-Benz SA exports EVs – a hybrid version of the C-Class using dual petrol and electric motors. Unlike full-electric EVs, hybrids don’t eliminate exhaust emissions and fuel consumption, they merely reduce them. Hybrids are considered a halfway house towards true EVs, and will themselves be banned in many countries from 2035.
Toyota SA recently started producing a hybrid Corolla Cross, but that is exclusively for domestic consumption. The car is available either with a hybrid or traditional petrol engine. By pricing the hybrid only slightly higher than its cousin – gambling that, early next year, the government will actually provide the buyer the incentives it has hinted at – Toyota believes it will unearth a new market.
So far, the gamble is paying off. Demand for the hybrid Cross is strong, underlining the view of some analysts that South Africans are keen to buy EVs at the right price. The next step will be to transfer this affordability to full-electric cars – and persuade customers that electricity is available to recharge them.
In the meantime, most local motor companies say they plan to build hybrids and full EVs in coming years.
One region they are unlikely to be exported to is Africa. It’s hard enough selling ordinary cars there, let alone hi-tech ones. Charging infrastructure is nonexistent and likely to remain so for many years. The continent is a dumping ground each year for millions of cheap used cars from other continents. Multinational motor companies hope that by creating a pan-African motor industry producing affordable new cars – in tandem with affordable finance – they can increase annual sales by 400%, from 1-million to 5-million by 2035.
Several countries have stated they want to build cars or components and will introduce legislative measures to encourage investment. The idea is to have four regional industries – in North, West, East and Southern Africa – all working in conjunction. SA, which will host the southern leg, is driving the process, which has been given impetus by this year’s ratification of the African Continental Free Trade Area agreement.
This being Africa, nothing should be taken for granted: previous Nigerian promises of stable automotive policy have come to nothing, and Ethiopia’s proposed status as a major investment hub in the new order has been thrown into turmoil by the country’s latest civil war. Nevertheless, there does appear to be growing consensus that if Africa is not to be left further behind economically, it’s time for real industrial co-operation. The motor industry is the logical starting point.
Africa’s 2035 target date for a 5-million new-car market was not hit upon by accident. That is also the final year of the SA automotive masterplan, launched in July 2021. One of the masterplan’s founding principles is to encourage a pan-African industry, which will offer new prospects to SA local vehicle and components companies.
In many ways, the masterplan is an extension of the automotive production and development programme (APDP), which ran from 2013. The big difference is that incentives are now based on local content in SA-made vehicles, not production volumes. This reflects the government’s desire to increase local content from 40% to 60% by 2035. The masterplan also hopes to double industry employment from 110,000 to 220,000, and increase local vehicle production to 1.4-million from last year’s 447,000.
Setting aside the feasibility of some of these numbers – even some policymakers say they are stretch-targets that may not be achievable, particularly after Covid set the global motor industry back by some years – the masterplan’s implementation has been surprisingly incident-free. In the weeks leading up to its launch, there were doubts about whether it would be ready in time. In the event, the department of trade, industry & competition and its policy partners, like the SA Revenue Service, met their deadlines.
The industry seems satisfied so far, even if some policy minutiae are “still unfathomable”, in the words of a motor company finance director. What companies like best is the continuity from the APDP. Without it, US giant Ford would not have invested over R16bn in SA vehicle and engine production this year; Mercedes-Benz, Toyota and Nissan would not have completed multibillion-rand projects of their own; and Isuzu, BMW and Volkswagen would not be planning future projects.
But there’s a catch. Another difference from the APDP is that the government also has responsibilities under the masterplan. It has to provide the transport infrastructure required for a world-class industry. That means smart, efficient ports and railways.
If only. When Ford invested its billions, it was offered a dedicated, direct rail link between its vehicle assembly plant in Tshwane, and Gqeberha, where it has its engine plant and a port. It plans to use the port for all its import and export activities after becoming exasperated – like so many other companies – with activities in Durban.
Production of the new Ranger bakkie, for which the billions are destined, will start early in 2022 and continue until about 2031. So it’s hard to imagine why, according to Ford SA operations head Ockert Berry, state transport operator Transnet thought it could delay the dedicated rail link until 2028. A compromise, 2025, has now been reached.
According to one CEO, persuading government agencies to keep their side of the masterplan bargain can be frustrating. “We are expected to follow the letter of the law and do everything by the book,” he says. “But when it comes to the government doing its bit, there’s often an excuse.”
Durban port blockages were among the reasons for slow exports – though some of the problems could not be foreseen. Riots and looting that followed Jacob Zuma’s midyear arrest made an inefficient situation worse. Vehicles and components couldn’t get in or out, slowing both production and shipments. Then, when that situation eased, a steel and engineering industry strike, preventing the production of components, further disrupted activity.
Add to that limited production at Ford and Mercedes-Benz, two of the industry’s biggest exporters, because of model changeovers, and it’s no wonder exports have collapsed since midyear. At that point, they were over 60% ahead of the same stage in 2020. Now the gap is 8.3% and likely to close further. For some companies, 2022 can’t come soon enough.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.