DAVID FURLONGER: Discontent on the assembly line

Ambitious plans to increase local content in SA-made vehicles have failed to meet expectations so far, but Renai Moothilal, executive director of the National Association of Automotive Component & Allied Manufacturers (Naacam), believes a recovery is just around the corner.

The SA Automotive Masterplan, devised in 2018 and launched in 2021, aims to increase average industry local content, as a percentage of ex-factory vehicle price, from below 40% to at least 60%. Instead, say some in the industry, the average has gone backwards. In the first quarter of the year, says Moothilal, the figure was “significantly” below 40%.

It’s unlikely to have been any better in the second quarter. Toyota SA hasn’t built any cars, bakkies or minibuses since its assembly plant in Durban was flooded in April — removing one of SA’s better local-content performers from the equation.

Latest news is that Toyota hopes to be up and running again in September, when it will work flat out to claw back some lost production — particularly of its Hilux bakkie, SA’s best-selling vehicle. Add in the imminent launch of the new Ford Ranger bakkie, with higher local content than its predecessor, and Moothilal thinks the industry average for 2022 could creep over 40% by the end of the year.

Toyota’s problems aren’t the only reason for the slow development of local content. Covid, inevitably, affected some localisation plans, and SA has also felt reverberations from the global breakdown in industrial supply chains.

Then there’s the fact that vehicle manufacturers don’t like to switch suppliers midstream during a vehicle’s life cycle. The average for a car is about seven years and for a bakkie, about 10.  As replacements are introduced, local content usually increases. So while Moothilal admits “local content hasn’t increased as quickly as we would have liked”, he expects it to gradually accelerate.

Whether it will reach 60% by the 2035 target date is questionable. Moothilal is among industry leaders to have described 60% as a vision rather than a set-in-stone goal. Some of SA’s seven major vehicle manufacturers have said they are unlikely to ever reach 60% — meaning others would have to exceed it by a big margin to maintain the industry average.

One of the masterplan’s other goals is to increase motor industry participation by black-owned companies. Here, too, progress has been slower than expected but the automotive industry transformation fund (AITF), a multibillion-rand pool to help black entrepreneurs get a foothold in the industry, is starting to make a difference.

The fund says it exists to promote black ownership “across the entire automotive value chain”. That’s not quite accurate. SA’s seven major vehicle manufacturers are wholly owned subsidiaries of multinationals, which have refused to cede shares to SA partners, black or otherwise.

Instead, they have agreed to fund the AITF and help create black development elsewhere in that chain, primarily in components and vehicle retail. Some multinational components companies, equally opposed to giving up control of SA subsidiaries, have  applied to the department of trade, industry & competition (DTIC) to also pay into the AITF.

Moothilal says about 35 companies are awaiting a decision. “We have submitted the business case but there is a regulatory process to be followed, that can’t be hurried.”

What also can’t be hurried, apparently, is the DTIC’s decision on a policy to encourage the local production and sale of electric vehicles (EVs). It should have published a policy white paper last year, outlining its proposed timetable for a shift away from the internal combustion engine (ICE). 

With the exception of Mercedes-Benz SA and Toyota SA, which manufacture some hybrid-electric vehicles, the local motor industry is exclusively ICE. Other companies will transition gradually to EV products but say they need clear policy direction, including an incentive strategy, to help them make up their minds.

If not, they warn that the local industry could go out of business. Most SA-made vehicles are exported to markets that will ban the sale of new ICE vehicles from 2030. If the industry doesn’t adapt, say government critics, SA will be left producing “legacy” vehicles that export customers no longer want.

Moothilal takes a more conciliatory view. He points out that masterplan incentives for vehicle and components manufacturers don’t distinguish between ICE and EV technologies. Whichever they use,  companies can claw back up to 30% of production- and employment-related new investments.

Given that a DTIC preliminary document early last year included a suggestion that imported EV components should be considered local content and imported duty-free — thereby robbing local companies of business — Moothilal is glad the department isn’t rushing into a decision it might regret later.

“If anything, the transition to EV platforms should aim to capture greater local content and reward investment in new skills and technology all the way down the value chain,” he says.

“Localisation has to be the anchor of any policy shifts. I think that is being recognised, and may be the reason why there has not been an immediate knee-jerk policy change finalised, as the policy developers investigate different ways to ensure there is a just transition that does not jeopardise localisation and employment as different [vehicle] platforms come in.”

He says the components sector is ready for an EV transition whenever it happens. The multinational parents of most big players are already involved in EV technology in other markets, so can adapt in SA too. Their local sub-suppliers have shown repeatedly they can also adapt to what the market demands. They have to update their technology and products every time a new vehicle is built in SA.

“We’re in good shape, whatever vehicle manufacturers demand of us,” he says. ​