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Oct 11, 2012

Auto component production not sufficiently incentivised – Naacam

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The incentive structure of the new Automotive Production and Development Programme (APDP) did not do enough to motivate vehicle manufacturers (OEMs) to increase the percentage of locally produced components they use on vehicles rolling off their assembly lines, said National Association of Automotive Component and Allied Manufacturers (Naacam) executive director Roger Pitot on Thursday.

Speaking at the South African Automotive Week, held in Port Elizabeth, Pitot said the APDP retained the duty-offset system of the Motor Industry Development Programme (MIDP) it would replace in 2013, whereby OEMs cash in their benefits by importing vehicles and components at lower duty rates, thereby providing little or no protection to component makers in South Africa as there was “effectively no import duty paid on components”.

“The APDP is still a duty rebate system. So, the more OEMs export and add value, the more they can also import,” said Pitot.

He noted that high enough vehicle exports – such as 80% of vehicle production from a plant - could ensure that OEMs could import all their component requirements duty-free.

Why would they then source their components locally, asked Pitot.

He added that OEMs had, from 2009 to 2011, imported R108-billion worth of components and subcomponents, while duties paid on these were R446-million, or 0.41%, compared with the R21-billion, or 20% which would have applied without the MIDP duty rebate.

Pitot also emphasised, however, that Naacam regarded the APDP’s production incentive, which rewarded local value addition, as a positive opportunity for the local component manufacturing sector.

He said real local content on locally produced vehicles was around 35% compared with the 55% to 60% often quoted, as the imported content of locally made parts had to be substracted first.

“The correct way is to measure the total component cost, less [the value of] all imports of components, subcomponents and materials,” he said.

“Many tier-one [component] suppliers still import substantial amounts of materials and subcomponents.”

Pitot said a bigger production incentive under the APDP would assist in curbing this trend. It would also promote the expansion of “sunrise type” of component industries in South Africa, seeing to the increased production of parts currently not flourishing under the MIDP’s incentive structure.

“Naacam believes the Department of Trade and Industry must relook the APDP mechanisms as soon as possible to ensure it’s an appropriate framework for industry and government to meet its objectives, namely doubling vehicle production volumes and substantially increasing local content,” he added.

When discussing general barriers to global competitiveness, Pitot noted that vehicle volume production were still low in South Africa, which constrained component manufacturers’ ability to achieve OEM demands for real cost savings.

Pitot noted that production of 100 000 units a year allowed for a far greater competitive advantage than 50 000 units a year.

“Monopolistic costs”, such as electricity tariffs, were also pushing up costs, while wage increases were not matched by productivity improvements.

Edited by: Creamer Media Reporter
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