This year offers few silver linings for the local automotive industry.
Faced with a faltering rand, a jittery global and domestic economy, as well as the trepidation local elections and triennial wage negotiations bring, it seems local vehicle importers and manufacturers will have to hunt for a white rabbit and a black hat to outpace a new-car market which promises to be down almost 10% on 2015.
Glimmers of hope include exports – taking advantage of the limping currency – and launching a number of new models that will convince consumers to open their wallets in an environment of growing inflation, rising vehicle prices and higher interest rates.
Engineering News canvassed a number of automotive leaders on their outlook for 2016.
Mercedes-Benz South Africa (MBSA), vehicle manufacturer.
CEO and executive director: manufacturing Arno van der Merwe:
Biggest challenge: The continuity of high-performing production is an important topic for us this year. This year will be about industrial relations and the successful renegotiation of the industry’s wage agreement with the National Union of Metalworkers of South Africa. It can never be more important than it is currently, given the competition South Africa is facing globally, as well as the state of the global economy.
There are a number of opportunities in the market, but there will be little room to make mistakes. If our industry were to have protracted industrial action, it would be a mistake and it would cost us dearly.
Emerging market sentiment is currently not very positive and South Africa could suffer if the current bout of global jitters continues. Also, while the sharp deterioration of the rand and the danger of spiralling inflation are of concern, MBSA believes we are able to benefit from this situation as we are a net exporter – a position we worked towards over a number of years.
Biggest opportunity: We are a great brand with great products. While the South African new-vehicle market will most likely be negative this year, demand for our products in the global market is strong and we are currently evaluating capacity at our plants worldwide. This provides us with the opportunity to strengthen manufacturing in South Africa, as well as our global export footprint – especially when considering recent exchange rate developments.
If we maintain our manufacturing competitiveness, we could see future growth in export opportunities.
We also hope for market share growth in South Africa.
General Motors sub-Saharan Africa, vehicle manufacturer.
President and CEO Ian Nicholls:
Biggest challenge: We forecast that 2016 vehicle sales will decline further, continuing along similar lines as the year-on-year drop from 2014 to 2015 (4.1%). With manufacturers adjusting their vehicle supply for lower demand, we expect to see less aggressive trading in the retail and consumer segments, which could result in the industry further slowing down. Furthermore, the depreciation of the rand, interest rate increases and inflation hikes will result in further vehicle pricing pressure.
No doubt the upcoming wage negotiations will further exacerbate the challenging business environment. We hope labour and business will work together constructively to achieve an outcome that balances the requirements of labour and a strained economy.
Biggest opportunity: We continue to strengthen our brands and products in the South African market and, to this end, will launch six new vehicles this year.
In 2015, Opel sales increased by almost 74%, compared with 2014. We are about to launch our twelfth Opel product since embarking on our brand resurgence in 2012. A highlight will be the launch of the Opel Astra during the second quarter.
We see opportunity to grow light commercial vehicle (LCV) sales further this year. In 2015, we achieved an 18.9% share in this segment, backed by a 4% increase in Isuzu KB volumes and 3% in Chevrolet Utility volumes over 2014.
We also know that, to win in the market, we have to match our product offering with outstanding levels of service. To this end, the company earlier this year rolled out a customer-focused initiative called Complete Care.
Renault South Africa, vehicle importer.
CEO Nicholas de Canha:
Biggest challenge: The recent devaluation of the rand now exceeds 25% in 60 days (as recorded on January 27). This will lead to strong pricing pressure on local manufacturers and importers alike, while also creating inflationary pressure in the domestic economy. The price increases will be valid for all brands and of similar magnitude.
The second-order effects of rand weakening will be higher interest rates and inflation. Both of these will crimp consumer spending.
A large portion of the market – around 30% – purchases vehicles under R150 000. Many of these consumers will be excluded from the market as a result of the price increases, so a smaller market is very likely – down 5% to 10%.
Biggest opportunity: Renault has an excellent product line-up. Despite the exchange rate, the line-up is well priced and well specced. There are several superb new models on offer.
Renault will also introduce a new entry-level hatch at an exceptional price.
We also expect several of our initiatives, aimed at providing better service for our customers, to bear fruit.
BMW Group South Africa, vehicle manufacturer.
MD Tim Abbott:
Biggest challenge: You do not need a crystal ball to foresee that the macroeconomic outlook globally and locally will continue to affect the prospects of the South African automotive industry. We will closely monitor the fortunes of the rand, interest rate fluctuations, inflation and the impact of all of these on consumer spending.
A strong sales and marketing strategy, aligned with an innovative new model range, saw BMW Group South Africa (SA) finish 2015 on a positive note, gaining ground in premium segment market share, despite the prevailing challenges.
We are confident that this will give us a useful springboard to continue our product offensive in 2016.
Biggest opportunity: Export! Given the current economic climate, looking towards markets further afield provides the opportunity to steer a successful path through 2016. Figures from 2015 bear this out – while the domestic market contracted, exports remained healthy.
BMW Group SA is positioned to continue its strong export performance with a production facility that has been honed to deliver process optimisation, efficiency, flexibility as well as excellence in quality.
The merits and mechanisms for expansion into sub-Saharan Africa are also on the cards for us this year.
Daimler Trucks and Buses South Africa, bus and truck assembler.
Executive director Kobus van Zyl:
Biggest challenge: As Daimler Trucks & Buses (DT&B), we expect the external environment, locally and internationally, to become even more unpredictable. This will see the reassessment of strategies in much shorter cycles.
We are fortunate to be part of a group that is able to act fast in a constantly changing environment. However, having said that, we also realise that South Africa will perform better in a more stable environment. We will play our role, together with all stakeholders, to ensure success for all South Africans.
While we are concerned about the depreciating currency, we also hope to see exports increase as a result of this.
The slow progress on the introduction of stricter emission standards in South Africa is regrettable, as DT&B and most other stake- holders are able to contribute significantly to our country's objective to reduce its carbon output.
The development of human capital remains a massive challenge in our industry and in our country. We will continue to invest in this field.
Biggest opportunity: We are excited about the launch of the DT&B Regional Centre Southern Africa. This centre will enable us to partner better with our South African customers as they expand into the rest of Southern Africa and to leverage on our existing distributor footprint to further expand our products and services.
We recently launched the first trucks in South Africa from our new Daimler plant, in Chennai, India. The market response has been excellent. We look forward to complementing our portfolio with more products and services from all over the world.
Over the many years we have been in opera- tions, we have learnt that customers prefer brands with a long history of commitment and reliability. This year will not be different and we will talk to our customers to explore new opportunities to share their operational challenges. We want to continue reducing their costs and increasing their revenue.
Ford Motor Company of sub-Saharan Africa, vehicle manufacturer.
President and CEO Jeff Nemeth:
Biggest challenge: Ford South Africa’s biggest challenge lies in managing different economic elements, such as economic growth below 1%, increasing interest rates and the exchange rate driving inflation above 7%, all causing a drop in vehicle sales.
Biggest opportunity: There lies opportunity in a weak rand, as it will make our Ranger exports more affordable to our global customers.
In the current economic climate, South African manufacturers will also need to continue improving efficiencies and increase the use of local inputs, where possible.
Nissan South Africa, vehicle manufacturer.
MD Mike Whitfield:
Biggest challenge: New-car sales were depressed in 2015 – a trend that is likely to continue. Consumers have been hard hit by a weak rand, pushing up the cost of imported commodities, rising inflation and interest rate hikes.
Our biggest challenge – and opportunity – will be to create affordable transport options.
We are a leader as far as the running costs of a car are concerned. The 2015 Kinsey Report gave top value-for-money awards to the Datsun, our entry-level offering – a range we will be extending in 2016 – and the city-run-around Nissan Micra.
In the LCV single-cab range category, the NP200 half-ton pick-up came first, followed by the NP300 Hardbody – both locally produced products.
Our premium Infiniti brand also fared well, coming third overall in the executive saloon car segment.
With global warming always in the spotlight, our challenge remains to bring affordable alternative energy vehicles to the local market. This will require continued engagement with stakeholders to provide the required infrastructure and incentives to support our global best- selling electric Nissan Leaf.
Biggest opportunity: The ongoing roll-out of our Africa strategy and expansion into sub- Saharan Africa markets remain our biggest opportunities.
Key focus areas this year will be the expansion of our dealer network – supported by the opening of regional offices in East and West Africa – and attracting new-model production to our plant. To prepare us for moving forward with our expansion plans – already at an advanced stage – our Rosslyn plant is driving plant efficiencies through increased levels of safety, quality and training.
Linked to cost efficiency, we see an opportunity to drive the localisation of parts supply in order to offset the weak rand, which is impacting on import pricing.
Volkswagen Group South Africa, vehicle manufacturer.
MD Thomas Schaefer:
Biggest challenge and opportunity: 2016 will be a challenging year for the motor industry, with initial forecasts seeing the passenger car market declining to between 360 000 and 380 000 vehicles from the 412 000 cars sold last year. At this stage, the LCV market is expected to be flat. This forecast is based on low economic growth, increasing interest rates and an unstable currency. The average consumer’s high debt levels will not help matters.
However, there remains a core market of corporate and private consumers who will continue to need and buy cars. We also know that the environment in South Africa can change for the good or for the bad very quickly, and we remain optimistic that there may still be some upside in the market this year.
The auto industry is, in many ways, at a crossroads. Now, more than ever, all stake- holders need to work together. The three-year industry wage agreement is up for renewal this year and, while, a strike cannot be ruled out, we believe that early meetings and negotiations may see us find a win-win solution this year.
The emissions issues at our parent company have had little effect on our South African opera- tions, and we expect the National Regulator to confirm shortly that our vehicles are fully compliant with local emissions regulations.
Despite volatile exchange rates, we will be able to keep price increases to acceptable levels, as our exports provide a degree of natural hedging.
We see opportunity in this, as well as in the trend of consumers buying down and making safer choices in tough economic times. This will ensure that we will not only maintain, but possibly grow, market share in the passenger market.
We also believe that there is untapped potential in Africa and we will be exploring ways in which we, in South Africa, can benefit from new opportunities on our continent.
Our investment programme for the new models to be produced at our Uitenhage plant – for the local and export markets – is well on its way. Employee training has started on the new technologies to be introduced, with the first investment in physical infrastructure already made.
National Association of Automotive Component and Allied Manufacturers
Adviser Roger Pitot:
Biggest challenge: This year’s challenges can be summarised in one word: the economy. The sudden devaluation of the rand will see price increases across the board, vehicles included. This means lower vehicle sales in 2016, which is bad news for our members in terms of component production.
There is a belief that the weak rand creates export opportunities, but the global economy is not looking too healthy, especially considering low oil prices and the weakening of a number of global currencies. This means we do not expect the exports of vehicles or com- ponents to increase significantly.
The second challenge is the wage negotiations set to take place later this year. We must try, by all means possible, and in the interest of South Africa, to avoid a strike. Any strike will impact negatively on the image of the country.
Biggest opportunity: Opportunities for 2016 include the fact that many vehicle manufacturers have announced plans to produce new models in South Africa, which is a positive sign for the long-term growth of the automotive industry. These new models should create opportunities for local components manufacture.
This also creates a challenge, however, as there are many components that involve technologies that are not currently available in South Africa. This is where the Automotive Supply Chain Competitiveness Initiative may play a role in developing local suppliers in South Africa.