Countries where governments are stepping in with automotive industry stimulus packages are seeing a material boost in vehicle sales, says General Motors (GM) executive director market and industry analysis Mike DiGiovanni.

Globally, vehicle manufacturers have witnessed a strong decline in vehicles sales, and, subsequently their economic viability, as consumers pull in their horns in the face of a global recession. This has also been the case in South Africa.

"China has outsold the US for two consecutive months, in January and February," says DiGiovanni.

One of the reasons for this is that China has implemented a sales tax reduction strategy to stimulate vehicle sales, notes DiGiovanni.

China reduced sales tax on vehicles with engines smaller than 1,6 l engines from 8% to 3%, which saw Chinese car sales jump 100 000 units in February compared with February last year.

Brazil has also placed an incentive on the table, reducing sales tax on popular vehicles from 7% to 0%.

DiGiovanni also points to Germany, which is offering a $3 600 scrapping allowance to anyone with a car older than nine years, so they can buy a new vehicle.

In Germany sales have increased 25% compared with February last year.

In general, says DiGiovanni, "the lesson to be learnt here is that countries that are stepping in . . . are seeing results.

"The US only passed a sales tax deduction on . . . income tax - we think that is only going to help the industry with 100 000 units."

He says sales levels in the US are currently at an "unsustainable level".

Sales figures for the South African automotive industry are dropping sharply, similar to what is the case in the US - taking many jobs in the retail, component, and vehicle assembly sectors with it.

Total South African vehicle sales declined 21% from 2008 to 2007, with an additional 10% drop expected in 2009.

Sales of vehicles exported from South Africa to the flailing US, Japanese and European markets, also continue to slump.

A government-auto industry task team is currently drafting a strategy aimed at assisting the local industry, and is set to present its proposals to Trade and Industry Minister Mandisi Mpahlwa. This is expected to happen in April.

This could include some of the measures taken in other countries to stimulate new vehicle demand.

What the outcome of this process will be, remains uncertain, though, as government as times appears unwilling to hand out money to the industry.

Local Fillup?

General Motors South Africa and African Operations communications manager Denise van Huyssteen says "the massive decline in vehicle sales these past few months has had a significant impact on the operations of both vehicle manufacturers and suppliers with production schedules having been cut back dramatically.

"Without a doubt, the severely depressed global economy and auto industry has severely strained the cash position of many in the auto industry."

She notes that access to low cost capital will assist suppliers, vehicle manufacturers and dealers to get through their current cash flow challenges, especially as the automotive industry is a capital intensive industry.

"Access to low-cost capital would assist the motor industry to move forward with future product investments, while enabling original equipment manufacturers (OEMs - or vehicle manufacturers) and suppliers to collaborate on initiatives, which will increase the local content of vehicles.

"This in turn would promote continued investment in the country and therefore job opportunities," says Van Huyssteen.

"Meanwhile manufacturers need to work hard to bring their costs down and to size their operations in line with the lower volume market."

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