A R1.1-billion investment at Dunlop’s Ladysmith radial car and tyre factory, in Ladysmith, will help Sumitomo Rubber South Africa (SRSA) achieve its goal of becoming Africa’s number one tyre company within the next five years.

The investment is aimed at increasing capacity at the Ladysmith plant, as well as upgrading and aligning technology to enable it to meet Sumitomo’s high global quality and safety standards. It will also facilitate the production of addition tyre sizes, grow capacity and facilitate the introduction and growth of the Falken and Sumitomo Tire brands in Africa. 

Ikuji Ikeda, group CEO and president of Japanese rubber giant Sumitomo, which acquired the manufacturing and distribution licence for Dunlop tyres in South Africa and 33 other African countries from Apollo Tyres in a R600-million deal effective from December 2013, opened the company’s new head office in Durban on Thursday and turned the sod for the expansions at the inland factory on Friday.

He said he was confident that extensive investment was warranted as the African tyre market was expected to grow on the back of economic development and global investment across the continent. It currently accounts for just 3% of the global tyre market.

More importantly, he said the main reason for acquiring Dunlop from Apollo Tyres and upgrading the plant was the strong growth prospects for motor manufacturing in South Africa. He noted that, based on Sumitomo’s existing strong relationships with big motor brands, he expected the company to become the major player in the original equipment (OE) segment.

Currently, Dunlop is the main supplier of tyres for the new Chevrolet Utility and will begin supplying tyres for new cars to Toyota and Volkswagen from 2016. He said the company expected to be producing at least 400 000 OE tyres for South African motor manufacturers in the near future.

He added that the company would also grow the sales and distribution side of its business to be able to more fully use the capacity of the Ladysmith factory. However, as an international investor, Sumitomo needed the support of its suppliers, customers and government. Raw materials would be sourced locally wherever possible and plans were being put in place to minimise possible labour disruptions.

SRSA CEO Riaz Haffejee said the acquisition had gone smoothly. Dunlop, a South African company listed on the JSE was bought out by Indian tyre group Apollo in 2006. He said that selling the Dunlop side of the business to Sumitomo, which already owned licensing rights in 20 countries and had a long history of technical assistance to the local company made sense as the previous arrangement had “split the brand”.

Apollo South Africa, which retained its Durban factory and truck and tyre business, applied for business rescue last week. Haffejee said it was unclear if further purchases would be feasible at this stage.

Currently, the Ladysmith plant produced 9 600 tyres a day and had the capacity to ramp this up to 10 500 a day without upcoming improvements. Apollo had invested R600-million in the company over the past six years, of which R300-million had gone towards base tyre technology.

He said the R1.1-billion upcoming investment was “conservative” and would probably increase over time. Although this was primarily aimed at supporting OE business, SRSA also aimed to be the market leader in the aftermarket in Africa.

Eighty per cent of funds would go into new equipment and machinery, with the remainder split between tooling, improving existing buildings and adding new ones and improving safety standards.

At present, SRSA produces passenger, sports utility vehicle, or 4x4, and light truck tyres. It currently produces 39 different tyre sizes with another eight sizes to be introduced next year. A new range of truck bus radial tyres will be introduced in January 2015 for both local and international distribution.

Haffejee said it was still too early to determine exactly how many new jobs the expansion would create. This would only become apparent after 2017 when the factory was likely to introduce bigger shifts to handle greater capacity.

At present, he said SRSA was increasing its staff on the export side of the business and employing technical engineers and technical artisans ahead of the upgrade.

He said SRSA had committed to growing tyre manufacturing in South Africa despite ongoing concerns about cheap imports, which were swallowing up an increasingly large chunk of market share.

In addition to calling for stricter policing, he said companies such as SRSA were working closely with the South African Revenue Service and industry bodies to institute a formula-based import duty that would help prevent under-invoicing to evade duties and taxes and ultimately create “a fairer playing field”.