To a large extent, government incentives had saved the South African automotive industry from a far worse collapse than what was eventually seen in 2009, said KPMG Africa automotive practice director Gavin Maile on Wednesday.

KPMG released its annual global automotive executive survey in Johannesburg.

Maile said the local industry, which saw hundreds of dealerships close, significant lay-staff offs as well as shortened production weeks in 2009, would have suffered worse losses had it not been for component and vehicle on exports, as incentivised by government’s Motor Industry Development Programme.

Domestic sales of all categories of new vehicles in South Africa dropped by 26% in 2009 compared with 2008, to 395 230 units. Exports declined from 284 211 units to 174 947 units in 2009.

In fact, Maile said South Africa was the world’s second worst performer in terms of vehicles sales in 2009, beaten only by Russia, which saw its market decline by a massive 49%.

However, when looking at the local and export market holistically, South African exports made up 47% of total local vehicle production in a dismal 2009 market, which saw local production drop from 562 966 units in 2008 to last year’s 373 923 units. Component exports numbered R28-billion in 2009, compared with R44-billion in 2008.

Government incentives outside South Africa also aided the local industry, with Maile noting that export numbers benefited from scrapping incentives in countries such as the US and UK where consumers where provided with financial benefits to swap their old and so-called ‘clunkers’ for new vehicles.

Moves such as these stimulated demand, which benefited export sales in these markets.

South Africa’s biggest vehicle export destinations in 2009 were the US, at 55 433 units, and the UK, at 21 540 units.

Looking back, Maile said he was one of those who last year pushed government to also consider a so-called cash-for-clunkers programme in South Africa.

However, he noted on Wednesday that the decision not to pursue this avenue “was a good one, as we now know where we stand”.

Maile said the scrapping allowances could have artificially pushed forward demand for new vehicles, simply shifting buying patterns, leaving the 2010 market with little demand – as is the current fear in some overseas markets.

“This is an artificial, unbalanced situation.”

GLOBAL KPMG REVIEW

According to the 11th automotive KPMG review, senior global automotive executives believe their industry will stabilise over the next five years with new investment and growth on the horizon.

However, the 200 senior executives representing vehicle manufacturers and suppliers worldwide said they continue to face certain economic headwinds, such as better but still constrained credit markets, and a lack of clarity with regard to the impact of new government regulations and stimulus programmes.

Accordingly, executives still viewed profitability as a significant issue for 2010, although just more than one-quarter of them expected vehicle manufacturer profits to increase, while almost 40% expected profits to be stable, with 33% expecting a decline.

While this year’s survey results were considerably more optimistic than last year, global executives were seen to remain cautious, continuing to keep a close eye on cash flow and cost control.

The respondents believed the winners would be those companies able to gain market share in an uncertain economic environment, while also leveraging global products and supply chains.

When asked to predict global market share winners over the next five years, the auto executives identified various new Chinese and Indian vehicle manufacturers, as well as existing global players Kia/Hyundai, Toyota, Honda and Volkswagen.

Ford climbed more than two-fold among the respondents in the 2010 survey, as 29% of executives expected its market share to increase this year, compared with 13% of the respondents last year.

Nearly three-quarters of KPMG survey respondents believed the number of alliances, mergers and acquisitions during the next five years would increase for vehicle manufacturers.

According to the survey, the specific global drivers of alliances, mergers and acquisitions would include too much debt and risk of bankruptcy (89% of respondents), access to new technologies and products (84%), potential for product synergies (83%), and access to new markets and customers (82%).

When asked about the most important issues affecting the global auto industry over the next 12 months, 85% of the respondents noted these to be developing new technologies, while just more than 84% pointed to developing new products, and another 80% said reducing costs.

In a related question, nine out of ten executives in the KPMG survey expected vehicle manufacturers to increase their investment over the next two years in new technologies and new models/products, while just fewer than 30% expected investment in new plants.

The KPMG survey respondents overwhelmingly agreed that the sale of hybrid fuel vehicles could help the auto industry get back on its feet.

Around 93% of respondents considered that sales of hybrids would increase the most over the next five years, followed by other alternative fuel vehicles (83%) and low cost cars (82%).