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Mar 26, 2008

Mercedes-Benz remains upbeat despite car sales slowing

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The Mercedes-Benz South Africa (MBSA) group has no intention of slowing down production of its top-seller this year, despite the challenges posed by the sharp downward turn in passenger car sales, and other factors such as inflation, crime and political instability.

Chairperson Dr Hansgeorg Niefer told the media at the group's 2007 business results presentation, that it was going to take it up a gear in terms of production volumes of the C-class coming out of its East London facility.

"I am convinced we will produce the highest number of C-classes ever in 2008 - so a very positive outlook for us," Niefer declared.

It is projected that this year MBSA would manufacture close to 70 000 units in total, over 50 000 of which would be the C-class model.

MBSA's upbeat outlook contrasts with certain other automotive manufacturers that were reportedly slowing production at some assembly plants because of the drop in new vehicle sales.

Local daily Business Report said on Tuesday that Volkswagen South Africa was stopping production at its Uitenhage plant for eight days. Nissan was also expected to close for three days over the next two to three months, while the Ford Motor Company of South Africa acknowledged the possibility of having to adopt the same action, the daily reported.

Although the C-class model, which is exported to the US, and constitutes the largest percentage of MBSA manufacturing volumes, would be the focus for the coming year, it would not be the only star of the show.

"This year will be the busiest year on the Mercedes-Benz passenger car side," Niefer commented, adding that it would see the launch of, among others, the new Smart car, the C63 AMG, the family vehicle C-Class, the face-lifted SL sports car, and the new A, E and M-class models.

The new model Mitsubishi Lancer would also be introduced, and was expected to appeal to the black emerging market - a demographic that has been singled out as presenting significant opportunities for MBSA going forward, as its numbers and spending power grew.

Another potential area for growth in the near future was the implementation of the country's integrated transport plans, particularly the bus rapid transit (BRT) system. Niefer said that MBSA would be able to make a "big contribution" to the system, adding that it was busy putting together a project management team that included some employees from Mercedes-Benz Germany who had been involved in implementing BRT systems in South America.


Continued support for the automotive sector vital


Niefer stated that there were certain factors critical to maintaining continued growth and capitalising on the opportunities presented, topping the list was the Motor Industry Development Programme (MIDP).

He commented that it was "not good news" to note that the investment in the automotive industry was down by 50%, compared with previous the year, to R3,1-billion in capital expenditure.

Niefer explained that vehicle manufacturers in South Africa were at a disadvantage, firstly, as they had to import parts into the country, produce the vehicle and then export it at a cost of between €2 000 and €3 000 a vehicle - which they received no compensation for - and secondly, because of their distance from other markets compared with competitors.

Competition was mainly out of Eastern Europe as the manufacturers have the same salary and wage base as MBSA, but their main advantage is that they are right on the doorstep of the biggest market - Europe.

"Somehow we have to compensate this logistical disadvantage otherwise we will never get competitive," Niefer noted.

MBSA remains reliant on its export businesses, but requires further support, not only through the MIDP. He added that regional support was also crucial and the company had been engaging the Department of Trade and Industry in this regard.

Continued growth was also dependent on a secure supply of energy and resources, and aside from the importance of a stable power supply particularly for the East London production facilities, the issue of fuel quality was highlighted.

Niefer acknowledged that, while local fuel quality had improved a lot, it was still far from that of first world countries, and Mercedes-Benz could only introduce new technology, reduce fuel consumption and CO2 emissions if local fuel reached the same quality levels as that of Germany and the US.

He outlined the need for positive business sentiment, and a focus on roads and infrastructure, tackling the problems of potholes and congestion.

Going against the flow

Looking back, despite the "tough" year experienced in the automotive sector in 2007 owing to higher interest rates and fuel prices, and the introduction of e-Natis and the National Credit Act, MBSA seemed to have "bucked the trend", increasing its revenue by 13,5% to R37-billion.

Turnover of the group's vehicle finance business improved 31,4%, and Mitsubishi Motors contribution to overall revenue was up by 3,8%.

In the local market, Mercedes-Benz car sales reached a record high growth rate of 6,3% year-on-year, recording a market share of 7,5%, compared with 2006's 6,4%.

In terms of the Daimler global, South Africa was positioned at number seven for passenger car sales and at number eight for truck sales.

Edited by: Mariaan Webb
Creamer Media Senior Researcher and Deputy Editor Online
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