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Mar 12, 2004

New tax structure beneficial to automotive sector

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© Reuse this One of South Africa’s eight vehicle manufacturers, Fiat Auto South Africa, reports that, the current interest rate, coupled with the new tax structures, has created good consumer confidence in the local automotive industry.

“The low interest rate, coupled with the tax structures presented in Trevor Manuel’s budget speech, has created good consumer confidence and resultant demand in the South African automotive sector.

“Moreover, the full effect of reduced interest rates has yet to be felt.

“We anticipate that this effect will take place between the second, third and fourth quarters,” MD Gorgio Gorelli tells Engineering News.

He adds that the market is excited about the low interest rates, and that families will start reshaping their budgets accordingly, since they will be able to buy products they were previously unable to buy. Therefore, the monetory policy, which targets a stable and reliable rand, should benefit the South African automotive sector.

Other factors affecting the local automotive sector are the Motor Industry Development Programme (MIDP) and the volatile rand.

“The MIDP is a wise programme; in fact, it is one of the best programmes in the South African motor industry.

“However, there is still difficulty in its understanding and application, especially with the excessive formality and bureaucracy in the operating side of the programme.

“The programme has to be regulated properly according to the market vision, which is not yet common wisdom,” says Gorelli.

He adds that programmes such as the MIDP, which attempts to incentivise the motor industry, have been working well in China, India and Brazil, due to the fact that the programmes are seen as stable investments and engines for economic growth.

The challenge with the MIDP in South Africa is the current state of the rand. “A volatile currency is dangerous.

“And, in terms of the MIDP, if the currency is not controlled, the country could lose export orders,” says Gorelli.

He adds that the company’s manufacturing volumes have decreased from 9 100 vehicles in 2002 to 7 100 vehicles last year.

This decrease is the result of the halt in production of the Fiat Uno for six months due to global stock of material and the adoption of a new business model. However, production of the Uno has since continued, due to demand for the vehicle. Gorelli adds that the company will be unable to maintain the production of the Uno range, as it is part of Fiat’s rationalisation of the product range.

Production of the range is scheduled to end in July.

Gorelli is confident that this will not result in a further decrease in volumes, as other models, such as the Palio and Siena, will compensate for the loss in volumes of the Uno.

The other reason for the decrease in volumes is the dramatic turnaround in the company’s business model, which involves selling vehicles according to customer demand, rather than from stock.

“Our new business model revolves around building custom-made cars to clients’ needs, rather than holding vehicles in stock.

“This model aims to achieve greater customer satisfaction, and avoids possible logistical damage while goods are in stock,” says Gorelli.

He adds that the company has fewer than 200 locally-produced vehicles in stock.

Gorelli says that much excitement lies ahead for Fiat in terms of new models in the next two years, following the success of the Palio range last year.

“The Fiat Palio range has been in high demand, as it is one of the most affordable cars in the South African market.

“The Palio special series, which was launched as a made-to-order car, has been an outstanding success to date, and we anticipate further success with the Palio diesel, to be launched in mid-November.

“We are also proud to announce that the Palio special series now includes blue-tooth technology as standard equipment.

“The blue-tooth technology meets customer demand, due to the fact that cellular phones have become an office tool while on the road.

“This series will enable owners to drive safely while using the mobile office,” Gorelli notes.

He adds that the Palio diesel will make its debut at the Auto Africa exhibition, in October.

Fiat is also set to launch its new Punto model in South Africa in July.

According to Gorelli, this model, which is currently the vehicle leader in European markets, is expected to play a key role in the medium-sized vehicle segment.

Moreover, plans are under way for Fiat to start producing a commercial vehicle next year.

South Africa will be the global poll for this right-hand drive model.

Gorelli adds that the company’s current production capacity is 15 000 units a year.

However, it is producing much fewer than that.

“In April, 2002, we produced 26 units a day and in October, 36 units, which increased to 42 units a day in January last year.

“We are hoping to increase production to 50 units a day, as the back-orders are currently extending to the end of April,” says Gorelli.

He adds that the company is adamant about improving production, especially with the quality levels it has achieved.

According to Gorelli, the company’s main challenge is back-orders.

To cope with this problem, Fiat has decided to implement a new order system that gives the customer priority. “We have eight information technology (IT) specialists from Europe implementing the new IT system,” Gorelli explains.

He adds that this system will be beneficial to customers and dealers as it will reduce waiting time for vehicles significantly.

Moreover, the first phase of the system has been implemented, with the financial phase scheduled for April and operation in June.

Fiat intends to have the system fully operational by the Auto Africa exhibition. Another challenge is to grow the South African automotive industry.

“The local automotive industry has been stable for 30 years, and in the last 20 years, the number of dealers doubled and brands tripled.

“South Africa currently has a stable economy, and investment from abroad is improving.

“This is the right time to start the positive phase for the local automotive industry,” says Gorelli.

In terms of the future, he adds that the company will focus on finding new export markets throughout the Southern Hemisphere.

Another goal for the future is to increase the company’s 3% market-share in South Africa.

“There is room for improving our current market share.

“We are confident that, with the new models and diesel alternatives, we can increase our market share considerably,” Gorelli notes.
Edited by: zeena isaacs
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