South Africa’s automotive industry is not in crisis – but there is a very real danger that inertia could see it regress into lightweight assembly rather than claim its place as a globally competitive vehicle manufacturer.

Speaking at the National Localisation Indaba, in Durban, on Tuesday, consulting company Benchmarking and Manufacturing Analysts chairperson Justin Barnes said that, while there had been major strides, massive changes and bold moves during the 1990s and early 2000s, over the past eight years, the automotive industry seemed to be reluctant to take advantage of opportunities.

“The industry is not striving to move forward aggressively. There is a danger of falling asleep,” he warned.

Barnes noted that the global automotive industry represented a major development opportunity for South Africa-based automotive component manufacturers. Currently, South Africa’s global activity amounted to a mere 0.6%.

Although the general view of the sector appeared bleak, he said evidence supported a more positive view.

However, he noted that the local sector needed to avoid falling into the modularity or light assembly trap, finding itself in a comfortable space where capital costs were minimal and skills and technology needs low.

As a vehicle manufacturer, the South African automotive sector stood to create multiple tiers of activity, generate large amounts of gross value add (GVA) and create the “right” artisanal, engineering and technical employment opportunities; as an assembler, GVA and employment multipliers would be limited and employment opportunities significantly diminished.

As he unpacked data representing the present value adding state of the South African automotive component industry and the degree of localisation, he challenged industry stakeholders to look at where they wanted the industry to be in ten years’ time.

He pointed out that light vehicle production had increased slightly over the past 12 months. According to Automotive Production Development Programme data, local content had grown between 2013 and 2014, with localisation revenue showing an increase of R2.9-billion per quarter. Around 23 200 component manufacturer jobs had been created.

Winning sectors showing increased contributions off large bases included the trims, components and metal forming/pressing industries while “losing” sectors were foundries and forges, plastic moulding and harnesses and electronics.

He said that, according to the National Association of Automobile Manufacturers of South Africa, original-equipment manufacturers’ local content amounted to R37.9-billion in 2013 and R47.1-billion in 2014 – indicating that 41.5% of each light vehicle manufactured in South Africa was locally produced – an increase of 24.3%. The average local content per local vehicle produced increased by 19.6%.

Barnes said it was important to understand that, in the automotive sector, real wealth was generated in research and development and the technologically deep sections of the supply chain, as well as in sales and after-sales support rather than in assembly.

He said that, owing to logistics constraints, between 20% and 25% of each vehicle assembled would be local content. However, competitors such as Thailand and Turkey were achieving as much as 70% local content, indicating that as a level-two vehicle manufacturer, South Africa could increase local content by another 29%.

However, once he unpacked the actual buying profiles of local component manufacturers, it emerged that imported materials far outweighed local materials. Based on this, he said the local industry had to examine the depth of its supply chains.

He noted that this pointed to a myriad of opportunities to close this gap – although there were caveats. Local component suppliers needed to be internationally competitive.
Returning to the question of where the automotive sector would be in ten years’ time, Barnes noted that maintaining the status quo would see 530 000 vehicles manufactured each year with 41% local content. This would account for 60 000 jobs.

A worst case scenario – an assembly driven model – would see the same number of vehicles with local content of around 30% roll off the assembly line. However, this would support just 35 000 to 45 000 jobs. 

A best case scenario would see 1.2-million vehicles assembled at 70% local content, creating 150 000 to 180 000 jobs.

This, he said, was possible. “But the challenge in respect of the best case scenario is that there is no silver bullet. Attention to detail is required across multiple subsectors, each with different cost drivers, supply chain challenges and key market requirements.”