New East London plant to announce first assembler by end March

10th December 2009 By: Irma Venter - Creamer Media Senior Deputy Editor

The East London industrial development zone (ELIDZ) expects to make an announcement before the end of March on the first vehicle manufacturer (original equipment manufacturer, or OEM) to make use of its new multi-OEM assembly plant to be built in the IDZ, says ELIDZ business development manager Tembela Zweni.

Zweni does not want to divulge any names, noting only that the IDZ is courting Korea's Hyundai, Chinese manufacturers Foton, Chery, Great Wall Motors and Chana, as well as India's Tata and Mahindra to start local assembly in East London.

The proposed multi-OEM plant is a tool to provide newcomer vehicle brands and low-volume brands “with a soft landing” in South Africa's manufacturing industry, explains Automotive Investment Holdings' Corrie Kotze, a consultant to the project.

The multi-OEM manufacturing facility is based on a model where a number of manufacturers will share the same assembly facilities, such as a paint shop, a body shop, and trim and assembly lines.

“Ideally we would like four to five companies to use the facility, each with a production volume of around 10 000 units,” says Kotze.

However, it is also feasible to produce only a few thousand vehicles of a particular model a year.

Zweni says ELIDZ has already started talks with a number of European companies to do vehicle assembly on behalf of the OEMs which sign up for the project.

The multi-OEM plant could see participating brands qualify for incentives under the government's new Automotive Production and Development Programme (APDP).

In its first phase, it is intended for the facility to meet the APDP  production target of 50 000 vehicles a year – the threshold for incentives to kick in under the support programme.

This means OEMs coming into the market will benefit from APDP incentives without having to hit the target on an individual basis.

The APDP comes into affect in 2013.
All in all, the East London plant, therefore, reduces the risk for start-up or lower-volume-selling OEMs, as it enables them to test the market without having to make major capital investments, while also reaping some rewards.

“We want to attract newcomers to the South African automotive industry,” explains Kotze. “So we thought, go back the 1960s and the 1970s when all today's known brands were often assembled in shared facilities in South Africa.

“We have a situation where Chinese manufacturers, for example, say that they will assemble in South Africa as soon as they hit a certain volume target. We are saying, we will create an environment for you to come and assemble in South Africa, and to qualify for government incentives.”

Current planning sees the East London plant up and running in 18 to 24 months.

Kotze says the focus is not only on providing newcomer brands with the cost benefits of manufacturing locally (and not paying import duties), but also for South Africa to act as an export springboard for these companies into the rest of the world, made possible by trade agreements with the US and Europe, for example.

However, Chinese and Indian manufacturers are known for their less expensive manufacturing models – so, will South African component manufacturers be able to compete with parts imported from these regions, or will assembly remain exactly that – assembly with little local content?

At 10 000 units a model it is difficult to provide economies of scale on parts production, says Kotze.

However, it would be possible to localise a basket of common parts, such as batteries, wind screens, wipers, and tyres.

“As volume picks up we can starts attracting suppliers from India or China to set up shop locally,” he notes. “And it would be possible for the assemblers to migrate to local suppliers over time.”