South Africa will never become a low-cost vehicle producer, “that space” having been taken, says National Association of Automobile Manufacturers of South Africa (Naamsa) president and Toyota South Africa Motors president and CEO Dr Johan van Zyl.

“Based on our history, this will never work. We will never be a cheap labour industry.”

Van Zyl compares South Africa’s production of metal pressings to India’s, noting that India’s production came in at a labour cost 222% cheaper than South Africa’s.

This means, however, the country has “huge work” ahead of it to improve its cost competitiveness on other levels.

Van Zyl says South Africa’s automotive industry is not competitive enough, largely owing to low productivity, a strongly fluc-tuating rand, logistics costs, low local content on vehicles, low production volumes and an often negative mindset.

One of the ways to improve competitiveness is to increase the local parts on vehicles produced in South Africa.

Local content averaged 54% in 2012. This needs to increase to 70% for volume pro-ducers in South Africa, such as Toyota and Volkswagen, and 30% for premium car pro-ducers, such as BMW and Mercedes-Benz, says Van Zyl.

It makes little sense for parts to be flown in from all around the world, only to export the completed vehicle.

“There is no reason to assemble vehicles here, if we do not have high local content. The logistics costs are too high.”

Van Zyl adds that the recent seven-week strike in the automotive industry points to the collective bargaining process requiring structural reform, with all stakeholders cur-rently looking at ways to achieve this.

He says a review of the collective bargaining process – which this year could not prevent a strike at assemblers, followed immediately by a strike at component makers – is necessary as it is “not very productive” to still have “50 items to talk about” after three months of negotiations.

Van Zyl says the review process asks, for example, if arbitration should not be an option once it is clear that the parties disagree. It may also be prudent to agree on what the consumer price index (inflation) is before negotiations start.

“Do we need different consumer price indexes for people on various income levels in South Africa?”

An initiative to source “local material at better prices” will also serve as another boost to the competitiveness of South Africa’s auto-motive industry.

If it is possible, for example, for South African catalytic converter producers to buy platinum at a price cheaper than on the global market, “we could dominate this market, instead of having a 15% share”, says Van Zyl.

It will also aid the industry if the manu-facturers of vehicle brands currently being imported into South Africa start local assembly.

“We need to encourage more manufacturers to assemble vehicles in South Africa,” notes Van Zyl.

He also highlights a number of positives which are boosting the local industry’s competitiveness, such as a reduction in port costs, an increase in port capacity, and the R500-million investment by Transnet to build new automotive wagons for its railway lines, at around 14 a week.

“We are now on 180 new wagons.”

There has also been a stable policy frame-work for the automotive industry in South Africa in recent times, a stable economic policy, in general, and continued investment flow from vehicle and vehicle manufacturers into South Africa.

It is the aim of the local industry and government to produce 1.2-million vehicles a year by 2020.

Around 540 000 vehicles were produced in 2012.

“Government is steering in the right direc-tion, but all the rowers must row in the same direction,” emphasises Van Zyl.

In order to achieve the 1.2-million goal, total local vehicle sales will have to grow by roughly 7% a year every year – taking into account that only a portion of vehicles sold in South Africa are locally produced – with the export market to grow by 190%, from the current 277 000 vehicles a year to 800 000 vehicles exported yearly.

“This is a challenging task, but we cannot give up on this. It is an important part of the industrialisation of the South African economy,” says Van Zyl.