Owing to the right policies, interventions and goodwill by all automotive industry stakeholders, National Association of Automobile Manufacturers of South Africa (Naamsa) director Nico Vermeulen says the industry’s growth potential remains positive.
“Currently, the automotive industry is the largest manufacturing sector in South Africa and contributed 7.7% to the R4.64-trillion gross domestic product (GDP) last year.”
He notes that total revenue of R114.6-billion for vehicle exports and R50-billion for component exports was recorded last year, which, together with domestic sales revenue of R500-billion, meant that the automotive sector contributed R664.9-billion to the country’s GDP.
“Projected domestic sales and production, particularly exports, should ensure that the industry’s contribution to GDP will continue above 7.5% in 2018,” Vermeulen notes.
Higher levels of vehicle production should gradually elevate the industry’s contribution to the GDP to about 8.5%, with domestic production of about 850 000 units being projected for 2020, he adds.
Vermeulen says Naamsa predicts a total export revenue of R180-billion by the end of 2018 and the industry is on target for record vehicle exports of about 366 000 vehicles this year.
Seven original-equipment manufacturing facilities in South Africa, owned and operated by automotive manufacturers BMW, Ford, Isuzu, Mercedes-Benz, Nissan, Toyota and Volkswagen, are contributing to South Africa’s GDP.
Although the prospects of the sector are promising, he notes that challenges include a general competitiveness gap when it comes to challenging global manufacturing and assembly locations and a shortage of appropriately skilled people, coupled with wage increases that do not correlate with the existing productivity and skills set.
“South Africa also suffers from limited investment by lower-tier component suppliers, which affects competitiveness in the automotive component manufacturing sector,” stresses Vermeulen.
However, South Africa has displayed a strong culture of developing proprietary technology, and can maintain relatively low production costs, which are integral to the growth of the sector.
Moreover, Vermeulen notes that the local economy is in the initial phase of economic recovery on the back of recent positive political developments and improved business and consumer confidence. The retention of investment grade ratings with a stable outlook also represents a major boost.
The level and direction of interest rates have also had a major effect on new-vehicle sales. There is a strong inverse relationship between interest rates and new-vehicle sales. The monetary authorities reduced the prime rate by 0.25% in July last year and, with a further reduction of 0.25% on the prime rate in March this year, this should support new vehicle demand going forward, he explains.
Other factors which enhance new-vehicle sales include new model introductions, new technologies, the rate of credit extension and loan finance approvals, and positive consumer sentiment, he points out.
“The industry can go from strength to strength and realise the objective of higher vehicle production in South Africa, making a positive contribution to the future growth and development of the country and creating sustainable employment,” Vermeulen concludes.