SA automotive component industry holding steady

26th July 2013

By: Ilan Solomons

Creamer Media Staff Writer

  

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It is quite difficult to define the state of the South African automotive component industry, as there are many factors to consider, says National Association of Automotive Component and Allied Manufacturers (Naacam) executive director Roger Pitot.

“Some of the major automotive component exporters to Europe are struggling, owing to the ongoing European economic crisis; however, some exporters are experiencing steady levels of trade as a result of the depreciating rand,” he notes.

But, Pitot says local vehicle production levels have remained stagnant; therefore, component manufacturers which supply the local assemblers are not registering growth.

“New data from Naacam in June revealed that employment in the first quarter of 2013 was down by about 5%, compared with the same period last year,” he notes.

Legislative Conundrum

Naacam is currently engaged in high-level discussions with the South African government about implementing administrative changes to the Automotive Production and Development Programme (APDP), which was implemented in January, as it seeks to increase local vehicle-component content.

However, Pitot says Naacam has not started discussions with government about APDP policy as of yet, but plans to do so in future.

“A lot of new legislation is proposed, which would impact on local automotive component manufacturers – notably, the possible changes to legislation governing the labour broking industry, which provides temporary workers for our members, as their production is subject to significant fluctuations and they require the flexibility temporary labour provides,” he states.

In November 2012, Engineering News reported on the proposed amendments to the Labour Relations Act (LRA) and the Basic Conditions of Employment Act, highlighting that the proposed amendments related to fixed-term contract employees and would limit fixed-term contracts to a maxi- mum of six months, unless the nature of the work could be proved to be of a limited or definite duration and the employer could demonstrate a justifiable reason for fixing the term of the contract.

BKM Attorneys candidate attorney Lauren Hastie told Engineering News that, according to the proposed amendments, a temporary employee is employed for a period of six months, where a permanent employee is substituted by a temporary replacement or in the case of an employee conducting a specific category of work for any period of time.

The specific category of work for any period can be determined by a collective agreement as temporary.

Further, the amendments clarify that the labour broker or temporary employment service is, in fact, deemed the employer of those employees contracted by them during disputes.

“Also of significance is the proposed amendment that states that, if the services of an employee are terminated as a result of the client avoiding the correct operation of the LRA, this is regarded as an unfair dismissal,” said Hastie.

Likewise, the proposed amendments state that a temporary employee cannot be treated less favourably than a permanent employee.

“This is an important amendment for employees, as they want and have the right to fair and equal treatment. It does pose a challenge to employers, however, as companies often do not want to pay a temporary employee the same as they would pay a permanent employee, as companies also have to pay a temporary employment service.

“This could have the effect of indirectly ousting labour brokers because if a company is required to pay the same amount for a temporary employee as it would for a permanent employee, they may look to employ a permanent employee, rather than deal with a labour broker,” Hastie said.

Pitot believes that it is completely unrealistic to think that companies can survive with fixed levels of employment in an environment that has so many variables.

“The proposed changes to broad-based black economic-empowerment (BBBEE) legis- lation will result in most of our members dropping several levels on their BBBEE scorecards and, rather than encouraging further costly structural changes, this could have the opposite effect. Some companies, realising that achieving high ratings is unaffordable, might give up on their current BBBEE efforts,” he warns.

In April, Engineering News reported that the BBBEE Amendment Bill aimed to plug gaps in current empowerment legislation.

The amendment, which was approved by the National Assembly in June, proposes a maximum penalty of ten years’ imprisonment and/or a fine for individual private-sector executives who are found guilty of misrepresenting corporate black economic-empower- ment points, or a penalty of 10% of total yearly turnover for companies that are found guilty of fronting.

In addition, a maximum penalty of one year’s imprisonment or a fine would be imposed on those who failed to report fronting.

Meanwhile, Pitot says that Naacam is partially in favour of the proposed amendment of the National Road Traffic Act, which, if passed by Parliament, will result in a ban on the sale of scrapped used-car parts in South Africa.

“Naacam supports the proposed ban on scrap parts, but only for newer vehicles, as most of these vehicles would be insured and many would be covered by service or maintenance plans. The proposal would increase production and sales of new parts,” he says, adding, however, that the proposed amendments make little sense regarding older vehicles.

“Government should reconsider this part of the proposed Amendment Bill,” says Pitot.

Industry Challenges

Pitot says the single biggest challenge the automotive component manufacturing industry faces is rising cost pressures, which are negatively impacting on the industry’s competitiveness.

“Automotive component manufacturing is a global industry and, whenever costs increase, owing to increases in wages, electricity, transport and raw materials, its ability to retain and attract new manufacturing investments to South Africa is greatly threatened,” he bemoans.

Further, Pitot highlights that Naacam is involved, along with the National Association of Automobile Manufacturers of South Africa, the Department of Trade and Industry and the National Union of Metalworkers of South Africa, in setting up a new organisation – the name of which is yet to be confirmed – that will focus on eliminating or reducing costs in the supply chain.

“This organisation will undertake initiatives by October,” he says.

The African market, Pitot states, holds huge opportunities for the South African automotive industry and Naacam fully supports the South African government’s initiative to establish the Southern African Development Community as a free trade region, with common rules of origin.

“However, most of all, we see the increased localisation of automotive components manu- facturing as the single biggest opportunity for the South African automotive industry,” he highlights.

Pitot adds that Naacam believes government must make appropriate changes to the APDP and other support mechanisms to strongly encourage local vehicle manufacturers to increase the number of automotive components they buy locally.

“Naacam also shares government’s 2020 vision of manufacturing 1.2-million vehicles a year locally, while significantly increasing the local automotive components content,” he concludes.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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