A7% growth in new-vehicle sales has been recorded in South Africa to date this year and the positive trend is expected to continue for the rest of 2013, audit, tax and advisory services firm KPMG automotive leader Gavin Maile tells Engineering News.

“This is a positive trend; however, it must be pointed out that, in 2012, the number of imported vehicles sold in South Africa rose to 72%, up from 69% in the previous year. The 2013 forecast is expected to remain at 72%” states KPMG automotive industry analyst Ashleigh Raine-Botha.

Maile confirms that South Africa is losing out on job creation, as a result of not selling more locally manufactured vehicles. The positive growth of locally manufactured vehicles is mainly as a result of growth in exports.

However, he notes that significant job opportunities currently exist in the after- market sector, as a vehicle’s life span is heavily dependent on regular maintenance and repairs.

Maile cautions that potential challenges still loom in the new-vehicle market, owing to the volatile rand and other input costs, which lead to increased costs of new vehicles and, subsequently, reduced sales figures.

However, he does not believe that there will be a significant increase in new-vehicle prices, as dealers are aware that consumers will not buy new vehicles at elevated prices, mainly due to affordability issues.

In March, KPMG told Engineering News that the actual number of imported cars reached 318 325 units in 2012 and it was expected to increase to 330 000 in 2013.

However, KPMG also pointed out that the number of locally produced and sold cars were also expected to increase to 130 000 in 2013, which is up from 121 677 in 2012.

Maile added that, overall, vehicle pro- duction in South Africa was expected to reach 635 300 units in 2013, up from 539 538 units in 2012. This, he said, was a direct result of government’s new Automotive Production and Development Programme (APDP).

Exports are expected to reach 361 300 units this year, which comprises 55% of local production, up from 277 893 units in 2012. Vehicle exports were 15 764 units in 1995, or 4% of local production.

Maile attributes this increase in production and exports in 2013 to the APDP, which came into effect in January and rewards volume production.

Toyota South Africa Motors (TSAM) was South Africa’s top vehicle producer in 2012 with149 250 units, followed by Volkswagen with 103 732 units, and Mercedes-Benz with 61 297 units, notes KPMG.

Toyota was also the top exporter with 88 122 units, followed by Volkswagen with 54 148 units, and Mercedes-Benz with 49 825 units.

The top 2012 export destination for South African-produced vehicles outside Africa was the US with 66 220 units, followed by the UK with 41 111 units, and Japan with 17 226 units.

However, Maile also told Engineering News in March that Africa was the real success story in 2012, with much room for further improvement. South Africa exported 24 281 vehicles to Algeria last year, followed by 14 874 units to Nigeria, up from 7 151 units in 2010.

Ghana had increased its imports from South Africa from 2 451 units in 2010 to 5 062 units in 2012, with Angola importing 7 783 vehicles from South Africa in 2012, up from 934 in 2010.

“These countries all have high gross domestic product growths,” said Maile, who added that Africa was a viable market for South Africa’s vehicle exports.

He added that the 2013 forecast for the total domestic new vehicle market was expected to reach 652 000 units, up from 624 000 units in 2012.

Challenges

Significant challenges exist for locally based manufacturers, says Raine-Botha, noting that these include the increased cost of raw materials, labour unrest in the automotive sector and the steadily increasing cost of labour.

Elaborating on the issue of labour unrest, Maile points out that 2013 wage negotiations are taking place in the automotive sector.

“Strikes will likely occur during the course of these negotiations, which are more than likely to shut down the country’s car manufacturing plants and disrupt the supply chain,” he warns.

However, he stresses that the unrest in the automotive sector is not as volatile as that of the mining sector in the past 18 months.
In October 2012, Engineering News reported that TSAM, South Africa’s largest vehicle manufacturer, exporter and retailer, had been affected by a three-day strike at its Prospecton plant, in Durban, which halted vehicle production.

Maile says it is difficult to quantify the amount of damage that the strikes have had on South Africa’s image as an investment destination for foreign automotive companies, but adds that South Africa is fortunate that the industry has a relatively short-term memory when it comes to strikes.

Raine-Botha says South Africa’s deficit between automotive components and vehicles imported and exported is significant.

“The total automotive deficit for 2012 was R49.2-billion, while the differences (deficit) between automotive components imported and exported was R36.8-billion,” she says.

Raine-Botha believes that if local content quotas are increased by the South African government, the impact on job creation and investment in the country’s automotive industry will be positive.

Moreover, Maile says the South African automotive sector is hamstrung with regard to the lack of certain core skills sets such as qualified automotive engineers.

He believes the main reason for Trade and Industry Minister Rob Davies’ attending the Tokyo International Conference on African Development (TICAD V), in Yokohama, Japan, last month, is that Japan has committed to undertaking projects to boost skills and competitiveness in the South African automotive component production sector.

Additionally, according to the preliminary findings prepared for TICAD V, Japanese master trainers will be deployed to South Africa and a component and supplier park near Toyota’s factory, in Durban, will be established.

Raine-Botha and Maile remain upbeat about the future of the South African auto- motive sector, despite all the challenges.

“South Africa has a strong and well- established automotive industry, with dedicated automotive-manufacturing zones such as the East London Industrial Development Zone (IDZ) Automotive Supplier Park and the Coega IDZ, both in the Eastern Cape, and other initiatives in Gauteng aimed at developing additional component suppliers,” Maile concludes.