It's part of the drive for economies of scale
SMALL VOLUME selling motor vehicles (cars and LCVs) will receive a reducing duty-free allowance (DFA) if they don't hit targets set for them in the mid-term review proposals for the MIDP (Motor Industry Development Programme) - recently issued by the Board on Tariffs and Trade.
In basic terms, what the scheme boils down to is that, from 2007, any vehicle model selling less than 5% of that year's total domestic car sales will receive no DFA (unless they are classified as concessionary vehicles). All those beating the annual volume targets (See Table 1) will gain a 27% DFA until the year 2007, after which the allowance will be gradually reduced.
This, said the Department of Trade & Industry (DoT&I), is designed to cut down on what it describes as a proliferation of small selling models in the country's market. At the same time, it will improve the economies of scale at manufacturing level. But also, more importantly, it will make this country's component industry enjoy similar economies of scale, and improve their international competitiveness.
Higher model volumes and a degree of rationalisation are important - both to achieve greater efficiencies in assembly, and to maintain, or increase, economic levels of local content in domestically produced vehicles, said the DoT&I review.
While the economies of scale achieved in developed country markets will - in the medium-term - only be attained through exporting, an increase in domestic volumes will make it easier to attract export-oriented component investments, which are producing part of their output for the domestic market. A domestic base with growing volumes is, therefore, extremely important.
The major factor leading to low production volumes is the relatively high degree of protection for assembly that still exists. Falling protection will inevitably lead to rationalisation.
It is proposed that this process should be accelerated through the introduction of a DFA-based volume incentive.
All models attaining the volume target receive the full DFA. All models falling below the threshold (model percentage of total domestic market) in 2001 will get 23%, and in 2002 a 20% DFA.
And, re that concessionary model. From 2003 onwards - provided a manufacturer has at least one model above the threshold - one model below it will qualify for a 20% DFA.
But this leads to the question of: What is a model?
The current DoT&I definition - one which it feels is still unsatisfactory and will be discussed further with manufacturers - is: Model means those specified motor vehicles of which the floor plan, front side panels, front fenders, bonnet, windscreen, roof panel, side pillars and the dash panel are of an identical construction.
But Bert Wessels, chairman of Toyota SA - while not against rationalisation, and almost feeling its inevitability, and certainly in favour of economies of scale - would like to see a different definition.
Floor plan, engine compartment and wheel base, would be enough, he told FTW.
That would allow the marketing team to have a number of different bodies on the same chassis, as it were, and allow the necessary differences to aid the market penetration of each model.
And it seems obvious that this marketing aid - by subtle differentiation - currently exists, as the bulk of the current 22 models (in this case defined by NAAMSA as: Model lines refer to platforms - as does Wessels' reference) in the SA market fall into that threatened, small-volume range.
As the sales of domestic light vehicles figures show (See Table 3) the volume has stuck at around the 300 000 unit mark for the past three years. That would make the 2007 volume threshold (of 5% for full DFA) 15 000 models sold-a-year in present figures.
Now look at Table 2. Of SA's 22 models of cars, 12 definitely fall below that 15 000 limit (those in the 0-9999 sales volume), and probably some of the seven in the 10 000-19 999 category.
That means more than half (or as much as 85%) of the current model range would fail the DFA incentive conditions of 2007.
Economies of scale we would love, said another motor industry executive, but back to the concept of that one peoples car we certainly don't want.
What the DoT&I doesn't want to see is the rate of increases in vehicle prices compared to consumer prices (See Table 4) continuing that upward trend it started in 1996, and once again exceeding the CPI.
By Alan Peat
