Gearing up to break the magic million mark in 2010

ED RICHARDSON SOUTH AFRICA’S auto industry has its pedal firmly to the metal as it zooms towards breaking the magic limit of a million vehicles a year in 2010. This follows two of the best years ever for the industry, with all the pundits expecting continued growth. And the industry is putting its money in the tank to fuel the market. Motor manufacturers are expected to spend some R8.5-billion during 2005 on upgrades and new capacity. With all the manufacturers being foreign-owned, that amounts to significant foreign direct investment in the country’s manufacturing sector. Vehicle manufacturers employ over 34 000 people, with many thousands more in the components sector. Taking the shine off the components sector, however, is the strong rand. A large number of component suppliers have had to cancel contracts where their pricing was based on a weak and weakening rand. Motor manufacturers, or OEMs, are largely price-driven and will switch component suppliers if they can source more cheaply elsewhere. What protects the local motor industry is the Motor Industry Development Plan, which has proved extremely successful in retaining a manufacturing base in South Africa despite its relatively small market and global over-capacity. Government is reviewing the MIDP in accordance with World Trade Organisation requirements and also to ensure that the local industry runs lean and efficient. It is an extremely rocky and difficult road to negotiate, but insiders are confident that government will be able to keep the industry on track. What is certain is that there will be some major changes around 2010 and 2012, when the current MIDP programme runs out. Given the long lead times for production, there is pressure on the Department of Trade and Industry to provide certainty sooner rather than later in order to give the industry the assurances it needs to continue investing. These figures provided by members of the National Association of Automobile Manufacturers of South Africa (Naamsa) show that the South African new car and bakkie market has nearly doubled since 1999. Not included here are the sales of vehicles imported by companies which are not allied to Naamsa. According to Naamsa, South Africa has “probably” been the best performing market internationally for two years in a row. “Calendar 2005 represented another outstanding and record year for the South African new vehicle manufacturing industry with both domestic sales and production rising to all time highs,” it says. This is a graph which is beginning to worry the authorities and others connected to the automotive industry. The success of new vehicle and component exports has made it possible for original equipment (OEM) suppliers to bring in greater numbers and varieties of vehicle. According to Naamsa, new passenger car imports were equivalent to 64.3% of total production in South Africa in 2005. South African assembly plants exported 35.1% of their production. Vehicle exports hit record highs in 2006, and are expected to continue growing despite intense competition. According to the Worldwatch Institute, global passenger car production grew 4.5 % in 2004, to an estimated 44.1 million units. Production of SUVs and other “light trucks” also reached a new record, 18 million, up some 6 % over 2003. China is rapidly increasing its dependency on automobiles, with sales of cars and light commercial vehicles expected to reach 5 million units in 2005 and 7.3 million by 2007. An early sign of changing technology is that in the US, Toyota and Honda have sold more than 120 000 hybrid electric vehicles since 1999. US sales hit some 200 000 units in 2005. The ultimate measure of the success of the South African new vehicle manufacturing industry – growth in vehicle output, which is expected to exceed half a million new cars and bakkies this year.