NATIONAL ASSOCIATION OF AUTOMOBILE MANUFACTURERS OF SOUTH AFRICA

PO BOX 40611, ARCADIA 0007
TELEPHONES: (012) 323-2980/1 – 323-2003
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ARCADIA, PRETORIA 0083
 

                                                                                                                      17^th March, 2006  

NAAMSA MEDIA RELEASE :

ADDRESS BY DR JOHAN VAN ZYL, PRESIDENT OF NAAMSA, AT THE VIP LUNCH AT THE DURBAN MOTOR SHOW ON MARCH 17,2006

 

Good afternoon ladies and gentlemen, I am very pleased to have this opportunity to address you, at a time when the Motor Industry Development Programme, or MIDP, is very much in the news. I can assure you that this is a subject very close to the hearts of NAAMSA members.

The MIDP, which was introduced in September 1995, has been a major success in terms of broadening the base and vastly increasing the output of the local motor industry, both in terms of components and built-up vehicles. In fact, it is a case study of how a state-initiated incentive programme can totally change the face of an industry in a country.

Although there are, admittedly, some detractors of the scheme, nobody can doubt the MIDP’s success in terms of growing employment, attracting massive local and overseas investments, rationalising the number of locally-produced models, vastly improving production capacity utilisation and improving overall operational efficiencies.

For instance, total domestic production of passenger cars rose by 34% to
324 875 units between 1995 to 2005, while LCV output increased by 29% to 172 622 units. More impressively, car exports shot up almost 13-fold from 1995 to the 113 899 units shipped last year. In this same timespan LCV exports went up by 402% to 25 589 units last year.

We have also made huge strides in cutting the complexity in manufacturing plants. For instance the number of base model cars and LCVs made locally in 1995 was 42. This has now dropped to 22 models, while average volumes per model have gone up from 8 515 units a year to 22 609 units over the past 11 years, thereby increasing efficiencies. This has resulted in high volume production models (more than 40 000 units a year) going from zero in 1995 to five last year, while models produced at a rate of 20 000 units a year or more has jumped from five to 12.

There have been some complaints from component manufacturers who say that vehicles being exported have a lower local content than those destined for the local market. I can assure you, speaking as the President of Toyota SA, that this is not true and we use the same local parts on all models built at our plant. On the Hilux and Fortuner, for example, local content is more than 60%.

Capital investment in the vehicle manufacturing industry is expected to increase by a massive 135% this year to a record R8,4-billion, compared to R3,6-billion last year, with most of this investment earmarked to be spent on new product, local content, export investment or production facilities.

Although employment does not rise substantially in highly automated modern automotive manufacturing plants as production increases, there has been significant growth in employment in the total automotive industry in South Africa over the past five years. The number of employees increased from
280 870 in 1999 to 306 300 at the end of 2004.

So you can see, there has been a wonderful amount of good news on a wide front from this much-discussed MIDP approach to establishing a healthy and growing motor industry in our country.

A critical factor in an incentive programme such as the MIDP, which includes reductions in protection levels for an industry, is that it must have a positive rub-off for the consumer. This has certainly been the case with the MIDP. The programme, with its decreasing levels of import duty on components and CBUs as well as the subsequent increase in competition in the marketplace has “kept the industry on its toes” and provided buyers with a greater choice of products at more affordable prices.

For seven of the past 11 years vehicle prices remained below inflation levels and in more recent times there has been virtual price stability or minimal increases. In fact, the keen competition has also resulted in the phenomenon of “price-repositioning” where new or current models are priced lower than previously in the face of increasing competition or the desire for greater sales volume.

Usually the new prices are negotiated on a basis of “price down – volume up”. There have been many examples of this strategy, which again benefits the consumer, as do the “added value offerings” that are built into the purchase price of many new vehicles today – service and maintenance plans, longer warranties with better terms, metallic paint, advanced driver training and roadside assistance. Many of these are real benefits to the potential buyers when making the purchasing decision and equate to substantial support from the OEMs and importers.

However, looking to the local motor manufacturers we see them having to drastically change the way they do business. We are no longer isolated. Globalisation is a reality for all of them now, with its attendant pressures in terms of intense focus on cost down, quality up while providing reliability of supply. The local manufacturing plants are also far from most major export markets, so the OEMs have the added impact of rising costs of transport and logistics.

Add in very keen competition for global export supply contracts within their own companies as well as intense competition in the local retail vehicle market and one can understand they are operating under extreme pressure.

The vehicle and component manufacturers also have some gripes about some aspects of the country’s infrastructure, such as harbours, railways and road capacity, but most of these limitations are being tackled with joint ventures between the industry and government agencies.

However, a spectre that has appeared recently in the Western Cape and one that is casting a shadow on the overall business outlook now and into the future is that of electric power outages. Fortunately the motor manufacturing plants have not been affected as yet, but this is a real worry for those aiming for “reliability of supply” in both domestic and export markets

Of course there are also those who complain about the importers that do not have a stake in local manufacturing, but are only distribute built-up vehicles and spare parts. However, it must be noted that all OEMs are also importers of CBUs. The local importers without manufacturing operations here still have a positive impact on the local economy in terms of job creation, skills training, facility construction and the use of local resources such as transport and logistics.

Total imports by OEMs and other importers accounted for almost 50% of passenger cars and 14% of LCVs last year, making a combined total of 39,3% imports. However it must be accepted that imported vehicles are now a growing and integral part of our industry and their market share will continue to grow.

What must be paramount in our minds now is not only to sustain the business we have built up under the MIDP, but how to elevate it to new heights. We are coming off a base of remarkable success achieved in a comparatively short time. What we need now is for the government to quickly erect the direction signs to show us their intention with the final stage of the original MIDP, going from 2007 to 2012 and preferably going as far ahead as giving guidelines for the programme until 2020.

The MIDP was introduced in September 1995 and the first mid-term review took place six years later, with amendments to the original programme being adopted in 2002 and planned to run through to 2012.

Now we are awaiting the recommendation of the government following the second mid-term review of the MIDP. The consultants report is due to be submitted to government by the end of April. There will then be a cost-benefit analysis of the report by the Department of Trade and Industry as they ensure it addresses certain aspects which have changed over time, as well as some concerns of consumers, such as perceived high new vehicle prices. We, therefore, only expect to hear the latest guidelines towards the end of 2006.

This is a crucial time for the industry’s forward planning of new model production introductions, especially those that will be exported in large volumes. Source companies are obviously very keen to know what changes are envisaged between now and 2012, as well as going into the future, as they plan massive investments for future new model products.

It is thus vital that the government plan is communicated to all stakeholders as soon as possible. We need stability and predictability in official government automotive policy, as well as programmes to boost the development of technical, electronics and commercial skills related to the automotive industry.

Going forward, the local motor industry will have to focus on further improvements in terms of lowering production costs without compromising quality levels.

The future development programme must include globally competitive investment incentives for OEMs and component companies and these must take into account and compensate for geographic dislocation, economies of scale constraints and infrastructural limitations. It must also include socio-political policies and economic imperatives. Funding of strategic, large-scale automotive projects through the DTI will also be advantageous as will simplification of the programme’s administration to ensure it operates efficiently.

However, we also fully realise that the development programme must ultimately be compatible with South Africa's international trade obligations and are fully supportive that the MIDP is adapted to suit and so prevent criticism from other vehicle-producing countries.

We are all very proud of what has already been achieved with the MIDP and know it is going to be tough going forward, but NAAMSA and its members are committed to elevating the successful programme to even higher levels in the future.

Ends

JvZ Durban VIP lunch
March 2006 

1 620 words

 

NAAMSA OFFICES: PRETORIA

17^th March, 2006

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