QUARTERLY REVIEW OF BUSINESS CONDITIONS : NEW VEHICLE

MANUFACTURING INDUSTRY : QUARTER ENDED 30^TH JUNE, 2006

NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the second quarter of 2006.

1.   EMPLOYMENT LEVELS AND TRENDS

The number of persons employed by the South African new vehicle manufacturing industry – comprising all the major new vehicle manufacturers and specialist commercial truck manufacturers – during the second quarter of 2006 may be set out as follows –

Compared to the 36 184 positions at the end of March 2006, aggregate industry employment levels increased by 1 664 jobs during the second quarter of 2006 to reach a total of 37 848 jobs – the highest aggregate industry level in the past ten years.

Four major companies recruited additional personnel during the second quarter of 2006.  Employment at the other industry employers remained stable during the quarter.

Over the past 18 months, since the beginning of 2005, when 32 502 persons were employed in the industry – employment has grown by 5 346 new jobs or 16,4% to 37 848 at end June, 2006.

The main reason for the significant employment growth in the industry is the increase in production associated with higher levels of sales of domestically produced vehicles and particularly the ramping up of major vehicle export programmes.

2.   NUMBER OF SHIFTS

Most vehicle manufacturers operate on a multi-shift basis in the production of vehicles and components for domestic and export markets.  A number of manufacturers operate on a single production shift basis, whilst the majority operate double shifts in selected areas such as machining, press shops, paint shop operations and body shop.  In various instances, three shift operations take place.

3.   AVAILABILITY AND PRICE TRENDS OF COMPONENTS AND RAW MATERIALS

3.1     COMPONENTS

          Imported Components

Overall, the availability and supply of imported original equipment components, during the second quarter of 2006, remained good.   

During the quarter, the landed cost of imported components was adversely affected by the weaker Rand exchange rate.  Prices from source remained stable except for oil based products - rubber, plastics, lubricants – which continued to be affected by increases in the price of crude oil and exchange rate depreciation. 

          Local Components

During the second quarter of 2006, the availability of locally produced components was good.

Local component prices increased marginally during the second quarter as a result of material cost increases and forex adjustments.

3.2     RAW MATERIALS

          Imported Materials

Generally, the availability of imported raw materials, where applicable, remained good.  Rising global commodity and oil prices, compounded by a weaker Rand, continued to exert upward pressure on costs.

Imported steel prices remained stable during the quarter.

          Local Materials

Local raw material price movements continue to mirror international pricing trends. Generally, the availability remains good.  Some constraints in respect of local steel availability were reported.

Prices of some local automotive steel grades were increased during the quarter.

4.   UTILISATION OF PRODUCTION CAPACITY

Average motor vehicle assembly industry capacity utilisation levels, for the periods indicated, may be illustrated as follows –

During the first half of 2006, industry average capacity utilisation levels remained at historically high levels
 

The industry’s average capacity utilization levels remain well above international benchmarks.

5.   NEW INVESTMENT/INVESTMENT APPROVALS : 2005 ACTUAL AND 2006 PROJECTION

NAAMSA reports the industry’s aggregate capital expenditure on an annual basis.   Details of actual industry capex for 2000 through 2005, in Rand millions, as well as the projection for 2006 – are as follows –

During 2004 and 2005, the strong Rand would have contributed to lowering the cost of imported capital equipment (machinery/production technology).  In the case of one major OEM, some capital expenditure originally earmarked for 2005 would have been carried forward to 2006 as work in progress.

All seven OEM’s and two truck manufacturers participated in the survey. 

6.    BUSINESS CONDITIONS AND PERFORMANCE INDICATORS

Business Conditions : Second Quarter, 2006

2006 second quarter passenger car sales at 103 987 units recorded an improvement of 14 705 units or 16,5% compared to the 89 282 new cars sold during the corresponding quarter for 2005.  Combined commercial vehicle sales during the second quarter of 2006 at 51 104 units reflected a gain of 3 995 units or an improvement of 8,5% compared to 47 109 units sold during the corresponding quarter of 2005.

New vehicle sales during the second quarter of 2006 showed further upward momentum with sales in all four sectors registering gains compared to the corresponding quarter in 2005.  However, the rate of growth, with the exception of the heavy truck segment, slowed considerably compared to previous quarters.

New Vehicle Export Performance :  First Half, 2006 

2006 first half export sales of South African produced motor vehicles rose substantially to 80 651 units compared to 51 823 new vehicles exported during the six months last year – an improvement of 28 828 units or 55,6%.

Higher projected volumes of exports of cars and particularly light commercial vehicles will translate into record export sales during 2006.  Overall exports are projected to improve by about 40% year on year.

The following annual vehicle export statistics summarize the industry’s past and projected export sales performance -

South Africa’s Automotive Industry’s Performance in a Global Contex 

World new motor vehicle production in 2005 reached 66 465 408 units.  This represents an increase of 1 969 188 units produced or 3,05.  The South African vehicle manufacturing industry’s share of world production – as indicated by the following figures – has been rising steadily in recent years. 

2005 Automotive Sector Contribution to GDP

Based on research by Econometrix (Pty) Ltd, the automotive industry’s contribution to South Africa’s Gross Domestic Product during 2005 has been calculated at 7,64% versus a revised figure for 2004 of 7,10%.  The (combined) contribution of the vehicle and component manufacturing industry’s share has been determined at 4,07% in 2005 compared to 3,65% in 2004.

Medium Term Industry Prospects for the Balance of 2006

The exceptional domestic sales performance of the industry during the first half of 2006 should ensure another outstanding and record year for the South African new vehicle manufacturing industry with both domestic sales and production projected to rise to all time highs.