N8/1 (e-mail)
28^th November, 2006

To: REPRESENTATIVES AT GENERAL MEETINGS
RECIPIENTS OF NAAMSA MEDIA RELEASES

Ladies and Gentlemen,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : MOTOR VEHICLE MANUFACTURING INDUSTRY : 3^RD QUARTER, 2006

ATTACHED, for information purposes, is a copy of NAAMSA’s quarterly review of business conditions for the South African motor vehicle manufacturing industry, during the third quarter of 2006, as submitted to the Director-General, Department of Trade and Industry.

Latest revised industry vehicle sales, export and import statistics for 1995 through 2010 are reflected on the attachments to the submission.

Key features

• Third quarter, 2006 auto industry employment expanded by 1 055 jobs - a 2,8% improvement compared to the end of the second quarter (30^th June, 2006).

• Domestic sales trend remains positive, however, year on year growth likely to start showing signs of consolidation.

• Further increases in new vehicle exports set to continue through 2007.

• SA automotive industry capacity utilization levels remain close to all time records.

• Updated revised industry vehicle sales, exports and imports projections extended through 2010.

NAAMSA OFFICES: PRETORIA

NATIONAL ASSOCIATION OF AUTOMOBILE MANUFACTURERS OF SOUTH AFRICA 

N8/1 28^th November, 2006

The Director-General
Department of Trade and Industry
Private Bag X84
PRETORIA
0001

Dear Sir,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : NEW VEHICLE MANUFACTURING INDUSTRY : QUARTER ENDED 30^TH SEPTEMBER, 2006

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

1. EMPLOYMENT LEVELS AND TRENDS

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

Compared to the 37 848 positions at the end of June 2006, aggregate industry employment levels increased by 1 055 jobs or 2,8% during the third quarter of 2006 to reach a total of 38 903 jobs – the highest aggregate industry level in the past ten years.

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

Over the past 21 months, since the beginning of 2005, when 32 548 persons were employed in the industry – employment has grown by 6 355 new jobs or 19,5% to 38 903 at end September, 2006.

The significant employment growth in the industry is due principally to the increase in production associated with higher levels of sales of domestically produced vehicles and 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 third quarter of 2006, remained satisfactory.

During the quarter, the landed cost of imported components escalated significantly as a result of 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 on international markets and exchange rate depreciation.

Local Components

During the third 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. Some segments of the supplier base were under pressure, during the quarter, to meet industry demand. Furthermore, vehicle manufacturers received notice of impending component price increases due to domestic inflationary pressures and the impact of the weaker Rand on the imported portion of components.

3.2 RAW MATERIALS

Imported Materials

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

Imported steel prices stabilized, during the quarter, at a high level.

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 and Mittal Steel notified the industry of capacity restrictions in respect of electrogalvanized steel.

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 –

With the exception of the car production sector during the third quarter, industry average capacity utilisation levels remain 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 : Third Quarter, 2006

2006 third quarter passenger car sales at 114 344 units recorded an improvement of 11 212 units or 10,9% compared to the 103 132 new cars sold during the corresponding quarter for 2005. Combined commercial vehicle sales during the third quarter of 2006 at 59 407 units reflected a gain of 7 991 units or an improvement of 15,5% compared to 51 416 units sold during the corresponding quarter of 2005.

New vehicle sales during the third quarter of 2006 showed further upward momentum with sales in all four sectors registering strong gains compared to the corresponding quarter in 2005. In fact, sales in every segment achieved record sales on a quarterly basis.

New Vehicle Export Performance : January - September 2006

2006 first nine months export sales of South African produced motor vehicles rose to 129 600 units compared to 96 113 new vehicles exported during the nine months last year – an improvement of 33 487 units or 34,8%.

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 31% year on year. Further substantial growth in export sales is projected 2007.

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

Prospects for the Balance of 2006 and 2007

The exceptional domestic sales performance of the industry during 2006 to date will ensure another outstanding and record year for the South African new vehicle manufacturing industry with both domestic sales and production achieving all time highs.

Whilst demand for new cars and commercial vehicles remains relatively strong, the industry anticipates that new vehicle sales will start to show some consolidation on the back of recent and expected further increases in interest rates, relatively high energy and vehicle operating costs and modest upward pressure on new vehicle pricing. The expected tighter monetary circumstances and less favourable general economic conditions, coupled with the possibility of slightly higher vehicle prices, are likely to reinforce consolidation in rates of growth in the market.

N.M.W. VERMEULEN
DIRECTOR