N8/1 (e-mail)
10^th March, 2008

To: REPRESENTATIVES AT GENERAL MEETINGS
RECIPIENTS OF NAAMSA MEDIA RELEASES

Ladies and Gentlemen,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : MOTOR VEHICLE MANUFACTURING INDUSTRY : 4^TH QUARTER, 2007

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 fourth quarter of 2007, as submitted to the Director-General, Department of Trade and Industry.

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

Key features

• Industry recorded lower capital expenditure in 2007. Expected to rise over next few years.
• Industry employment levels were relatively stable during the fourth quarter.
• Annual industry capacity utilisation levels, in the commercial vehicle segments, held up well. However, lower capacity utilization in the new car production sector apparent during 2007.
• Industry domestic sales projections revised downwards. In contrast, vehicle production projections have been revised upwards.
• South Africa’s share of global production declined in 2007 but is expected to recover during 2008.
• New car market expected to remain under pressure as a result of tighter monetary conditions, growing inflationary pressures and various other unfavourable factors.

NAAMSA OFFICES: PRETORIA

 N8/1
10^th March, 2008

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 31^ST DECEMBER, 2007

NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the fourth quarter of 2007.

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 fourth quarter of 2007 may be set out as follows –

Compared to the 37 974 positions at the end of September 2007, aggregate industry employment declined by 385 jobs during the fourth quarter of 2007 to 37 529 jobs. 

Overall, employment at the industry’s major employers remained relatively stable during the quarter.

The industry’s average monthly headcount in 2007 was 38 310 jobs (2006 : 37 927).

2.   NUMBER OF SHIFTS

The majority of most vehicle manufacturers operate on a multi-shift basis in the production of vehicles and components for domestic and export markets.  Various 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 some instances, three shift operations take place.

3.   AVAILABILITY AND PRICE TRENDS OF COMPONENTS AND RAW MATERIALS

3.1     COMPONENTS

          Imported Components

The availability and supply of imported original equipment components, during the fourth quarter of 2007, remained good. 

During the quarter, the landed cost of imported components continued to be affected by exchange rate volatility and exchange rate depreciation.  Oil based products - rubber, plastics, lubricants - continued to be affected by fluctuations on international markets and exchange rate movements. 

          Local Components

During the fourth quarter of 2007, the availability of locally produced components normalized after the industrial disruption in sections of the component supplier industry during the third quarter. 

Domestic and imported cost pressures continue to impact on prices of local components.

3.2     RAW MATERIALS

          Imported Materials

Generally, the availability of imported raw materials, where applicable, remained good.  Rising global commodity and oil prices continued to exert upward pressure on costs as did the weaker exchange rate during the quarter.

Increases in prices of imported stainless steel and aluminium are anticipated during 2008.

          Local Materials

Local raw material price movements continue to mirror international pricing trends. Availability remains good.  Local steel availability showed further improvement during the quarter, however, major increases in prices of local automotive steel grades were experienced during the quarter with further substantial increases expected during 2008.

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 new car manufacturing sector, industry average capacity utilisation levels remained at relatively high levels.

5.   NEW INVESTMENT/INVESTMENT APPROVALS : 2007 ACTUAL AND 2008 PROJECTION

NAAMSA reports the industry’s aggregate capital expenditure on an annual basis.   Details of actual industry capex for 2000 through 2007, in Rand millions, as well as the projection for 2008 – are as follows –

During 2007 the industry’s capital expenditure declined substantially compared to 2006, primarily as a result of uncertainty regarding the outcome of the MIDP review process.  Planned investments for 2008 show some recovery, however, invariably projections tend to be higher than eventual actuals.

6.    BUSINESS CONDITIONS AND PERFORMANCE INDICATORS

Business Conditions : Fourth Quarter, 2007

2007 fourth quarter passenger car sales at 89 976 units recorded a decline of 14 331 units or 13,7% compared to the 104 307 new cars sold during the corresponding quarter of 2006.  Combined commercial vehicle sales during the third quarter of 2007 at 53 998 units reflected a fall of 4 117 units or a decline of 7,1% compared to 58 115 units sold during the corresponding quarter of 2006.

New vehicle sales during the fourth quarter of 2007 reflected a mixed picture with negative new car and light commercial vehicle sales  and continued strength in new medium and heavy commercial vehicle sales.

New Vehicle Export Performance :  2007 and Projections for 2008

2007 export sales of South African produced motor vehicles declined to 171 237 units compared to 179 859 new vehicles exported during 2006 – a fall of 8 622 units or 4,8%.  The main reason for the decline was due to the fact that the Mercedes-Benz factory in East London had been refurbished during the year and as a result no vehicles were produced for export for about five months during 2007.

Higher projected volumes of exports of cars and light commercial vehicles will translate into record export sales during 2008.  Overall exports are projected to improve by about 66% 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 Context

World new motor vehicle production in 2007 reached 73 101 695 units. This represents an increase of 3 768 090 units produced or 5,4% compared to the 69 333 605 new vehicles produced globally during 2006.  Following steady increases from 2000 through 2006, the South African vehicle manufacturing industry’s share of world production declined in 2007 to 0,73% of global output.

The current global vehicle population exceeds One Billion vehicles. 

Comment on 2007 New Vehicle Sales and Prospects for 2008

During 2007, the automotive industry was affected by a series of negative events.  These included progressive increases in interest rates, the introduction of the National Credit Legislation during June, 2007 which introduced stricter disciplines governing the granting of credit by financial institutions, the e-NaTIS vehicle registration problems and, during the third quarter of 2007, the negative impact of industrial disruption in the component supplier industry.  These development impacted negatively on new vehicle sales, particularly new car sales, during the year. 

During 2008, market sentiment and automotive industry trading conditions will be tested by the high interest rate environment, record high levels of household debt, rising inflation and volatile and increasingly vulnerable international financial markets.  Consumers and businesses are likely to face a higher cost base in 2008 which in turn will dampen their ability to spend on new cars.  2008 would be a more challenging year for the South African economy with GDP growth expected to moderate to about 4,0%.  On the productive side of the economy, large scale investment in infrastructure development and expansion should sustain a relatively high level of economic activity.  Further support should be forthcoming as a result of strong commodity and precious metal prices.  However, vehicle manufacturers and importers continue to face significant rising cost pressures as a result of domestic inflation and, more recently, substantial exchange rate weakness.  To the extent that increased costs are recovered through vehicle pricing, vehicle affordability is likely to deteriorate during 2008. 

In terms of current projections for 2008, the new car market was expected to contract by about 6,0%, the light commercial vehicle market by a nominal 2,2% - whilst sales of medium and heavy trucks and buses were expected to grow by about 8,0%.  The projections are premised on the current prime rate of 14,5%.  Should further increases in interest rates materialise during the months ahead, the projections would be revised downwards. 

N.M.W. VERMEULEN
DIRECTORR

Attachment 1 - Industry Vehicle Sales, Export and Import Data :  1995 - 2010
(click to view)

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