N8/1 (e-mail)
19^th April, 2010

To: REPRESENTATIVES AT GENERAL MEETINGS
RECIPIENTS OF NAAMSA MEDIA RELEASES

Ladies and Gentlemen,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : MOTOR VEHICLE MANUFACTURING INDUSTRY : 1^ST QUARTER, 2010

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 first quarter of 2010, as submitted to the Director-General, Department of Trade and Industry.

Industry vehicle sales, export and import statistics for 1995 through 2012 are reflected on the attachments to the submission.

Key features

• Encouraging increase in aggregate industry employment levels.
• Further recovery in industry capacity utilisation levels from historically low levels recorded during the first half of 2009.
• New vehicle sales, in all segments, showed exceptional growth – albeit relative to the low base last year. Expected improved economic activity levels, the benefit of lower interest rates on the back of declining inflationary pressures and an improvement in the financial position of consumers will contribute to an improvement in new vehicle sales in 2010.
• Export sales projected to grow substantially over balance of 2010, in line with further recovery in the global economy.
• 2010 through 2012 new vehicle sales, exports and production numbers have been revised upwards.

NAAMSA OFFICES: PRETORIA

 N8/1
19^th April, 2010

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 MARCH, 2010

NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the first quarter of 2010.

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 first quarter of 2010 may be set out as follows –

Compared to the 30 161 positions at the end of 2009, aggregate industry employment improved by 1 196 jobs during the first quarter of 2010 to 31 357 jobs  – an improvement of 4,0%.

The increase in head count is attributable to additional recruitment at three of the industry’s major employers, whilst employment levels at other manufacturing plants remained stable during the quarter.

2.   NUMBER OF SHIFTS

Most manufacturers operate on a single production shift basis, an increasing number of manufacturers operate double shifts in selected areas such as machining, press shops, paint shop operations and body shop.  One manufacturer operates on a three shift basis.

During the quarter, vehicle manufacturer’s operations reverted, by and large, to a normal production week.

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 first quarter of 2010, remained good. 

During the quarter, the landed cost of imported components continued to benefit due to the ongoing strength of the Rand against major currencies.

          Local Components

During the first quarter of 2010, the availability and supply of locally produced components remained relatively satisfactory, although instances of problematical availability were reported due to industrial action at suppliers as well as quality issues.  Availability risk has increased due to the unexpected sharp increase in demand by vehicle producers.

The relentless focus on global cost competitiveness and vehicle manufacturers’ cost reduction targets continues to pressurise suppliers.  The strengthening of the Rand also causes domestic components to become less competitive.  Moreover, local component pricing will be significantly impacted by the Eskom electricity price increases, although the magnitude is not clear as component suppliers will be required to reduce their electricity consumption partially offsetting the impact on competitiveness versus global competition 

3.2     RAW MATERIALS

          Imported Materials

The availability of imported raw materials, where applicable, remained good.  Pricing trends remain a function of exchange rate movements and commodity prices.  Increases in automotive commodity prices are anticipated as global vehicle demand picks up.

          Local Materials

Local raw material price movements continue to mirror international pricing trends.   Material availability has come under pressure due to domestic market recovery following a period where lean inventory and conservative ordering were required to reduce cost and conserve cash.  Concern has been recorded over steel availability and steel pricing implications arising from the ArcelorMittal dispute with Kumba Iron Ore.

4.       UTILISATION OF PRODUCTION CAPACITY :  2005 - 2010

Average motor vehicle assembly industry capacity utilisation levels, by sector and for the years/quarters indicated, may be illustrated as follows –

Industry average capacity utilisation levels, during the first quarter of 2010, improved in all major sectors.  Inventory replenishment, higher production for export markets and the domestic market were the main contributing factors.

5.   NEW INVESTMENT/INVESTMENT APPROVALS : 2009 ACTUAL AND 2010 PROJECTION

NAAMSA reports the industry’s aggregate capital expenditure on an annual basis.   The aggregated data is based on Capital Expenditure details supplied by the seven major vehicle manufacturers.  Details of actual industry capex for 2000 through 2009, in Rand millions, as well as the projection for 2010 – are as follows –

The decline in industry capital expenditure by vehicle manufacturers during 2009 was in part due to the impact of the global financial and economic crisis and the associated deferral of various investment projects.  The substantial increase in planned capital expenditure during 2010 may be attributed to the recent finalisation of the Automotive Investment Incentive Guidelines and Investment Projects by manufacturers to gear up for the impending Automotive Production and Development Programme (APDP).

Capital expenditure by vehicle manufacturers has remained relatively stable in recent years.  The 2006 peak was due to major production capacity expansion at one OEM. 

6.    BUSINESS CONDITIONS AND PERFORMANCE INDICATORS

Business Conditions : First Quarter, 2010

2010 first quarter aggregate industry reported passenger car sales at 81 450 units recorded an exceptional increase of 14 371 units or 21,4% compared to the 67 079 new cars sold during the corresponding quarter of 2009.  Combined commercial vehicle sales during the first quarter of 2010 at 39 446 units recorded an improvement of 3 464 units or 9,6% compared to 35 982 units sold during the corresponding quarter of 2009.

On a quarterly basis, sales of new vehicles in all segments recorded exceptional gains compared to the corresponding quarter in 2009 with the resurgence in new car sales growth during the first quarter representing one of the best on record.

The latest sales figures confirm that the industry is in the process of emerging from the extremely severe recession in the domestic automotive market which started mid 2006 and lasted through the end of 2009.  However, the improvement should be seen in the context of the historically low base in the first quarter of 2009 when sales were particularly depressed as a result of the uncertainty arising from the global financial and economic crisis.

Industry Prospects for 2010 : Domestic Sales Projections Revised Upwards, Aggregate Domestic Production to Rise as a Result of Expected Higher Domestic and Export Sales

After an extremely difficult year, the South African automotive sector is on target for an improved domestic sales environment during 2010 as well as higher levels of production on the back of continued recovery in demand in export markets.

An improvement in consumer sentiment and business confidence during 2010 is anticipated.  The cumulative 5,5% decline in interest rates since end 2008 should improve the financial position of households and contribute towards an underlying improvement in the growth of vehicle sales in coming months.   Additionally, the 2010 Soccer World Cup event has boosted demand by the car rental industry.  Moreover, reduced cost pressures on the back of the exceptionally strong Rand should facilitate stable new vehicle pricing for some time. 

Against the background of current and expected domestic and international developments – the outlook for 2010 in terms of total industry vehicle sales by sector, are as follows –

Projections for 2010 have been revised upwards.  In aggregate terms, domestic sales are expected to improve from the 395 000 in 2009 to about 451 000 in 2010 – an increase of around 14,0%.  However, the improvement will be off a very low base.

Factoring in the expected improvement in domestic sales together with anticipated growth in exports, domestic production of motor vehicles in South Africa during 2010 is expected to rise from 374 000 vehicles produced in 2009 to about 443 000 units projected for 2010 – an increase in vehicle production of about 18,4%.

The standard attached schedule reflects latest projections of industry sales, production, exports and imports.