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N8/1 (e-mail)
2^nd August, 2010

To: REPRESENTATIVES AT GENERAL MEETINGS
RECIPIENTS OF NAAMSA MEDIA RELEASES

Ladies and Gentlemen,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : MOTOR VEHICLE MANUFACTURING INDUSTRY : 2^ND 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 second 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 further increase in aggregate industry employment levels with headcount increasing by 427 positions during the second quarter on top of the 1 196 new jobs created in the first quarter.
• Further (modest) recovery in industry capacity utilisation levels in most sectors.
• New vehicle sales, in all segments, showed good growth – albeit relative to the low, extremely depressed base last year. Despite expectations of a slowdown in domestic sales during the second half of 2010, aggregate annual sales should grow by about 14,5% for the year as a whole.
• Export sales projected to maintain growth momentum over balance of 2010 and into 2011 in line with recovery in the global economy.
• 2010 through 2012 new vehicle sales, exports and production projections unchanged for the time being.

NAAMSA OFFICES: PRETORIA

 N8/1
2^nd August, 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 30^TH JUNE, 2010

NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the second 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 second quarter of 2010 may be set out as follows –

Compared to the 31 357 positions at the end of the first quarter of 2010, aggregate industry employment improved by 427 jobs during the second quarter of 2010 to 31 784 jobs – an improvement of 1,4%.  Since end 2009, industry employment has expanded by 1623 jobs or by 5,4%.

Employment levels at most manufacturing plants showed modest increases in headcount or remained stable during the quarter.

The automotive industry appears to be one of the few sectors currently creating employment in South Africa.

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, most manufacturer’s operated on the basis of a normal production week, although some manufacturers’ production was impacted due to supply disruptions as a result of industrial action at Transnet and Portnet. 

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 second quarter of 2010, was characterised by instances of supply disruptions as a result of the Transnet/Portnet strike.   

During the quarter, the landed cost of imported components remained relatively stable and benefited due to the strength of the Rand against major currencies.

          Local Components

During the second quarter of 2010, the availability and supply of locally produced components was affected, in many instances, by the Transnet strike.  Contingency airfreight had to be used to support vehicle manufacturers production and avoid stoppages. 

The relentless focus on global cost competitiveness and vehicle manufacturers’ cost reduction targets continues to pressurise suppliers.  Local component pricing will be impacted by the Eskom electricity and other administered price increases. 

3.2     RAW MATERIALS

          Imported Materials

The availability of imported raw materials, where applicable, remained satisfactory.  Pricing trends remain a function of exchange rate movements and commodity prices which showed a tendency to increase during the quarter.  Further 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.   Concern continues regarding 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 second quarter of 2010, improved modestly in most 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 : Second Quarter, 2010

2010 second quarter aggregate industry reported passenger car sales at 76 140 units recorded an improvement of 19 181 units or 33,6% compared to the 56 959 new cars sold during the corresponding quarter of 2009.  Aggregate industry commercial vehicle sales during the second quarter of 2010 at 38 655 units recorded an improvement of 7 235 units or 23,0% compared to 31 420 units sold during the corresponding quarter of 2009.

On a quarterly basis, year on year sales of new vehicles in all segments recorded strong gains compared to the corresponding quarter in 2009.  However, the improvement should be viewed in relation to the exceptionally low base prevalent during the second quarter last year when sales were extremely depressed as a result of the global economic and financial crisis and the slowdown in the South African economy.  Moreover, the sales performance by sector during the second quarter provides evidence of a significant slowdown in growth momentum relative to the first quarter of 2010.

The South African automotive sector should register an improvement in domestic sales during 2010 as well as higher levels of production on the back of continued recovery in demand in export markets.  The first six months of 2010 were characterised by relatively strong sales domestically.  Over the balance of the year, however, the rate of growth in the new vehicles sales cycle is anticipated to moderate and, at this stage, aggregate domestic sales for 2010 are projected to expand by about 15% for the year, whilst export sales are projected to grow by up to 30% - provided the global economy continues in a modest recover phase and manages to avoid a double-dip recession.  Factors that could impact on domestic sales volumes, during the second half of 2010, include expectations of slower economic growth, the inflationary consequences of the impending CO2 new car tax regime and the outcome of current collective bargaining in the industry.

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

Projections remain unchanged for the time being