SETBACK FOR SA MOTOR INDUSTRY
The decision by Mercedes-Benz SA (MBSA) to move from three shifts to two at its East London plant, with the loss of 700 jobs (a quarter of the staff), is a major setback for the local vehicle manufacturing industry. The problem is a slowdown in worldwide demand for the C-Class sedans as the global car market continues to move towards SUV and crossover body styles. MBSA also mentioned “port challenges” as a further reason for the cut in production.
Most local manufacturers are locked into making one model and it is exceedingly difficult – and expensive – to add or replace a model during the lifecycle of the original choice. The current C-Class model, which went into production in 2021, was the fifth C-Class sedan to be built in South Africa. These cars have been shipped to 86 countries around the world and the plant itself has regularly won international awards for excellence over the past six years. Last year it produced 90 000 cars.
MBSA was the first carmaker in South Africa to build a petrol-electric hybrid production car when it started making the plug-in hybrid (PHEV) C-Class in 2016. This has continued with the latest iteration of this model and now the East London plant has begun production of the C63 SE Performance PHEV model for world markets. This will be the main plant for making this high-performance model which now uses a turbocharged four-cylinder engine in place of the former V8 power unit.
The cutback in production does not only affect the workers at the plant, but also the local suppliers who will have to relook their production staffing and schedules, probably with further retrenchments. Most of these suppliers are based in the East London Industrial Development Zone. According to an article in The Herald it is estimated that 160 000 people in East London rely on MBSA to some degree for income.
However, there is some good news coming from the Eastern Cape.
Firstly, it concerns the BAIC plant in Gqeberha. Only BAIC of the Chinese car and light commercial vehicle brands has set up a local manufacturing plant. The announcement of this project was made in 2015 and there was a ceremonial opening in 2018, but there appears to have been little meaningful production since then.
Now a media day at the plant has been set for 18 July (Mandela Day) which will, hopefully, mark the start of production of the Beijing X55 SUV. The cost of the plant, which is a joint venture between the Industrial Development Corporation (35%) and the Chinese state-owned BAIC, was announced originally as R11-billion.
Secondly, construction is expected to begin soon on the Stellantis manufacturing plant in the Coega Special Economic Zone (SEZ), also in Gqeberha. This is also a JV with the IDC. The investment is estimated at R3-billion and will create further employment opportunities in the region. Production is expected to start at the end of 2025.
Stellantis, the world’s third largest manufacturer ranked according to production output, sees this plant as critical to achieving its objective of producing one million vehicles a year in the Middle East and Africa region by 2030. Ultimate production volume from the Coega plant is targeted at 50 000 units a year. It seems initial production will be the Chinese-sourced Peugeot Landtrek one-ton bakkie.
Automotive world in turmoil again
Globally the automotive world is in turmoil once again. A few years ago, it was the rush to switch from fossil fuel-burning internal combustion engines (ICE) to electrified power units. This situation has now slowed as the demand for electric vehicles decreases and most carmakers are reinstating research and development and production of ICE power units to meet customer demand.
The reason for the latest turmoil is the growing export aspirations of the Chinese vehicle manufacturers. The rapid expansion of the Chinese manufacturers going into export markets has been spurred on by slowing sales in its domestic market in 2024. This has reportedly initiated a government driven programme to increase exports.
Already Europe and the United States are making significant increases in import tariffs for Chinese cars. Europe has announced tariffs of up to 38% and the US is getting even tougher with possible increases up to 100%, while Turkey is getting ready to impose a 40% tax. These tariff barriers will probably intensify exports to countries in other parts of the world, such as Africa.
China is meanwhile considering retribution against these tariff increases, and it appears they will apply higher rates to cars imported into China with large capacity engines.
Some of these Chinese vehicle manufacturers have already shipped vast numbers of vehicles – mainly electric – into European ports to beat the tariff increases. These vehicles are now clogging major trading ports as the new importers evidently battle to get car transporters to clear the wharves.
South Africa is already a target for growing China’s exports with several new brands arriving and it has been stated that 21 new models from China are expected here this year.
All this means increasingly tough times for the established brands in South Africa because the overall domestic new vehicle market has stagnated around the half million units a year since 2016, so the sales by Chinese brands are coming mainly from the “establishment”.
What still must be seen is whether the newcomers from China will be able to offer the outstanding after-sales service – including parts availability and pricing – that has been provided by most local manufacturers and importers for many years. South African motorists and fleet owners have grown increasingly discerning about service and customer care, so the newcomers must deliver.
Another factor about all these new brands arriving in the market is how the finance houses will treat the buyers because there is no history on residual values or whether there will be demand for these models in the used car market.
We are certainly living in interesting times!
Autolive
