UNFAIR PLAYING FIELDS FOR SA CONTINUES IN THE AUTOMOTIVE SECTOR
I have been reading a surge of articles relating to the Trump tariffs and how the local vehicle manufacturers and local vehicle component suppliers (let’s call them the OEM) are going to struggle and how even local production will be affected. I have worked closely with the automotive industry for many years and can tell you right now, the OEMs are all already in trouble, and it isn’t the new tariffs that has suddenly caused this pain.
It can be broken down into a handful of outdated and unfair government systems that are potentially de-industrialising the local OEM value chain, throwing money down the drain and creating an unequal playing field.
Let’s start with some sobering numbers over the past few years:
- The volume of locally manufactured vehicles has decreased by 6.5% and dropping.
- The volume of Chinese, Indian and Japan (let’s call them Asian) imported brands have increased by 650% and rising.
- The local components volume to local OEM has decreased to below 40% of the vehicle costs and dropping.
- From a sales market share perspective, Asian imported vehicles are sitting around 59% and locally produced vehicles at 41%, and this gap will only widen.
Do not get me wrong here. Competition is good and I am loving the surge of Asian imports as it gives the customer a wider choice. These Asian vehicles are very competitively priced, come fully teched up and some are downright awesome in looks and drive. The local OEMs are now sitting with their backs against the wall and with one hand tied behind their backs. Why is the one hand tied? Well let’s take a deeper look into some government systems that are in place to “assist the OEM”.
Remember, the OEMs build the factories, create the component supply chain, produce the parts, train the people, transfer tech skills, employ the people, etc. And I am not even going to talk about Eskom, rail, road, strikes, port and clearance problems in their manufacture and RTM processes.
SAAM 2035 (South African Automotive Master Plan)
SAAM 2035 is a government system in place with the over-reaching goal of making the South African automotive industry more competitive on a global scale. This master plan comes with six key objectives, which the local OEM must strictly adhere to (but not any Asian brands).
1. Grow South African vehicle production from 0.6% to 1% of global production by 2035. (Dropping fast).
2. Increase local content in South African manufactured vehicles to 60% of vehicle costs. (40% only and dropping).
3. Double automotive employment in the supply chain. 120k currently employed. (Multiple OEM and Dealer warnings in the market regarding downsizing).
4. Improve automotive industry competition levels to that of leading international competitors. (How do you compete with one hand tied behind your back?)
5. Transformation of the South African automotive value chain. Must have 25% black-owned component suppliers for the manufacturer. (Yip, let’s rather pay R500 for a small part that costs R50 = true story).
6. Deepen value-addition within the value chain with growth in R&D, technology, and skills. (How do you grow R&D and tech skills if Asian vehicles are landing ready to drive?)
AITF (The Automotive Industry Transformation Fund). The AITF was established as a collective Equity Equivalent Investment Programme (EEIP), as defined in the Broad-Based Black Economic Empowerment (BBBEE) Codes, between the OEMs in South Africa. (Local OEM contribute financially, but not Asian brands).
1. The AITF is in place to support black participation in the automotive industry supply chain. (Only 68 companies were created, some as small as having just five staff).
2. To facilitate transformation and the access to developmental funding, access to market, and access to capacity development for qualifying black-owned entities. (Why not assist the entire value chain?)
3. The AITF plays a key role in the implementation of the SAAM 2035 objectives, especially in terms of local content and industry value chain transformation. (Yip, here comes that R500 part again).
4. With R2.2 billion in AITF funding and R3.7 billion of market access and procurement assistance, and local OEM are in for a combined R6 billion before even selling a vehicle. (Seems unfair to me)
AIS (Automotive Incentive Scheme)
The AIS is a decent system in theory, and is an incentive designed to grow and develop the automotive sector through investment in new and replacement models and components that will increase local OEM production volumes, sustain employment, and strengthen the automotive value chain if at least two of the following economic requirements are met:
1. Tooling, research, and development in South Africa. (Again, how does this apply when Asian vehicles land fully built?)
2. Employment creation and empowerment. (I am fully behind creating employment for everybody in the value chain).
So, let’s get real here.
Government systems and red tape are making life very difficult to attract and retain local automotive investment, create more automotive employment and build the automotive industry for the local manufacturers and component suppliers. The Asian brands have the luxury of no factory, no assembly, no logistics, no supplier restrictions, no BBBEE, no localisation of parts and services, no funds towards transformation, no unrealistic government targets etc. They need a logistics or franchise partner to bolt onto, a couple of admin, sales and service staff, some high-level training and maybe a warehouse to hold some parts that are not even made locally.
And don’t mention all that RA-RA about Asian brands building manufacturing factories and using local component suppliers. The BAIC factory was meant to employ 1700 staff, create a local component supply chain and build 60 000 vehicles per year, but have only produced 300 vehicles in six years.
In my humble opinion and without prejudice, the word I am looking for is: Unfair!
By Justin Swanepoel, Real Research
