SOUTH African motor vehicle exporters face a challenging year ahead, with global economic circumstances, the regulatory regime, labour issues, currency fluctuations and the question of competitiveness key to their fortunes as the year advances.
The first factor is that the new Automotive Production and Development Programme (APDP) kicked in on January 1. Under the scheme, manufacturers can claim rebates on import duties paid on components and on fully built-up vehicles, depending on the number of cars a firm builds in South Africa.
The minimum qualifying figure is 50,000 units a year.
Any new incentive scheme is naturally a complex thing to implement, and motor manufacturer executives know there is the potential for hiccups.
"A big challenge is how the APDP is implemented," says Volkswagen SA’s Matt Gennrich. "It’s a huge internal task to adapt to a new programme. We’re all part of a chain, and the devil will be in the detail."
Toyota SA CEO Dr Johan van Zyl agrees that challenges exist.
"As the first year of the APDP, we expect a high level of activity and some uncertainty as the industry adapts to new regulations. In general, we believe the industry is well prepared for the new dispensation," he says.
Jeff Nemeth, president and CEO of the Ford Motor Company of SA, says, however, that the APDP "doesn’t rip out the MIDP (Motor Industry Development Plan, the APDP’s forebear)".
"The types of data you have to submit are different. We’ve had to put in systems to make sure we can measure things like local content, but it is basically a similar process," Mr Nemeth says of the APDP. But he is fulsome in his praise of the scheme, as is National Association of Automobile Manufacturers of SA (Naamsa) president and Volkswagen Group SA MD David Powels.
"It’s a great programme," says Mr Nemeth. "We are really for it — we think 50,000 is a good number; it forces economies of scale." Earlier, Mr Powels told Business Day that he also supported the new programme.
"There are plants overseas building 350,000 cars a year. We have to take a pragmatic approach," he says. However, he does caution that the APDP is not a magic bullet for the problems facing the industry.
"The APDP on its own will not sustain automotive production in SA," he says.
"We just have to work on productivity and wage-price inflation at double CPI (the consumer price index)."
Most industry executives agree that one big hurdle on the horizon for 2013 is the three-year wage deal talks with unions, to begin in the second quarter.
Nissan SA MD Mike Whitfield said while there was concern about negotiations given ructions in the labour market last year, he expects they will go well.
Mr Nemeth says the industry is already in communication with the National Union of Metalworkers of SA (Numsa).
"We’re confident it will go ahead in a civilised manner and that we’ll get to an agreement without any stoppages," he says.
A further challenge faced by some local producers is the economic woes besetting Europe. While Mercedes-Benz SA exports solely to the US and BMW SA focuses on markets in the East and the US, Volkswagen, which makes the Polo for all right-hand-drive markets, and the CrossPolo for all markets, is exposed to the crisis in the European Union.
"We’re exposed to the UK and Ireland and the whole of Europe with the CrossPolo," Mr Gennrich says. "We expect to see some pressure coming through from that," he admits.
Ford also exports its Ranger truck to Europe, but the company was managing to meet its targets, Mr Nemeth said.
One major problem facing manufacturers and importers this year is continued rand weakness. "Import costs are getting higher. Some of our imported products are struggling to hold price," Mr Nemeth says.
"So we’re going to focus on the total cost of ownership by ecoboost engines that offer incredible gas mileage, and with maintenance agreements," he says.
But the big story of 2013 is the industry-wide ramp-up of production under the APDP, and the pressure this will apply to creaking infrastructure and supply chains. Ford will continue to build more Rangers — the factory has a capacity to eventually build more than 100,000 trucks a year.
BMW recently moved to a 24-hour operation as it took over 3-Series production from a factory in Leipzig, which will now focus on BMW’s electric car project, meaning 25% of all 3-Series cars are made in Pretoria.
And while economies of scale will inevitably kick in, as Naamsa director Nico Vermeulen warns, matters of competitiveness in labour, in rail and port infrastructure and in the supply chain will be the industry’s greatest challenge this year and beyond.
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