SA carmakers will approach the government to allow local motor companies to convert billions of rand in unused import-duty credits into the cash equivalent to reduce production costs and slash retail prices, says BMW SA CEO Peter van Binsbergen.
This will also counter the flood of low-priced new vehicles entering SA.
The credits, a reward for high-volume vehicle manufacture, allow companies to reduce import duties on vehicles that are not made locally and on components used in SA vehicle production.
In an exclusive interview on Friday, Van Binsbergen said the proposals would be put to trade, industry & competition minister Park Tau in talks on revising SA’s automotive policy.
The SA Automotive Masterplan 2021-35 is significantly behind schedule due to Covid-19 and global economic and geopolitical challenges.
Its goals include doubling vehicle production and employment, increasing localisation by 50%, growing the new-vehicle market and deepening industry participation by black-owned companies.
But some of these have regressed since the master plan was designed, so the government and vehicle industry have agreed a reset is necessary this year to consider more realistic targets.
Van Binsbergen said that any reset must include plans to manufacture electric vehicles (EVs), which were not in the original master plan and its main component, the Automotive Production and Development Programme (APDP).
The government would also be asked to provide clarity on President Cyril Ramaphosa’s commitment in Thursday’s state of the nation address to improve the country’s infrastructure, as well as his undertaking in October to consider expanding EV incentives. The proposed manufacturing incentives apply only to fully electric EVs.
Ramaphosa said there was an argument for adding hybrids and also for introducing consumer incentives to reduce EV prices and stimulate local demand.
“We are still waiting for details of exactly what he meant in October,” Van Binsbergen said. He welcomed Ramaphosa’s pledges to tackle the shortcomings in water, energy, transport and other essential services to improve economic growth, but said: “We don’t know when that will come into play.”
Surplus
Volkswagen Group Africa (VWGA) chair Martina Biene said early last week that some motor companies had a huge surplus of duty credits because their value far outweighed vehicle import requirements. VWAG’s surplus alone ran into “many billions”. Under the APDP, the credits may be used only for duty reductions.
Rather than see their efforts go to waste, Biene said, companies with surpluses should be allowed to use the money to cut vehicle retail prices.
On Friday, Van Binsbergen said that some companies also wanted the surpluses to be used more widely in the APDP’s volume assembly localisation allowance, which enables car and bakkie makers to reduce the nominal value of imported components for customs purposes, thereby reducing duty and manufacturing costs.
The allowance is based on local value-addition.
Biene and Van Binsbergen agree the local industry needs an edge to counter the growing market dominance of car imports.
Chinese brands, in particular, are making a concerted effort to increase market share, as state manufacturing subsidies in their own country help them undercut the prices of SA-based manufacturers.
Some Asian brands are also taking advantage of policy loopholes to import semibuilt vehicle kits that require little assembly and no local components. This allows them to reduce import duties from 25% to 5%.
Van Binsbergen said: “The purpose of the APDP is to incentivise high-volume production. There is no reason these (kit) companies should be treated favourably.”
Premium brands such as BMW, Mercedes-Benz and Audi have been particularly hard hit by cheaper imports as cash-conscious local consumers buy cheaper options. The local subsidiaries of BMW and Mercedes-Benz export more than 95% of production.
Mainstream local brands are also feeling the import pain. Last year, VWGA’s Kariega assembly plant, in the Eastern Cape, built a record 167,084 cars, of which 131,485 were exported.
However, the VW brand saw domestic sales and market share drop. Van Binsbergen said that using duty credits to reduce prices could be a game-changer for local producers.
“Price plays a major price in consumer decisions. President Ramaphosa said last week that we have to address affordability. This proposal would do just that.
“APDP credits are intended to incentivise domestic production, but what is their point if you can’t use them? If we don’t find a way to monetise them some companies may question the need for second or third daily production shifts, and the extra jobs that go with them,” he said.
BMW SA’s own Rosslyn assembly plant, in Tshwane, returned recently to three-shift production after the changeover late last year to a new X3 car range. The X3 is the global BMW group’s most popular car.
Rosslyn, in addition to petrol and diesel models, is the only BMW plant in the world to produce a plug-in hybrid version, using EV and petrol/diesel internal combustion engine (ICE) technologies.
The hybrid accounts for 40% of production and ICE 60%. In the medium term, the EV share is expected to grow to 43%.
Van Binsbergen said the plant, which has annual capacity for 77,000 cars, could produce up to 75,000 this year.
That would be a record for the X3, which has been built there since 2018 and achieved 68,000 in 2023. But it would fall short of the all-time plant record of 76,000 in 2015, when Rosslyn built the 3-Series sedan.
Duty-free access
To reach the record, BMW SA will require US President Donald Trump to hold off on threats to penalise SA or remove it from the African Growth and Opportunity Act, which allows some SA products duty-free access to the US.
BMW SA sends 20% of its X3 production to the US, a share that Van Binsbergen said could not be accommodated in other export markets. But for now, he is not too worried. “A lot of what Trump says is sabre-rattling to put fear into his opponents to get results.”
Van Binsbergen said that he was grateful to have the opportunity to chase record production so early in the life of the new X3.
Last year, during the changeover from the old model, the company’s medical aid scheme was found to be the victim of mass corruption. This resulted in the dismissal of more than 500 production-line workers — nearly a third of the total.
But, thanks to an intensive hiring and training programme, Van Binsbergen said the transition barely missed a beat.
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