Crisis? What crisis? Could the panic over the imposition of US import tariffs prove to be the wake-up call the SA motor industry needs to avoid sleepwalking into full-blown calamity?
As BMW SA CEO Peter van Binsbergen told last week’s National Association of Automotive Component and Allied Manufacturers (Naacam) conference in Gqeberha: “If we don’t address our problems, we will wake up in 10 years and find ourselves in the same position as Australia.”
That country’s motor industry, the model for SA’s postapartheid automotive policy development, died in 2017 because of the Canberra government’s failure to act in the face of overwhelming vehicle imports.
The motor industry, while routinely held up as the jewel in SA’s manufacturing crown, is in trouble. Van Binsbergen said it faced an “existential threat”.
Toyota SA Motors CEO Andrew Kirby said it is at an “inflection point”.
Others said simply that it is in a deep crisis.
Whatever words are used to describe the situation, it has been years in the making.
However, the US’s imposition of 30% tariffs on imports from SA, which has resulted in the almost complete halt of SA vehicle shipments to that country, as well as a slowdown in components exports, has brought the overall industry challenge into sharp focus.
SA motor companies’ demand for increased tariff protection against imported new vehicles, as reported by Business Day on Friday, is a sign that the local industry is desperate for action.
Trade, industry & competition minister Parks Tau said at the conference that imports, mainly from India and China, accounted for 64% of local vehicle sales.
Many of these are imported by local manufacturers to supplement their SA products. Volkswagen, for example, builds the Polo and Vivo cars locally but imports T-Roc, Touareg, Golf and Touran, among others.
The industry wants duties on all imports to rise from 25% to 30%.
While independently imported brands will face the full penalty, local companies can already reduce their liability through the government’s Automotive Production and Development Programme (APDP), which grants them duty credits based on the value and volume of vehicle production.
In several cases, credits are sufficient to negate duties, allowing manufacturers to import duty-free.
As an added advantage, these manufacturers want to convert billions of rand of unused credits into cash equivalents to reduce their business costs.
As things stand, they have limited options for these credits. One is to sell them at a discount to independent importers, which use them to reduce their own duty commitments and prices.
By keeping their credits’ value in-house, local companies said they could, for example, nullify ad valorem luxury taxes on their vehicles and give themselves an additional price advantage over imports.
The government is already being encouraged to reduce ad valorem duties.
Irvin Jim, secretary-general of the National Union of Metalworkers of SA (Numsa), told last week’s conference that the tax should be scrapped on vehicles to improve market demand.
At the very least, said some industry officials, it should not apply to entry-level cars and “workhorse” bakkies.
Local vehicle manufacturers have been losing market share for a long time but this has accelerated recently through the concerted effort of Chinese brands to crack the market.
Aided by state subsidies, which some analysts said reduce their manufacturing costs by 20%-30% compared with those in other countries, Chinese brands’ pricing has given them a substantial market share in SA.
This has led to reduced demand for, and production of, local products — worsening an already precarious industry position.
Motor industry vehicle and components production, employment and transformation levels have all stalled. Localisation — which measures the proportion of locally sourced value in SA-manufactured vehicles — is in retreat.
In 2013, when the original version of the APDP was launched, average local content was 43%. Now, said Tau, it was 39%. Under APDP Mark 2, launched in 2021, it is supposed to reach 60% by 2035.
When this second iteration was announced in 2018, the target seemed achievable, if tough.
So did the idea that annual vehicle production should double from 600,000 to 1.2-million and industry employment from 120,000 to 240,000.
Covid-19 intervened before APDP2’s introduction but, even so, progress has been deeply disappointing.
New-vehicle sales are only now back to pre-Covid levels, production this year is expected to be just more than 600,000 and employment sits at about 115,000 — and, such as localisation, may be shrinking.
Naacam CEO Renai Moothilal recently reported that 4,000 components industry jobs had been lost in the past two years after 14 companies closed down.
In June, Goodyear announced it would close its Eastern Cape tyre manufacturing factory at the end of the year, with the loss of 900 more jobs.
Last year, Mercedes-Benz SA cut hundreds of jobs in response to falling global demand for its C-Class cars.
These figures are just the tip of the iceberg. For each manufacturing job lost, many more disappear at suppliers and service providers.
The 115,000 direct jobs at vehicle and components companies support at least 500,000 more across other industries.
The motor industry accounts for 5.2% of GDP and 22.6% of SA’s total manufacturing output. All of this, said its supporters, means it cannot be allowed to fail.
In the Eastern Cape, where Volkswagen, Mercedes-Benz and Isuzu have vehicle assembly plants, Ford makes engines and dozens of multinational and local components companies are based, the economic consequences would be catastrophic.
That is why the industry wants extra protection.
The fewer imports, the greater the demand for SA-made vehicles. That, in turn, leads to higher local manufacturing volumes, more jobs and more components localisation, which creates more opportunities for black companies to enter the industry.
There has been some progress but, overall, industry transformation has also been slow.
Despite all this, said Kirby, the government had done little to reverse the steady deindustrialisation of the economy.
Global experience showed that industrialisation “is the way to long-term prosperity” by providing jobs on a large scale.
While many developing countries were increasing industrial capacity, SA was allowing its to slide.
“SA is falling out of step with global industrialisation trends and risks being left behind,” he said.
Government automotive policy adviser Justin Barnes said: “Social and economic decay accompany deindustrialisation.”
While domestic vehicle market pressures have been rising, exports have provided a remarkable release valve in recent years.
Two-thirds of vehicles built here are exported to more than 100 countries worldwide, with billions of rand of components.
But now these exports are also in danger.
Most vehicles are shipped to the UK and EU, where environmental policies will see sales of petrol- and diesel-dependent internal combustion engine (ICE) vehicles outlawed in coming years, in favour of EVs.
Incoming EU rules will also impose tariffs on companies producing carbon-intensive products such as steel. This includes automotive components and the vehicles into which they are built.
The EU Carbon Border Adjustment Mechanism will come into effect next year but Amith Singh, head of manufacturing at Nedbank Commercial Banking, said preliminary results of a study with Naacam suggested two-thirds of SA components companies were unaware of it.
SA’s automotive policy has been slow to recognise the EV shift and, with little incentive to change, most vehicles made here are still ICE.
Tau last week announced that the government was introducing a number of EV-friendly initiatives.
APDP2, which was designed with ICE technology mainly in mind, is being amended to offer favourable incentives for the manufacture of EVs and their components.
A 150% capital allowance for investments in EV and hydrogen vehicle production will run from 2026-36, and the government is developing a localisation strategy for EV batteries and minerals beneficiation.
These measures are all aimed at manufacturers.
Despite President Cyril Ramaphosa’s assurance last October that consumer incentives — considered necessary in other countries to encourage the switch from ICE — would also be on the table, there is no sign of them yet.
The industry is also waiting for the government to meet its infrastructural commitments to the industry.
The country’s ports and railways are inefficient, adding considerable costs to local manufacturing. SA’s distance from overseas markets also racks up transport bills.
Naacam president Ugo Frigerio said: “Our industry can be competitive with the rest of the world but logistics costs knock us out.”
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