Embattled domestic car manufacturers, already facing multiple headwinds ranging from US tariffs to increased competition from Asian imports, have been warned of further pain, with China expected to ramp up its exports to countries like SA.
Original equipment producers such as Ford have started processes to cut jobs in SA, while the future of Nissan is far from certain.
RMB chief economist and head of global market research Isaah Mhlanga told the Allan Gray retirement benefits seminar entitled “Through the Noise” on Tuesday that SA is already seeing the consequences of trade tensions and higher tariffs, with China redirecting exports to former US markets such as SA, especially in sectors such as the automotive arena.
“We are going to see a flood of imports because of these tensions as China redirects exports away from the US, where they are now less competitive. While policymakers are considering how to diversify the economy, finalising new trade deals can take between three and five years,” Mhlanga said.
New export destinations
“We are going to have job losses if we can’t diversify our export destinations quickly enough, bearing in mind that other countries are going to do the same.”
Chinese car manufacturers are increasing their dominance of the local market, with one of SA’s largest vehicle financiers, WesBank, part of the FirstRand group, seeing a shift in consumer preference.
Harry Kellan, CEO of FNB, whose clients make up about 60% of WesBank’s loan book, said Chinese car brands are entering the market rapidly, offering advanced technologies, electric and hybrid options, and competitive pricing.
WesBank has partnered with several of these brands through multiple supplier and dealer alliance agreements, which bolstered advances growth.
“The first entry of Chinese brands was GWM (Haval), which has been in this market for 17 years. They did the hard yards to demonstrate the value that Chinese vehicles can bring. All of them are now coming in and if you look at quality versus price, consumers are getting good value,” Kellan said.
“If you look at premium brands and you talk to the likes of Mercedes-Benz, BMW and other German brands, they are taking a bit of strain because of the entry vehicles. But you can also understand from a consumer perspective. Consumers continue to be cash flow strained, and the entry market [for Chinese brands] does resonate with consumers,” he said.
“I have visited some of these original equipment manufacturers in China and they have some impressive facilities where they produce these cars.”
One of the country’s largest car showroom owners, Combined Motor Holdings (CMH), earlier this year said local producers were under extreme pressure from Chinese and Indian imports, and warned of job losses should help from the government not come through.
“At the manufacturer level, the unrestricted proliferation of Chinese and Indian vehicle imports has placed extreme pressure on local producers, and many jobs may be lost unless there is more government support,” CMH said.
“Making matters worse for both motor manufacturers and retailers has been the phenomenal entry of importers, with the result that though the market has shown no growth in five years, there are at least a dozen more players vying for a share.”
Shifting consumer preferences have seen India’s car manufacturing giant Tata Motors making a re-entry into the SA market after a six-year absence.
Indian rival Mahindra in August launched its vehicle assembly facility at the Dube Trade Port special economic zone in KwaZulu-Natal. The plant is expected to produce more than 1,000 bakkies a month.
SA’s largest second-hand car retailer, WeBuyCars, has taken note of the popularity of Chinese brands, adjusting its strategy to integrate popular Chinese brands in its network as it advances its blueprint to sell and buy 23,000 units a month by the 2028 financial year.
Strong ties between Pretoria and Beijing are set to deepen as Washington wages a trade war against the rest of the world. However, critics have said the benefits of the trade relationship are heavily skewed to China, with SA having a significant trade deficit with the Asian economic powerhouse.
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