Toyota South Africa Motors (TSAM) is investing R4.28 billion in South Africa between October last year and this year, including R2.43 billion for the production of a new passenger model at its manufacturing plant in Prospecton near Durban.
TSAM president and chief executive Andrew Kirby said on Thursday that with the investment in the new model, Toyota will be purchasing components from local suppliers to the value of R2.85 billion a year.
“That will have a direct impact on our economy and create an additional 1 500 jobs – 500 jobs in our production facility and 1 000 in our direct suppliers.”
The announcement at a Toyota ‘state of the motor industry’ event coincided with Kirby confirming that TSAM has had industrial action and a work stoppage at its Prospecton plant for five-and-a-half days since last Wednesday.
Kirby said some individuals who have been pursuing “their own individual political ideals” have embarked on industrial action, which is an unprotected and illegal strike.
He said it related to the non-payment of a bonus where a target was not met, but these individuals did not even raise a grievance before going on strike.
“Unfortunately they are not listening to the management or to the union leadership. Together we are working to try and resolve that issue and I’m fairly sure we will shortly be back to full production,” he said.
Kirby added that the work stoppage has not had any impact on Toyota’s customers or deliveries, because TSAM came into the new year with a little bit of stock.
Corolla comes to the end of the road
He said the new passenger model will replace the Corolla production line, which is due to end in 2020 and will, for the first time in Africa, include the production of a Toyota Hybrid Synergy Drive vehicle.
Other elements of the total investment programme involve the expenditure of:
- R455 million to increase local content on the HiAce Ses’fikile, with a further R91 million specifically to increase the volume of the HiAce production line from 14 000 to 18 000 units a year, creating 270 new jobs;
- R20 million in its Hilux semi-knocked-down (SKD) assembly operation;
- R365 million to double the size of its parts warehouse in Atlas in Kempton Park; and
- R928 million in facility upgrades for new models and environmental investments.
Kirby said the investment to increase local content in the Ses’fikile is quite large considering the volume, but TSAM is trying to protect the future pricing of the vehicle because they are so exposed to the exchange rate.
“If we don’t find ways to localise the content, our costs are going to just keep climbing.”
He added: “The HiAce is such strategic important component for us to keep the wheels of the economy moving. Most commuters use taxis so we needed to find a way where we could try and help the economy by creating some more employment by purchasing locally.”
Kirby said the investment in the SKD assembly operation is related to exports – since August last year – of SKD kits to Kenya, adding that the company is hoping to partner with further countries this year to support industrialisation in Africa.
He said the investment to expand the size of its parts warehouse to 80 000m2 under roof will make it the largest automotive parts warehouse in the southern hemisphere.
Global parts hub
Kirby said this expansion is related to the future volume forecast and the warehouse becoming more of a global parts hub supporting parts sales in Africa.
He stressed that these investments are being made against the backdrop of the finalisation of phase two of the Automotive Production and Development Programme (APDP), which will come into effect in January 2021 and last until 2035, creating some policy certainty for the auto industry.
Kirby said the risk for TSAM in making these investments is that it needs to take a five- to ten-year horizon.
He said the total new vehicle market declined by 2.8% to about 536 000 units last year compared with 2018.
Excluding the blip in 2017, the market has been in perpetual decline since 2013 and is now 25% smaller than the 2006 peak of 714 316 units, he said.
Ettienne le Roux, chief economist at RMB, said the decline in the market is easy to explain and has been caused by disposable household income growing at below the inflation rate and the tax burden on the income and wealth of consumers increasing to a record high of about 20% last year.
Kirby expects a further decline in new vehicle sales this year of 4% to about 515 000 units.
Thabi Leoka, an investment specialist and member of the Presidential Economic Advisory Council, commended TSAM for showing its commitment to the South African economy by creating jobs when almost every sector seems to be shedding jobs.
Leoka said two years ago President Cyril Ramaphosa went on a very ambitious investment drive to attract $100 billion in new investments in South Africa in the next five years and so far about R662 billion has been raised.
“We have, under very difficult economic conditions, been surprisingly successful in attracting investment,” she said.
“We have also had a number of South African companies and sectors that have pledged and are investing into the futures.
“There is investment coming into South Africa but I think it should be more.”
Leoka shared an incident where she had informed Ramaphosa that South Africa is like a beautiful house with bickering parents and children screaming and the house is internally dirty.
“It looks like a murder scene and you are going out to the world wanting to invite investors to come and eat in chaos,” she said. “I think we need to focus on cleaning the house first and then they [investors] will come. I think that is the strategy we need to follow.”