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The road ahead for SA’s slowing automotive sector

Export market is key as low economic growth continues to bite at home.

South Africa is selling fewer new vehicles than it did five years ago.

A sizeable 13% less, in fact, according to the National Association of Automobile Manufacturers of South Africa (Naamsa).

Total new car sales (domestic and export) have dwindled from 617 650 in 2015 to 536 626 in 2019, a drop of 81 024 units.

Over the past five years, barring 2017 when economic growth was above 1%, the country has only seen a downward trend in vehicle sales. This is mainly due to a declining local market.

Naamsa’s recently-released figures for 2019 show a 2.8% drop in new car sales, on the back of a flat economy that has put pressure on consumer budgets and dampened business confidence.

Naamsa estimates that sales will improve by 2% in 2020 if the economy grows by 1% or more, boosting business and customer confidence.

The South African Reserve Bank, International Monetary Fund (IMF) and National Treasury expect GDP to grow by between 1.1% and 1.4% this year. The World Bank however cut South Africa’s GDP growth prospects to just under 1% last week, the first key institution to do so.

Dealers under pressure

The National Automobile Dealers’ Association (Nada) says that while the automotive industry is robust, sustained negative growth will continue to have adverse effects on it for the foreseeable future.

“At the current 1% or less growth we cannot expect the new car market to grow this year. The new vehicle market is looking to be a flat year of volume from 2019 to 2020.”

Nada represents over 1 600 new franchised automotive dealerships, that employ 60 000 people directly and another 25 000 indirectly. 

Source: Naamsa

Nada says the fall in new car sales has placed dealerships under “immense pressure” with many now “in ICU”. 

“This has resulted in consolidation in the market, either by dealerships closing or dealerships embarking on a multi-franchising model – both have a similar effect: reduced employment as well as less investment.” 

Exports supporting numbers 

Naamsa CEO Michael Mabasa says record export numbers have supported higher vehicle production volumes over recent years, despite the declining domestic market.

Read: Car exports are racing to a record in South Africa

In 2019 South Africa saw a 10% increase in new vehicle exports. And, unlike domestic car sales, SA’s export market has seen consistent year-on-year growth over the same five-year period.

SA currently exports around 60% of the vehicles it produces.

Mabasa says that going further beyond the 60% level is not likely and, should the domestic market not start growing, vehicle production levels will start levelling out.

We need the domestic market to grow, along with export growth for the industry, to make a more meaningful contribution to economic growth in the country,” he says.

The automotive industry contributes 6.8% to the country’s GDP and accounts for 30% of SA’s manufacturing output. The sector employs 110 000 people in the vehicle- and component-manufacturing segment directly, with the the multiplier effect taking this to at least 457 000 jobs. 

Read: R6bn transformation fund launched by SA’s seven vehicle OEMs

Mabasa echoes Nada’s views that the market will stay flat if the economy continues to grow at around 1%, saying that it will take growth rates of around 2.5% for new car sales to start growing by double digits.

Source: Statistics SA

The economic growth rate isn’t expected to breach the 1% mark in the medium term.

Treasury and the World Bank have pencilled in projections of 1.7% and 1.5% growth by 2021 respectively.

Mabasa says at this stage the industry is confident that the export momentum that has been supporting vehicle production will continue over the medium term, “and with structural reforms, the South African economy will start to grow at higher levels”.

Masterplan

Government’s plan for a motor programme aimed at fuelling growth in the industry, will see the South African Automotive Masterplan (Saam) come into effect in 2021 and remain in place until 2035.

One of its key targets is to achieve 1% of global vehicle production by 2035. In numbers this is almost 1.4 million units a year, up from the current production of just over 600 000.

Saam will replace the current Automotive Production Development Programme (APDP), which came into effect in 2013 and failed to meet its target of producing one million vehicles per annum by 2020. 

Government’s support through the APDP included tax rebates that have cost the state billions over the years – from R18.4 billion in 2013/2014 to just over R28 billion in 2016/2017, according to the 2019 budget review document. 

Read: Numsa wants 20% wage increase, medical aid for auto industry 

Tumelo Chipfupa, director of Cova Advisory and a former Department of Trade and Industry official, says the new 1.4 million unit target under Saam is realistic. 

Local production for 2019 was approximately 640 000 vehicles, which was 5% growth over 2018. The growth was not driven by local demand, but by export demand growth, which is expected to continue.

Therefore, if one uses an annual growth rate of 5% from 2020 to 2035, this equates to 1.4 million vehicles.”

Chipfupa adds that the business case to grow the motor industry’s manufacturing base is based on growth in the export market and not the local economy. 

Good growth opportunities in Africa

“The global automotive market is approximately 95 million vehicles – including 28 million in China and 18 million in the US, while Africa in total only accounts for 1.2 million, with South Africa [accounting for] nearly half of that. So there are good growth opportunities in Africa.”

He does however caution that the slowing economy in China could impact other regions. 

Chipfupa and Mabasa both point out that opportunities will be unlocked through the African Continental Free Trade Agreement, which aims to create a single marketplace across the continent, citing this as a positive for local manufacturers. 

“We expect stronger automotive value chains to be created in Africa through the [agreement],” says Chipfupa, adding that this will open up further opportunities for SA-based automotive manufacturers.

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The economy is not well, which sector is not in decline?

It is up to the reserve bank with its announcement tomorrow if they will put some gas in the economic engine or not…

New cars are overpriced in South Africa.

The same new car build in South Africa sells in Australia for 30% less than it sells for in South Africa. The minimum hourly rate in Australia is 19.49 Australian dollars an hour.

The cost of cars and houses in South Africa has no connection to the average salary in South Africa. Wages have not kept up with the prices of cars and houses in South Africa.

I think local car manufacturers in South Africa concentrate on the export market so they can sell the cars in South Africa for as much as they want to. If local car manufacturers could only sell their cars in South Africa, their cars would have to be cheaper so people could afford to buy them or wages would have to be higher so that people could afford to buy them.

South Africa has far too many cars than it is normal per GDP of this country as it is.

We should be getting more contracts and assembly lines to supply the rest of the world… Our labour costs compared to the developed world are very cheap and the South African quality is far better than the developed world even though we use technology supplied by them.

Yanni, what do you mean new vehicles are overpriced in SA?

How does a vehicle of R45,000 – R56,000 sound like to you? BRAND NEW, 2020 models.

Evidence is below:

https://atulsa.co.za/wp/?page_id=18
https://www.gumtree.co.za/s-automotive-vehicles/tuk+tuk/v1c5q0p1

Then there’s another brand, a more prestige brand…but still affordable from R65,000 upwards (there’s “bakkie” versions from R74K/R95K).

https://piaggiocommercial.co.za/

(Drop your kids off at school in a Tuk Tuk. You’d be the talk of the town! Or drop off around the corner. This is luxury, as most kids in rural Africa walk to school…)

Quick google
Ford Australia – Base Ecosport at today’s exchange rate R262k
Ford SA – Base Ecosport R271

Hardly 30%
And to my knowledge (but I stand corrected) the Aus cars include a year of 3rd party insurance, BUT NOT service plans like ours.

But, when it comes to affordability and the interest rate, that is better in Aus. But not the sticker price

The same new car build in South Africa sells for 30% less in Australia than it does in South Africa.

Looking at average wages in South Africa, new cars and houses in South Africa are overpriced.

If local car manufacturers didn’t rely on the export market and could only sell their cars locally, their cars would have to be a lot cheaper or wages would have to be a lot higher so that people could afford to buy the cars.

There’s a certain long-term risk for SA’s pet project: once the SA Govt struggles to repay future Chinese loans (mostly yet to arrive to Eskom, etc) the Chinese will be in a superior negotiating position to ‘kindly’ force Govt to abolish SA’s hefty vehicle import duty.

Local vehicles manuf will not be able to compete head on (Chinese vehicles are rapidly increasing in quality. In the 1960/70’s the established British/European/American brands snubbed the brands from the East as “Jap Crap”.(ask your father) In the 1990s the upcoming Korean brands were mocked. Where are they today?? The rising Dragon will change the global vehicle landscape)

China has the biggest electrical vehicle market on the globe, despite their EV’s being 1,3% of overall sales.

Have a look what is possible from the red Dragon:

https://www.dezeen.com/2019/04/25/auto-shanghai-2019-electric-cars/

And when the Western media discuss EV’s , only brands like BMW i-series, VW ID, Nissan Leaf, Tesla, Chevy Bolt gets typically discussed.

So where is SA’s own EV? Looks like SA’s own JOULE was killed before its time…but I suspect, it will be better to just buy future EVs straight from China. You will thank the ANC govt loans for that. If we maintain our lifestyles through loans, somewhere Saffas will pay the price…we will lose our industries.

This article is not in proper context and misleading reporting the number of sales. The sales numbers are normalising as they were previously inflated. We have had 10 years of plundering. Those plunderers and government agencies bought cars with their stolen booty Taxpayers money. State SEcurity Agency alone reportedly had 100 vehicles in a warehouse consisting of R1million vehicles for 80 employees. That totals R100million approximately. Eskoms fraud,Prasa fraud, the Bosasa fraud corruption led to purchases of MCLARENS,Ferraris. The Mayor of Durban was implicated in Fraud and expensive vehicles part of assets. These dealerships are complicit in criminal activity by selling their vehicles and not enquiring how the funds were obtained….so much for FICA! How much of the R450billion ESKOM debt consists of bribes and corruption costs which then found its way to purchasing fancy vehciles for those involved. Never mind this disruptive technologies like UBER are affecting vehicle sales world wide. Looking to increase production of vehicles to over 1million a year when the EXport market is declining due to UBER and ELECTRIC CARs. Do you think thats is the correct strategy to follow? Who will want those cars? Remember the basics of supply and demand ….demand is going down.

If the SA car manufacturing industry wants to survive they need to entice automakers to come and build their EV models here, not just their ICE cars, ICE car sales have already started their terminal decline in developed markets, its only a matter of time till it starts in the developing world as well.

We need to create a environment that would encourage companies like Tesla to build Gigafactory 5 in SA.
Or try to convince BMW to start manufacturing their i range here.

They should never have discontinued the opel 1.7 diesel non turbo bakkie.

Please Moneyweb, evaluate the “automotive sector” honestly and rationally. My take is that “car manufacture” is actually just subsidised assembly as SA does not have the skills and infrastructure, let alone the volumes, to actually build cars. My view is that this “industry” is subsidised by the taxpayer to the tune of at least R20bn annually and we pay a premium for vehicles, really just to satisfy an ANC sweetheart union.

It will not change until SA more or less collapses but this is aiding collapse, not helping SA at all.

Looking at the number of new luxury cars driving around I would say that they are not overpriced for those at the feeding troughs.

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