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Automotive industry investment in SA set to decline

Recovery linked to global GDP growth and a rebound in export markets.
Europe accounted for three of every four vehicles manufactured in SA in 2019. Demand has now slumped. Image: Supplied

Planned capital investment by South Africa’s automotive industry, which increased in 2019 to its second highest level on record at R7.2 billion, appears set to decline until there is a global recovery in GDP growth and export markets from the impact of Covid-19.

A new National Association of Automobile Manufacturers of South Africa (Naamsa) confidence index, which anonymously canvassed the opinions of each of the CEOs of the seven automotive original equipment manufacturers (OEMs) in South Africa, revealed that 64.7% of them believe investment expenditure declined in the third quarter of 2020 compared with the same quarter in 2019.

In addition, 47% of the CEOs believe investment expenditure will be lower in the next six months compared with the prior period.

The Naamsa confidence index is contained in the association’s latest quarterly review of business conditions for the new vehicle manufacturing and automotive sector for the third quarter of 2020, which was released on Monday.

Naamsa CEO Mike Mabasa said the continued high levels of capital expenditure are due to investment projects by manufacturers in terms of the Automotive Production and Development Programme (APDP), which are normally spread over multiple years, and the higher levels of production for export markets.

But Mabasa said the sentiment expressed by the Naamsa CEOs relating to automotive business conditions over the next six months, by and large, remains pessimistic.

However, a few CEOs representing specific brands or specific vehicle categories do expect an improved performance over the short term.

“The uncertainty of the impact and extent of Covid-19 persists as an ongoing concern and it remains imperative for automotive companies to adapt to the new operating and trading environment going forward,” he said.

SA’s largest manufacturing sector

Mabasa added that the automotive industry is not only the largest manufacturing sector in South Africa’s economy, comprising nearly one third of manufacturing output, it also invests billions of rand every year and provides nearly 500 000 direct jobs.

Read: The role of incentives in getting SA’s economy going again

He said even with an anticipated rebound of the economy and new vehicle sales in 2021, the growth outlook remains weak and “the next six to 12 months will be a defining time for many automotive businesses in the country”.

South Africa’s automotive industry is an export-orientated industry.

Mabasa stressed that vehicle exports will depend largely on the recovery of the domestic automotive industry’s main export regions, particularly Europe, which accounted for three out of every four domestically-manufactured vehicles exported in 2019.

He said vehicle exports into all major regions declined by 37.6% or 112 011 units during the first nine months of 2020 compared with the corresponding period in 2019.

Mabasa said Europe, the domestic automotive industry’s main export region, reflects a decline of 39.2% in vehicle exports for the year to date.

Second wave of Covid-19 in Europe a significant risk

“Considering the significance of exports for the South African automotive industry, a second wave of Covid-19 in Europe in particular poses significant downside risks on the pace of recovery in domestic vehicle exports over the short- to medium term,” he said.

Read: SA’s auto industry ambitions threatened by coronavirus

South Africa’s automotive industry achieved a new vehicle export record for the second consecutive year in 2019, growing exports by 10.3% to 387 125 vehicles from the 351 139 vehicles exported in 2018.

Mabasa said vehicle exports are projected to decline by around 30% year-on-year to 265 000 units in 2020.

Econometrix chief economist Azar Jammine believes investment that is geared towards increasing production capacity is most at risk of being delayed or postponed.

Jammine anticipated that production capacity investment was planned originally to cope with an expectation of growth in the world economy of 3.5% or 4% per year – but the GDP growth of Europe and North America will probably only be back to where it was in 2019 by the end of 2022.

He said manufacturers will easily have the capacity to accommodate demand through to 2022 and therefore will not need to embark on investment activity that is at a two-year time horizon of final demand.

But clearly if manufacturers are looking at the longer term, they will start investing for the demand that will appear in 2025 or 2028, he added.

“But, more generally, what has happened has resulted in an increased element of uncertainty and, as a consequence, what you will find is less investment than would have taken place before. But certainly there will be a pick-up in investment compared from what has been experienced this year,” he said.

Read: SA carmakers want vehicle taxes reduced

Jammine is uncertain whether new-product-related investment will also be impacted by Covid-19 and result in delays or the postponement of planned new product launches.

“The one thing that Covid-19 has brought about is a recognition of the importance of environmental solutions,” he said.

“If they [manufacturers] switch towards catering more for the environment than they were doing before, you could see the introduction of new products to try to move even faster away from the internal combustion engine towards electric [vehicles] or whatever they will hope to move towards in the longer term.

“That investment could actually accelerate, for example,” he said.

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I see a definite parallel comparative view of the Gold Mining industry.
Been on a downward spiral for the past 15 years due the usual RSA Inc. factors – which we will park there for now.
No need for any further comments on these two once powerhouse industries.

Thus in summary we do not build cars in South Africa because we want cheap but good cars for our citizens. We build cars in South Africa to create and maintain employment.

SA is a market follower and the world trend is less cars being produced due to Uber , ride sharing etc . good news for the planet

End of comments.





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