South Africa – a global automotive source : South Africa – a global automotive source
Presentation to Swedish Business and Trade Representatives
by
Nico Vermeulen - NAAMSA
October 2007
Framework of presentation : Framework of presentation
South African (SA) automotive industry overview & key statistics
SA automotive industry policy regime: industry performance
Reasons to invest in or source from SA
Industry challenges
Structure of the Industry in SA - OEMs : Structure of the Industry in SA - OEMs European vehicle manufacturers, BMW, DaimlerChrysler, Fiat and VW are all 100% subsidiaries Japanese and other Multinational manufacturers, Ford, Nissan, General Motors and Toyota are now also 100% or majority controlled subsidiaries
All other major marques are imported – European (Peugeot/Citroen, Renault), Japanese (Daihatsu, Honda, Subaru), Korean (Daewoo, Hyundai, Kia), Indian (Tata, Mahindra), with Chinese brands poised to enter the SA market
Key Features: SA Auto Industry : Key Features: SA Auto Industry
The Automotive Industry is the largest manufacturing sector in the SA economy and contributed 7,53% to SA GDP of R1 727 billion/Euro R205 billion in 2006 (2005 Total: R1 523bn/Euro 190bn)
SA exports continue to surge as a result of improved commodity prices, competitiveness, and the Motor Industry Development Program (MIDP) (26% compound growth annually since 1995)
Industry Performance Since 1995 OEM capital expenditure (R millions) : Industry Performance Since 1995 OEM capital expenditure (R millions)
Industry Performance Since 1995 SA vehicle production vs. global production : Industry Performance Since 1995 SA vehicle production vs. global production
Industry Performance Since 1995 Sector growth : Industry Performance Since 1995 Sector growth
Key Features: SA Auto Industry : Key Features: SA Auto Industry New vehicle sales in 2006 achieved an all time record for the third consecutive year with SA the top performer internationally in 2005
Exports of SA vehicles are growing significantly
Motor Vehicle population is 8.0 million, including 4.8 million cars
Replacement value of vehicle parc exceeds Euro100 billion or Rand one trillion
SA component and vehicle manufacturing focus increasingly export-oriented.
Industry Performance Since 1995 New vehicle sales and projections : Industry Performance Since 1995 New vehicle sales and projections
Key Economic variables : Key Economic variables
% Change in Real Terms Source: SA Reserve Bank, *NAAMSA projections
Car sales versus GDP growth : Car sales versus GDP growth
Source: SA Reserve Bank
The Motor Industry Development Programmes (MIDPs) : The Motor Industry Development Programmes (MIDPs) Implemented 1 September1995
Recognising structural differences between the different sectors of the industry, two separate MIDPs
- one for passenger car and light commercial vehicles
- one for medium and heavy commercial vehicles
Key aim: To reshape the future direction of the SA automotive and associated industries and to place the industry on a sustainable growth path
MIDPs took account of international realities, namely, trade liberalisation, globalisation of markets against the background of rapid technological change, rising customer expectations and increasingly demanding markets
The Motor Industry Development Programme – Car/LCV MIDP: Structure : The Motor Industry Development Programme – Car/LCV MIDP: Structure Duties progressively reducing to 25% on imported vehicles and 20% on imported OE components by 2012 from 115% and 50%, respectively, (pre 1995)
Duty-Free import of original equipment (CKD) components of 27% of ex-factory price of vehicles produced locally
No minimum local content requirement
Import-export facilitation with reducing benefits
Productive Asset Allowance (PAA) – duty credit of 20% over 5 years
Domestic vehicle production based on completely disassembled components (CKD)
Motor Industry Development Programme (MIDP): Objectives : Motor Industry Development Programme (MIDP): Objectives Key Objectives –
To improve SA automotive industry’s international competitiveness
To improve vehicle affordability in the domestic market
To encourage growth in vehicle and component manufacturing, particularly through exports
To stabilise employment levels in the industry
To create a better industry foreign exchange balance
Industry Performance:1995-2006 International competitiveness : Industry Performance:1995-2006 International competitiveness Significant improvement in quality and productivity. Progressive economies of scale with local platforms down from 42 to 21
Average volume per model (cars/LCV’s) produced increased from 9 000 units to 26 400
In 2006, 4 models > 40 000 units and 11 models > 20 000 units per annum
Substantial increase in number of vehicles produced per employee from less than 10 vehicles per annum to 15,5 vehicles per annum – an improvement of over 55%
Significant rationalization and economies of scale production has reduced complexity for domestic component suppliers
Industry Performance Since 1998 Passenger Car Product Quality : Industry Performance Since 1998 Passenger Car Product Quality
Source:Synovate 230 PP100 153 PP100 Problems / 100 vehicles Trend
Industry Performance Since 1998 Light Commercial Vehicle Product Quality : Industry Performance Since 1998 Light Commercial Vehicle Product Quality
Source: Synovate 286 PP100 176 PP100 Problems / 100 vehicles Trend 1998 1999 2000 2001 2002 2003 2004 2005 2006
Industry Performance:1995-2006 Other key performance benchmarks : Industry Performance:1995-2006 Other key performance benchmarks Affordability – New vehicle prices below inflation for 9 out of 12 years
Exceptional growth in industry exports and, in recent years, significant growth in domestic market
Stable overall industry employment and, more recently, growth in specific sectors
Trade deficit has deteriorated over past two years but set to improve from 2007 onwards
Industry Performance Since 1995 Vehicle price increases vs. CPI : Industry Performance Since 1995 Vehicle price increases vs. CPI
Source: Statistics South Africa
SA as an Export Source : SA as an Export Source
SA’s sub-continental role as manufacturer and supplier of components, after-market parts and vehicles firmly established.
Following some consolidation over recent years achieved strong upward momentum during 2006 to set new records
In Rand terms, vehicle and component export growth has averaged 26% annually from 1995 through 2006
Real annual volume growth has averaged 25% on vehicles and 19% on components over the same period
Industry exports, in Rand terms, are consolidating at current record levels as a result of a relatively strong exchange rate, however, renewed growth projected from 2006/2007 onwards
Industry Performance Since 1995 Export Trends (R millions) : Industry Performance Since 1995 Export Trends (R millions)
Slide23 : Volkswagen SA
Golf 5 to Asia Pacific and other RHD markets
BMW SA
3-Series to Japan, Australia and U.S.
Daimler-Chrysler SA
C-Class to UK, Japan, Australia
Toyota
RunX to Australia, 2006 SUV to Europe Major Exports by OEMs in SA
Slide24 : Component Exports (R mil)
Industry performance: 1995 -2006 Employment trends : Industry performance: 1995 -2006 Employment trends
Strong growth in employment at vehicle manufacturing plants over the past three years
NAAMSA OEM employment currently near peak levels
Growth in other sectors has been positive with major employment creation in the motor trade, distribution and servicing sectors
Industry Performance Since 1995 : Industry Performance Since 1995
Industry performance: 1995 -2006 Automotive industry trade balance : Industry performance: 1995 -2006 Automotive industry trade balance
Automotive industry trade balance has continued to widen over the past three years
Industry trade balance likely to have peaked in 2007
Automotive industry trade balance anticipated to narrow in future years on the back of a more competitive rand and increased export momentum
Industry Performance Since 1995 Trade balance : Industry Performance Since 1995 Trade balance
Industry Performance Since 1995 Trade deficit (R billions) : Industry Performance Since 1995 Trade deficit (R billions)
South Africa as a sustainable, attractive manufacturing base : South Africa as a sustainable, attractive manufacturing base World-class, low-cost infrastructure – railways, roads, harbours, telecommunications and electricity
Well-developed, efficient capital market and world class banking and financial services sector
Low manpower costs by first-world standards and abundant supply of trainable labour
Low cost of factory establishment (competitive & efficient construction industry, low real estate cost)
Competitive and efficient ocean freight and comprehensive airline network
Why invest in South Africa? : Why invest in South Africa? Sustained cost reductions and further competitiveness improvement
Prospects for above-average economic growth in medium to long term
Advantage of a sustainable, low-cost manufacturing base
Socio-political stability
Sound macro-economic policies and targeted industry support
Potential for high returns on investment
Acknowledged good quality of life supported by first-world financial and IT infrastructure
Highly competitive cost-of-living
Opportunities in South Africa : Opportunities in South Africa What?
Technology transfer
Joint Venture production
2nd-tier supply
Direct Investment
Why?
Advantage of a sustainable, low-cost manufacturing base
Prospects for above-average economic growth in medium to long term
Socio-political stability
Sound macro-economic policies and targeted industry support
Acknowledged good quality of life supported by first-world financial and IT infrastructure
Automotive Industry Challenges : Automotive Industry Challenges Sustained cost reductions and further competitiveness improvement
Achievement of a positive policy environment conducive to sustainable growth and development of the SA automotive industry
Ongoing adaptation to rapid global changes
Enhance vehicle affordability
Development of appropriate skills
Improve the quality of after sales service
Collaboration with logistics service providers
Broad Based Black Economic Empowerment
Intensification of vehicle crime combating initiatives
Continued overall growth – domestic market and exports
NAAMSA VISION AND MISSION STATEMENT S A AUTOMOTIVE AND ASSOCIATED INDUSTRIES : 2003 – 2012 VISION “The progressive improvement of the international competitiveness of the South African automotive and associated industries, and in the process, to promote South Africa as a leading supplier of automotive products to international markets” : NAAMSA VISION AND MISSION STATEMENT S A AUTOMOTIVE AND ASSOCIATED INDUSTRIES : 2003 – 2012 VISION “The progressive improvement of the international competitiveness of the South African automotive and associated industries, and in the process, to promote South Africa as a leading supplier of automotive products to international markets”
MISSION STATEMENT
For South Africa’s automotive and associated industries to offer enhanced customer satisfaction through
Internationally competitive products
Fuel efficient, environmentally friendly vehicles
Improved quality and choice
High quality after sales service
To encourage a more focused and rationalised assembly and supplier industry – progressively more globally competitive with major export focus based on economies of scale production
To promote well developed linkages with multi-national automotive corporations and growing participation in OEM global sourcing
To develop more efficient distribution networks
To promote employment equity and the development of Black
Economic Empowerment in the broader automotive industry
To focus on Union-Employer partnership results and the achievement of substantial further improvements in productivity and the development of improved and more flexible skills