July 2007

South Africa’s Automotive Industry 2007 Automotive Contents July 2007

List of abbreviations 1

State of South Africa’s automotive industry 3 – Global position 3 – Contribution to the GDP 3 – Vehicle distribution 4 – Structure of the market 4 – Size of the market 4 – Employment 5 – The Motor Industry Development Programme 6 – Vehicle production 6 – Capacity utilisation 6 – Investment in the automotive industry 8 – Automotive exports and imports 9 – Trade balance 10 – Vehicle prices 10 – Global trends and local responses 11 – Black economic empowerment 11

Motor Industry Development Proogramme 13 – Evolution of the government’s involvement in the automotive industry 13 – Mechanisms of the MIDP 13 – Evaluation of the MIDP 15 – Post-2012 support 16

Vehicle and component exports 18 – Vehicle exports 19 – Component exports 20 – Trade agreements 22

Automotive imports 24

Investment in the automotive industry 26

Main original equipment manufacturers 29 – BMW South Africa 29 – DaimlerChrysler South Africa 29 – Ford Motor Company of Southern Africa 30

www.researchchannel.co.za Automotive Contents July 2007

– General Motors South Africa 30 – Nissan South Africa 31 – Toyota South Africa 32 – Volkswagen South Africa 32

Contact list for the automotive industry 34

Main sources 37

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List of abbreviations

Agoa – African Growth and Opportunity Act BEE – black economic empowerment CBU – completely built up CCIG – Catalytic Converter Interest Group CSF – coated soot filter DCSA – DaimlerChrysler South Africa DPF – diesel particulate filter EU – European Union FMCSA – Ford Motor Company of Southern Africa GDP – gross domestic product GMSA – General Motors South Africa GSP – general system of preference HCV – heavy commercial vehicle IMV – innovative multipurpose vehicle IRCC – import rebate credit certificate LCV – light commercial vehicle MCV – medium commercial vehicle MIDP – Motor Industry Development Programme Naamsa – National Automobile Association of South Africa Nafta – North American Free Trade Area OEM – original equipment manufacturer PAA – Productive Asset Allowance Sacu – Southern African Customs Union SADC – Southern African Development Community TMC – Toyota Motor Corporation

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TSA – Toyota South Africa VWSA – Volkswagen South Africa WTO – World Trade Organisation

The material contained in this report was compiled by Shona Kohler and the Research Unit of Creamer Media (Pty) Ltd, based in Johannesburg, South Africa. To contact Creamer Media call +27 11 622 3744 or email [email protected].

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State of South Africa’s automotive industry

Global position Top 25 vehicle producing countries in 2005 % of world Rank Country Production South Africa is a relatively small player in global production automotive production having, in 2006, produced 1 United States 11 980 912 18,03 only 0,85% of the total global vehicle production of 2 Japan 10 799 659 16,25 69,21-million vehicles. The country’s contribution 3 Germany 5 757 710 8,66 to global production, however, is increasing, and its 4 China 5 707 688 8,59 2006 share of global output was up on its contribution 5 South Korea 3 699 350 5,57 in previous years, with South African production 6 France 3 549 008 5,34 growing at a faster rate than global production. 7 Spain 2 752 500 4,14 South Africa’s contribution to global automotive output 8 Canada 2 688 363 4,04 % change 9 Brazil 2 528 300 3,80 2000 2004 2005 2006 2005/06 10 United Kingdom 1 803 049 2,71 Global 58,4- 64,49- 66,55- 69,21- vehicle +4% 11 Mexico 1 670 403 2,51 million million million million production 12 India 1 626 755 2,45 SA vehicle 0,357- 0,455- 0,525- 0,588- +11,9% production million million million million 13 Russia 1 351 199 2,03 SA share 14 Thailand 1 125 316 1,69 of global 0,61% 0,7% 0,79% 0,85% 15 Italy 1 038 352 1,56 production Source: Naamsa quarterly review of business conditions. 1st quarter 2007 16 Belgium 928 965 1,40 17 Turkey 879 092 1,32 The world’s top vehicle producing countries are the 18 Iran 817 200 1,23 US and Japan which, respectively, were the source of 18% and 16% of total global production in 2005. 19 Poland 625 443 0,94 Other major producers include Germany, China, 20 Czech Republic 604 930 0,91 South Korea, and France, which each produced 21 Malaysia 563 837 0,85 more than 5% of worldwide vehicle production in 22 South Africa 525 271 0,79 that year. 23 Indonesia 494 551 0,74 24 Taiwan 446 345 0,67 While South Africa is a relatively small producer 25 Australia 394 713 0,59 in global terms, the country is the top automotive Source: International Organisation of Motor Vehicle Manufacturers producer in Africa, being the source of over 75% of the continent’s vehicle output. Minor assembly operations exist in several other African Contribution to the GDP countries, including Botswana which, according to the International Organisation of Motor Vehicle The contribution of South Africa’s automotive Manufacturers, produced 1 566 vehicles in 2005; sector to the country’s economy is significant, with Egypt, which produced 69 223 vehicles in 2005; the broader automotive industry representing the Kenya, which produced 405 vehicles in 2005; largest manufacturing sector in the country, and Morocco, which produced 14 881 vehicles in 2005; accounting for a significant share of manufacturing Nigeria, which produced 2 937 vehicles in 2005; and output. In 2006, the broader automotive industry Zimbabwe, which produced 960 vehicles in 2005. contributed 7,53% to the country’s gross domestic

www.researchchannel.co.za 3 Automotive July 2007 product (GDP), continuing an upward trend, having Durban and Pietermaritzburg, has the manufacturing contributed 7,46% and 7,1% to GDP in 2005 and plant of Toyota and about 15% of the components 2004 respectively. industry.

The sector’s position as one of South Africa’s In addition to the seven automotive manufacturers largest industries has much to do with its increasing in South Africa, many others – notably Renault, prominence as an exporter of vehicles and Peugot-Citroen, Hyundai, Kia, Subaru, Daihatsu, automotive components. With exports expected to Tata, Mahindra, Proton and Porsche – import cars continue to rise, the sector’s contribution to GDP is into the country, and are represented by marketing expected to continue to increase in significance. offices. In total, it is thought that there are about 25 vehicle importers and assemblers in South Africa.

Vehicle distribution The vehicle manufacturers, importers and assemblers are supported by about 350 local In 2004, South Africa had an estimated motor vehicle automotive component manufacturers, together distribution of one vehicle for every 11 people, giving with about 150 others who supply the industry on the country the fourth-highest ‘autodensity’ of all a nonexclusive basis; some 4 600 garages and fuel African countries, with only Libya, Reunion and the stations, most of which have workshop facilities, and Seychelles having preferable vehicle distribution a further 3 300 specialist repairers; 1 150 new-car levels. In some African countries, the distribution dealerships holding specific franchises; an estimated of motor vehicles is as sparse as one vehicle for 800 used-vehicle outlets; 450 specialist tyre dealers every 134 people (Equatorial Guinea), one vehicle and retreaders; 400 engine reconditioners; 80 for every 764 people (Ghana), and one vehicle for vehicle body builders; 650 parts dealers; and about every 2 252 people (Zambia). 280 farm vehicle and equipment suppliers.

Based on this, and on future growth projections for the subcontinent, there is considerable potential for Size of the market growth in the automotive industry, and South Africa is in a strong long-term strategic position to take The total number of vehicles operating in South advantage of this. Africa in 2006 is estimated at 8,54-million, of which 5,15-million are passenger cars and minibuses.

Structure of the market Total new vehicle sales in South Africa amounted to 714 315 in 2006, including passenger cars, light Seven global car manufacturers – BMW, commercial vehicles (LCVs), and medium and DaimlerChrysler, General Motors, Ford, Nissan/Fiat, heavy commercial vehicles (MCVs/HCVs). This Toyota and Volkswagen – assemble cars in South was the first time South Africa’s new vehicle sales Africa and, since the 1980s, most have extended surpassed the 700 000 mark, and was 15,7% up on their operations to include the assembly of medium new vehicle sales in 2005. and heavy commercial vehicles. Car sales in 2006, at 481 558 vehicles, were up on The manufacturing companies are concentrated in the previous year, when 419 868 vehicles were sold, three regions of the country. The first region, which and show significant growth since 1995, when the covers the Gauteng province, and a portion of the total local car market stood at 255 817 vehicles. North West province, is home to three of the country’s original equipment manufacturers (OEMs) – BMW, It is believed that the car market has been supported Nissan (including Fiat assembly operations), and over this period by strong economic fundamentals, Ford – and about 50% of the country’s components as well as by the fact that car ownership levels in industry. The second region, in the Eastern Cape, South Africa are quite low, providing an untapped houses the manufacturing operations of General demand potential to exploit. Further, 50% of the Motors, Volkswagen and DaimlerChrysler, and country’s passenger vehicles are older than ten about 30% of the component manufacturing sector. years, meaning that a large percentage of vehicles The third major region, in the KwaZulu-Natal cities of are nearing the age of replacement. Small lower-

www.researchchannel.co.za 4 Automotive July 2007 priced vehicles still comprise a major portion of new- manufacturing industry, 78 500 in the automotive vehicle sales, although consumers are showing components industry, almost 7 000 in the tyre trade, increasingly sophisticated preferences. and 200 000 in the motor trade, distribution and servicing sector. However, indications are that the growth in new car sales is set to start slowing, and the National While overall employment in the automotive industry Automobile Association of South Africa (Naamsa) has shown modest growth, considerable debate anticipates that the new car market in 2007 will show exists around this, with some suggesting that a modest growth of between 4% and 6% in volume employment in the motor trade, which comprises terms. This is likely to be influenced by the overall the bulk of total employment in the automotive performance of the South African economy, the sector, skews the picture of employment in the direction of interest rates, and new vehicle pricing, automotive sector. If employment in the motor with the latter being a function predominantly of the trade is ignored, it can be seen that automotive Rand/Euro and Rand/Yen exchange rates, as well employment rose slightly between 1999 and June as domestic producer price inflation. Vehicle prices 2006, from 105 870 to 122 570, with the components will also be affected by the serious cost pressures sector showing the most significant gains. Growth faced by local manufacturers, who are experiencing in the vehicle manufacturing industry has shown a high level of producer price inflation, and materials steeper acceleration since 2004, and by the end price increases, particularly in the case of automotive of March 2007, was reporting total employment of steel products. 38 888. This growth is attributed to the increase in production associated with higher levels of sales of While growth in new car sales begins to slow, domestically produced vehicles and the ramping up however, growth in the commercial vehicle sector is of major vehicle export programmes. forecast to remain strong, boosted by events in the macroeconomic environment, such as infrastructural Potential for further employment growth in the development spending and construction activity, as automotive industry is thought to be limited. While well as further growth in domestic fixed investment. certain subsectors, such as wiring harnesses and Naamsa has forecast growth in the commercial stitched leather component manufacturing, are very vehicle sector to be in the region of 11% for 2007. labour intensive, the bulk of the motor vehicle, parts and accessories sector is relatively capital intensive. In 2006, the LCV sector recorded sales of 199 677, Further, the skill requirements of the sector are quite which was up on the 170 132 vehicles sold in 2005, high, with about half of the total workforce having and the 132 405 vehicles sold in 2004. The MCV/ mid- and high-level skills. Major skills shortfalls HCV sector recorded sales of 33 080 vehicles in exist, although the motor industry is set to invest 2006, showing growth from 27 450 in 2005. more than R1-billion in technical skills development over the next six years.

Employment The local automotive industry’s performance in terms of the international productivity benchmark of According to Naamsa, the extended automotive the number of vehicles produced by each employee industry in South Africa employs over 320 000 each year, is improving, from 10,2 vehicles an people, including over 37 000 in the vehicle employee in 1999 to 15,3 vehicles an employee

Employment in the automotive industry (average monthly figures 1999–2005) 2006 1999 2000 2001 2002 2003 2004 2005 (Jan-June) Vehicle manufacturing industry 32 000 32 300 32 700 32 370* 31 700* 31 800 34 300 37 470 Automotive components 67 200 69 500 72 100 74 100 75 000 74 500 78 000 78 500 Tyre industry 6 670 6 575 6 300 6 000 7 200 7 200 6 800 6 600 Motor trade, distribution & servicing 175 000 180 000 182 000 185 000 191 000 194 500 198 000 200 000 Total 280 870 288 375 293 100 297 470 304 900 307 500 317 100 322 570 *The leather division of BMW SA was sold effective July 2002 and, as a result, the employment numbers, involving over 1 000 employees, were no longer reflected in terms of the vehicle manufacturing industry’s total and, from that date, fall under automotive components Source: Naamsa, Retail Motor Industry Organisation, SA Tyre Manufacturers Conference, Research by Bentley West and the National Labour & Economic Development Institute (Naledi) Fridge study, Automotive Industry Export Council Employment Survey. www.researchchannel.co.za 5 Automotive July 2007 in 2005. These improvements have mainly been process, enjoying economies of scale. In 2005, five the result of higher specialisation and economies of models produced in South Africa had volumes in scale benefits rendered possible owing to production excess of 40 000 units a model. volume increases in exports, as well as increased levels of automation. Simultaneously, however, South African consumers are able to choose from a very wide range of over 1 100 vehicle models, up significantly from the The Motor Industry Development 250 choices available in the mid-1990s, due to the importation of such vehicles. Programme The MIDP has phased down import tariffs at a rapid Since 1995, South Africa’s automotive sector has rate, from over 100% for built-up light vehicles at operated under government’s Motor Industry the advent of the programme, to 30% in 2007, and Development Programme (MIDP), implemented tariffs will be further lowered, to 25%, by the end to facilitate the transition of the South African of the programme in 2012. For original equipment automotive sector from being a heavily protected components, tariffs will be lowered to 20% by 2012. industry to being export oriented. Thus, the industry has been exposed to greater international competition, which has encouraged Prior to the MIDP, the industry was stagnant, with the higher production volumes and a greater degree of country’s policies of significant tariffs, local content specialisation. requirements and import substitution imposing high costs on consumers. This had led to an inefficient industry structure, characterised by a large number Vehicle production of small-scale plants, frequently producing a wide range of models at low volumes. Exports at this Under the MIDP, vehicle production in South Africa stage were few. has grown significantly, with total vehicle production – including cars, light-, medium- and heavy- Following South Africa’s democratic transition in commercial vehicles – having increased from 389 1994, the expansion of automotive exports began 392 vehicles in 1995 to 587 719 vehicles in 2006. to be seen as a solution to rising trade deficits in the The greatest growth in production has been seen sector, and as a route to experiencing the benefits in the passenger car sector, where production has of economies of scale. increased from 242 488 vehicles in 1995 to 334 482 vehicles in 2006, although growth in the LCV South Africa thus opted to liberalise, reducing tariffs market in recent years has been fairly sharp. In and abolishing local-content requirements. The total, production of LCVs has increased from 133 country also elected to implement an import-export 719 vehicles in 1995 to 219 618 vehicles in 2006. complementation scheme, in order to encourage exports and reduce net foreign exchange usage. According to Naamsa, growth in vehicle production is likely to reach record levels in 2007, on the back The MIDP, set to run until 2012, encourages of the roll out of major export programmes. manufacturers to discontinue the production of low-volume models, which cause production inefficiencies, and to concentrate on longer Capacity utilisation production runs for domestic and export markets. Based on the credits generated by sales into export The growth in the domestic production of vehicles markets, companies can introduce internationally has been accompanied by an increase in the manufactured products to the local market. utilisation of production capacity in South Africa’s motor vehicle assembly industry. In the passenger In line with this, the number of base models produced car sector, capacity utilisation has grown from 66,1% by South African automotive manufacturers has in 2000, to 80,1% in 2006. declined from 42, at the time of the inception of the MIDP, to 21 in 2006, allowing the industry to In the LCV sector, capacity utilisation has grown concentrate on the models being produced, while from 60,2% in 2000, to 87,8% in 2006. In the MCV refining the quality of these vehicles and, in the sector, capacity utilisation has grown from 64,2% www.researchchannel.co.za 6 Automotive July 2007 700 5.8% 82 000 90 000 30 000 24 000 54 000 47 000 47 000 270 000 180 000 450 000 250 000 332 000 602 000 220 000 310 000 274 000 923 000 270 700 807 000 2010 650 5.30% 75 000 85 000 25 000 21 000 46 000 44 000 44 000 255 000 165 000 420 000 240 000 315 000 570 000 210 000 295 000 256 000 870 000 250 650 759 000 2009 600 4.6% 70 000 80 000 20 000 18 500 38 500 40 000 40 000 245 000 155 000 400 000 230 000 300 000 545 000 200 000 280 000 238 500 823 500 235 600 720 000 2008 Projections 450 4.8% 70 000 75 000 18 000 15 000 33 000 33 000 33 000 240 000 150 000 390 000 205 000 275 000 515 000 175 000 250 000 208 000 756 000 225 450 673 450 2007 400 5.0% 60 000 65 000 17 000 15 000 30 000 31 500 31 500 230 000 145 000 375 000 190 000 250 000 480 000 165 000 230 000 195 000 706 500 210 400 636 900 2006 424 4.9% 9 409 43 023 25 589 13 790 23 199 27 450 27 450 113 899 113 210 976 324 875 165 869 208 892 419 868 146 933 172 522 170 132 617 450 139 912 525 271 2005 448 4.5% 9 360 4 162 4 776 8 938 26 500 21 464 21 464 110 507 110 200 264 100 699 300 963 100 889 127 389 327 651 123 467 132 827 132 405 481 520 455 702 2004 469 2 877 2 500 5 377 3.0 % 11 000 11 283 11 70 919 81 919 16 957 16 957 114 909 114 290 113 176 340 291 249 258 259 102 007 107 384 382 600 126 661 421 965 2003 582 3.7% 2 791 2 500 5 291 11 699 11 68 128 10 000 78 128 14 335 14 335 113 025 113 655 113 163 474 276 499 241 602 101 956 107 247 363 184 125 306 405 071 2002 465 2.7% 2 035 2 500 4 535 97 599 67 008 12 500 79 508 10 229 13 323 13 323 113 111 113 117 646 117 172 052 269 651 251 560 123 340 382 529 108 293 406 779 2001 679 4.2% 1 114 4 114 9 148 3 000 58 204 51 749 10 000 61 749 12 275 68 031 12 275 113 269 113 172 373 230 577 234 122 104 121 108 235 354 632 356 800 2000 788 843 Automotive sales, export and import data 1995–2010 2.4% 6 581 3 500 4 343 11 736 11 736 11 52 347 29 426 25 000 54 426 95 326 99 669 59 716 Actuals 159 944 212 291 214 370 101 907 325 775 326 722 1999 748 0.5% 6 806 1 022 4 100 5 122 12 811 12 811 18 342 28 951 31 000 59 951 98 056 25 896 311 633 311 174 870 193 212 234 821 104 862 103 178 351 510 1998 2.6% 1 111 8 000 1 150 3 400 4 550 10 458 23 978 28 000 51 978 13 759 13 759 19 569 113 204 113 754 117 215 784 226 242 267 762 121 204 399 275 362 316 1997 685 7 15 4.3% 3 743 1 059 3 500 4 559 11 553 11 18 268 23 500 41 768 14 617 14 617 231 616 235 359 273 384 128 516 135 641 133 075 421 076 386 302 1996 432 3.1% 8 976 7 246 6 356 1 034 3 000 4 034 15 059 22 305 12 753 12 753 15 764 233 512 242 488 255 817 127 363 133 719 131 397 399 967 389 392 1995 Cars Domestically produced Local sales (CBU) Exports domestic Total production CBU imports Naamsa Non-Naamsa car Total imports local car market Total Light commercials Domestically produced Local sales Exports domestic Total production CBU Imports Naamsa Non-Naamsa Lcv Total imports local Lcv market Total Medium and heavy commercials Naamsa sales (incl. imports) Exports Mcv/Hcv market Total aggregate Total market aggregate Total exports domestic Total production growth rate GDP Notes: Domestically produced cars and lcv total represents a proxy for aggregate local production. Data excludes imported vehicles which have been re-exported. Information based on data collected by Naamsa and estimates of non-Naamsa sales. annual changes at market prices in real terms. growth rate represents GDP GDP Announcements of new CBU export programmes could change projections. CBU export figures are based on projects announced to date. Source: Naamsa

www.researchchannel.co.za 7 Automotive July 2007 in 2000 to 97,9% in 2006, and in the HCV sector, has undertaken a R1-billion investment at its Silverton capacity utilisation has grown from 74,8% in 2000, plant, in Pretoria, to enable its participation in an to 95,1% in 2006. export contract for the new-generation Ford Focus. General Motors South Africa (GMSA) has invested In all the sectors, South Africa is above the global R2-billion in its operations over the past three years, average for capacity utilisation and, if local vehicle including expenditure to enable the production of production is to continue to grow, it is possible that the Hummer H3 sports utility vehicle and the fifth- local manufacturers may have to engage in capacity generation Isuzu KB. The company plans to spend expansions. a further R620-million in 2007 on new tooling, and facility and equipment upgrades, and is investing Utilisation of production capacity in the South African heavily in its dealer network, including expenditure automotive industry (percentage) on the construction of new dedicated premium brand 2000 2001 2002 2003 2004 2005 2006 dealership facilities. Nissan South Africa has spent Cars R250-million on upgrading its Rosslyn plant in order 66,1 72,2 73,2 77,2 79,7 81,1 80,1 to fulfil a contract for the export of left- and right- Light 60,2 62,6 70,6 69,6 72,1 79,9 87,8 hand drive pick-up vehicles, and Fiat SA, which commercials manufactures at the Nissan South Africa facility, Medium 64,2 69,8 67,8 60,7 57,2 84,4 97,9 has invested more than R400-million to enable the commercials export of right-hand drive pickup vehicles. Toyota Heavy 74,8 78,1 85,7 85,6 86 95,9 95,1 commercials South Africa (TSA) has invested about R2,4-billion, Source: Naamsa including R400-million on supplier tooling and R1-billion on a new water-based paint shop, to enable its production of vehicles for its international Investment in the automotive innovative multipurpose vehicle (IMV) project. This followed substantial investments by the company industry into its Corolla export programme. Volkswagen South Africa (VWSA) has invested more than R3- Already South Africa’s automotive industry has billion in plant, machinery and facilities over the past been the recipient of considerable investment, six years, and will invest a further R1-billion in these encouraged by the MIDP, with investor confidence areas over the next two years, which will enable the based on the fact that profitability and return on company to double its vehicle export capacity. capital in the country’s vehicle manufacturing, in aggregate terms, are in line with international norms. Possible future investments could see the establishment of assembly plants in South Africa In 2006, total capital expenditure by vehicle by Indian conglomerates Tata and Mahindra & manufacturers in South Africa amounted to a record Mahindra, and French carmaker Renault. Tata R6,2-billion, and planned investments for 2007 are initially planned to construct an automotive plant in expected to be R5,8-billion. Richards Bay, but has since acquired the defunct Nissan truck plant in Rosslyn, near Pretoria, from Significant investments in the sector in the last few where it could start manufacturing passenger years have included BMW South Africa’s expenditure vehicles. However, the company’s decision on of R2-billion on retooling and re-equipping its plant whether to go ahead with production will hinge, in to enable production of its current 3-series model, part, on future incentives to the automotive sector. bringing to R3,5-billion the total amount invested Mahindra & Mahindra has indicated that it may by the company in South Africa since 2003. The invest in a vehicle assembly plant in South Africa, latest R2-billion invested by the company included although such an investment will only be viable if a new body-in-white assembling facility, along with Mahindra South Africa achieves sales of about 1 new paint preparation and assembly extension 000 units a month on a single platform. Currently operations. DaimlerChrysler South Africa (DCSA) the company sells about 400 units a month. Renault has invested R2-billion in its production facilities to is considering undertaking assembly of its no-frills enable the production of the successor to the C-Class Logan car in South Africa. Mercedes-Benz. This investment included a new state-of-the-art body shop and assembly line. The OEMs are also investing in the manufacture of Ford Motor Company of Southern Africa (FMCSA) components. For example, over a period of five www.researchchannel.co.za 8 Automotive July 2007 years, FMCSA has invested more than R1-billion in including built-up vehicles, from qualifying sub- its Eastern Cape engine plant, which manufactures Saharan African countries have duty-free access to the RoCam engine, and will be investing a further the US market, and the SA-European Union free- R150-million in the plant over the next few years, trade agreement. Further, an agreement between VWSA has invested R240-million to upgrade its the EU and South Africa to cut tariffs on car exports facilities to meet its contract for the supply of more between the two markets will save local vehicle and than R12-billion-worth of engines to the Volkswagen component exporters hundreds of millions of rands. plant in Hanover, Germany, over a period of six The agreement will see South Africa reduce its years. duties on European car imports from 25% to 18% by 2012, while also reducing duties on components The investment by OEMs in their vehicle and and trucks. In return, the EU will phase down import component production facilities has increased the duties on cars from South Africa to zero per cent need for investment by component manufacturers, by 2008. To qualify for the tariffs, however, South and several such companies have announced African vehicles and components must have a expansion and upgrade plans. For example, minimum of 60% local content. to keep pace with the increased production of engines at Ford’s Port Elizabeth plant, several local Local content in locally assembled vehicles has been suppliers, such as Murray & Roberts Foundries, decreasing gradually over the last three years, from Visteon and Bel-Essex, will be making investments an average of 59,7% in 2004, to 58,5% in 2005, and in their facilities, and Toyota’s recent investment 56,5% in 2006. Low levels of local content means in its facilities has been accompanied by a R400- low local demand for locally produced components. million investment in supplier tooling. BMW South Africa’s suppliers have invested R1-billion towards At the same time as automotive exports from South providing the necessary components for the new 3- Africa have been increasing, imports of vehicles into series model. the country have also been increasing, from 8,7% of the total local car market in 1995, to 55,3% in 2006, and sales of imported cars grew by 31% in 2006, Automotive exports and imports while locally produced car sales only improved by about 1%. Vehicle imports are expected to remain Investments in the automotive sector reflect another at high levels, aided by the MIDP, which prescribes positive development that has occurred in the that the import duty on built-up light vehicles will automotive industry since the inception of the MIDP: continue to fall until 2012. the rapid expansion of exports. In the components sector, exports have increased steadily, up from Similarly, under the MIDP, the import duty on R3,3-billion in 1995, to R30,5-billion in 2006, while automotive components has been falling, and in the CBU vehicle sector, exports have increased will continue to fall until 2012, with the result that from just over 4% of total vehicle production in component imports have increased to such an 1995, to almost 31% in 2006. In the passenger extent that the local component-manufacturing car sector, exports have increased from just 3,7% industry is under threat, and component imports are of total passenger vehicle production in 1995, to expected to continue to increase. 35,6% in 2006. During times of rand strength, the local component Locally assembled and manufactured vehicles and industry finds it difficult to produce competitively. automotive components were exported to over 100 Such companies could improve their cost countries in 2006. Overall Europe, specifically competitiveness if they were to invest in new Germany, remains the automotive industry’s main technology, but for many such firms, investment trading partner, followed by Japan, the US, the UK, is not an affordable option, with the South African and Australia. government providing no investment incentives for the component industry. Many of the governments Automotive companies are taking advantage of of directly competing economies offer a range several trade agreements, such as the African of incentives to their component manufacturing Growth and Opportunity Act (Agoa), in terms industries, including significant investment of which a broad range of automotive exports, incentives, such as tax breaks.

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The cost competitiveness of local component Evidence gathered during the investigation indicated manufacturers is also hampered by the high input that most motor manufacturers and their franchised costs experienced by such companies. dealers had contravened the Competition Act by fixing prices, entering into agreements that impose South African automotive-component manufacturers restrictions substantially preventing or lessening are also at a disadvantage because of geographical competition, and agreeing to, or imposing, minimum location, with the country’s location being far retail prices. from large automotive markets resulting in added logistical costs. As a result of the investigation, eight vehicle companies – TSA, GMSA, DCSA, Nissan South Africa, VWSA, Subaru, Citroen and BMW South Trade balance Africa – were penalised a total of R51,65-million for allegedly colluding to fix car prices and/or trading Despite the MIDP’s success in expanding automotive conditions. All these agreements were reached exports from South Africa, the corresponding growth without any admission of guilt on the part of the in imports of built-up vehicles and components has automotive companies, although all included an seen a widening in the automotive industry’s trade agreement to implement programmes that would balance. ensure compliance with the Competition Act.

Some industry commentators have suggested that Some companies investigated were found to have the strong growth in automotive imports has been engaged in anticompetitive practices, but their market a major shortcoming of the MIDP and that, despite shares were too small to have a substantial effect on the role of the MIDP in transforming the automotive competition in their respective markets, while others industry from an inefficient protected sector to a were found not to have engaged in the alleged globally competitive manufacturer and exporter, the collusion and/or resale-price maintenance. The programme has not been an unmitigated success. commission also revealed that no evidence was found to suggest that Naamsa had contravened the act. Nevertheless, the fact remains that the MIDP has been key in assuring the viability of an industry that On the allegation of excessive pricing, the could not be supported by current levels of local Commission found that the companies were not demand and, since the inception of the programme, guilty, and that such a case could not be pursued as the automotive industry has performed better than excessive pricing in the Competition Act relates to the manufacturing industry average in each of the dominant firms, with such a firm defined by the Act key performance variables of sales, employment, as a company with a market share of 35% or more. export levels, and capital investment. No manufacturers or importers in South Africa have such a large market share.

Vehicle prices Nevertheless, the Competition Commission has indicated that car prices in South Africa are relatively Over the period in which the MIDP has been in higher than similar models in EU countries. The place, the programme has undergone a number of Commission’s report shows the price of imported reviews, one of which raised the issue of vehicle vehicles in South Africa to be, on average, 18% affordability, with the prices of new vehicles in South higher than in European countries, while the price Africa considered to be high. of domestically produced vehicles is, on average, 8% more. In total, South African car prices are, on Prompted, in part, by a complaint to the Competition average, 14% higher than prices in other countries. Commission that various TSA dealers were quoting This figure was arrived at after making adjustments the same price and discount, in May 2004, the for differences in vehicle specifications, tax rates, Competition Commission launched an industry tariff rates, transport costs, motor plans and other wide investigation into new motor-vehicle prices and factors for the sample of cars and countries used in sales practices. The investigation related to alleged the study. prohibitive business practices by manufacturers, importers, distributors, and dealers of new motor The report was submitted to the midterm review of vehicles in South Africa. the MIDP, and cites the MIDP as, at least, partially www.researchchannel.co.za 10 Automotive July 2007 responsible for the high prices of vehicles in South 2 700 commercial and 30 000 passenger vehicles. Africa. DCSA is the primary supplier of C-Class models to right-hand drive markets around the world, and BMW Certain industry commentators, however, have South Africa exports over 75% of its production, to indicated that this cannot be the case, and that the countries such as the US, Taiwan, Japan, Singapore, tax on vehicles and not the MIDP is to blame for high New Zealand, Hong Kong and Australia, as well car prices. For example, luxury vehicles in South as certain sub-Saharan African countries. Nissan Africa are comparatively very highly taxed, with the South Africa announced in 2004 that it will be effect of VAT, at 14%, compounded by an excise exporting vehicles to Europe, Singapore, Australia tax of up to 20%. This means that certain luxury and New Zealand, and GMSA has a contract to vehicles are effectively taxed at 34%, assuming no export a sports utility vehicle to European, Asian- import duties are paid. Pacific, Middle Eastern and African markets.

According to a study conducted by Justin Barnes, To ensure their continued involvement in the global Raphael Kaplinsky and Mike Morris, on the whole, sourcing operations of multinational automotive South African car prices compare favourably with corporations, South African vehicle manufacturers the UK and Europe, when taxes and add-ons are can not afford to lose sight of the need to continue to stripped out. Their study indicates that, at the top realise improvements in manufacturing efficiencies and middle of the market, the specifications for and to attain world-class manufacturing standards. cars produced, or available as imports, in South Africa, are very similar, and domestic consumers Naamsa has articulated this strategic goal as are not at a disadvantage. With some qualification being to achieve a progressive improvement in the regarding engine and interior size, South African international competitiveness of the local automotive consumers do, however, appear to be paying more and associated industries. Already improvements for budget cars, which is problematic in terms of the have been seen in productivity, quality and MIDP, which was intended, among other things, to operational efficiency, and such improvements can provide cheaper cars to lower-income and first-time have positive spin-offs for the rest of the industry. buyers. Towards ensuring further improvements in global competitiveness, the South African automotive Global trends and local responses industry is attempting to enhance logistics through the establishment of automotive supplier parks – a The MIDP, through its policies of trade liberalisation, global concept which groups different technologies, has increasingly exposed South Africa to the suppliers and service providers together to ensure international automotive market, placing the country ease of supply into the automotive manufacturers’ in a position in which it is exposed to powerful global logistics chain. The country’s first automotive trends that it is too small to have any influence on. supplier park was established in Rosslyn, Pretoria, The implication of this is that firms will not benefit in 2004. Development of the first phase of a second from operating in a liberalised economy unless park, the Nelson Mandela Bay Logistics Park, has they are truly world-class and are capable of selling been completed in Uitenhage, and planning and products into the domestic and global market at the design work for phase two of the park is under way. same quality, price reliability and design as other global players. Black economic empowerment South African automotive manufacturers have shown themselves to be capable of operating in Towards the end of 2004, South Africa’s Minister of such an environment, having secured a number of Trade and Industry indicated that government would significant export contracts. For example, VWSA not force the country’s motor industry to adopt a is exporting the fifth-generation Golf vehicle to the single approach to black economic-empowerment Asia Pacific region, including Japan and Australia, (BEE) through the development of a sectoral as well as New Zealand, Brunei, Singapore, Sri charter. Lanka, Hong Kong, Indonesia and Malaysia. TSA exports Corolla vehicles to the Australian market, However, companies in the automotive sector must and FMCSA has been awarded a contract to export align themselves with government’s BEE codes of www.researchchannel.co.za 11 Automotive July 2007 good practice. The codes cover seven broad areas in which BEE is required – ownership, management control, employment equity, skills development, preferential procurement, enterprise development, and socioeconomic empowerment – but exempt foreign-owned companies from the ownership requirements provided they make up the deficit through other BEE initiatives – so-called equity- equivalent programmes, which have to be approved by the Minister of Trade and Industry.

This is particularly relevant to the automotive sector, with most vehicle assembly and component manufacturing operations in the country being functions of multinationals and global competitors, which are generally listed overseas. There is no legislative basis to justify the sale of equity for BEE purposes in the overseas market.

The equity offsets must fall under the other six BEE components stipulated in the codes of good practice, but it is possible for a company to choose just one of the six elements, if it makes strategic sense, and if it can be justified in the application to the Minister of Trade and Industry.

The value of the offsets offered must be equal to 25% of the value of the local operations of the multinational company. This value can be determined using generally accepted standard valuation methods (such as discounted cash flow or net asset value), based on the last audited financial statements of the local operation, or the latest month-end management accounts if the operations and profitability of the local operation have significantly changed since the issuing of the last audited financials.

Companies are expected to achieve their broad- based BEE targets over a ten-year period, ending February 2016.

www.researchchannel.co.za 12 Automotive July 2007

Motor Industry Development Programme

The evolution of government’s Group, which was appointed to re-examine the programme and advise government as to the future involvement in the automotive development of the industry. industry The eventual outcome was the Motor Industry Development Programme (MIDP), which was The State has played a role in regulating South introduced in September 1995, and was initially set Africa’s automotive industry since its establishment to run until 2002. Following a midterm review in in the 1920s. 2000, the programme was extended to 2007, and a second review process, conducted in 2002, further The first assemblers fell under the protection of extended the programme, to 2012. A third review high import tariffs for built-up vehicles, the industry was concluded in 2006, and the industry is keenly developed to consist of a number of small-scale awaiting the results of this process. plants producing a large variety of models and, in some cases, makes as well. This industry structure, The MIDP was formulated with the intention of in which most plants were engaged in the assembly facilitating the phased integration of the South of vehicles from imported components, was African automotive industry into the global market. inefficient, and costs to local consumers were high. This was recognised as requiring an increase in competitiveness, as well as in the volume and In the 1960s, government began the phased scale of production, which would contribute towards introduction of local content requirements, reaching taking local automotive companies down the cost 66% by 1977, and those manufacturers failing to curve, and making vehicles more affordable. It meet the local-content requirements were subject was envisaged that the MIDP would stabilise to prohibitively high tariffs on imported parts. employment levels in the industry, and allow the industry to contribute significantly to South Africa’s Towards the end of the 1980s, government began economic growth, while improving the industry’s to recognise the shortcomings of having developed highly skewed trade balance. an automotive industry that was intensely inward- orientated, producing a large number of makes and To achieve its objectives, the MIDP has eliminated models in low volumes and at relatively high cost, government’s demand-side support for the industry, for local consumption. and has shifted towards supply-side support mechanisms. As a result, when the next major change in policy direction, Phase VI of the local-content programme, was initiated in 1989, it was aimed at directing Mechanisms of the MIDP the sector towards export promotion. Component exports began to count as local content, and enabled Upon implementation, the MIDP abolished all local- an assembler to reduce the actual local content in content requirements, and set in place a schedule domestically produced vehicles. In addition, the to facilitate the phasing down of tariffs in order to actual local content requirement was reduced from increase the industry’s exposure to international 66% to 50%. competition, and thereby force it to rationalise.

Phase VI was not successful in achieving its goals, The programme to phase down import tariffs was and dissatisfaction with the result of Phase VI led set at a steeper rate than required by South Africa’s to the formation, in 1992, of a Motor Industry Task World Trade Organisation (WTO) obligations, and www.researchchannel.co.za 13 Automotive July 2007 has reduced duties from over 100% under the (IRCCs), derived from the exportation of vehicles Phase VI programme, to 30% for completely built-up and components, or bought from manufacturers (CBU) light vehicles, and 25% for original equipment that have sold, on the open market, credits earned components, in 2007. These tariffs are set to be through exporting. further reduced, to 25% and 20% respectively by 2012. CBU medium and heavy vehicles (above 3,5 Initially the scheme allowed that for every rand of t) may be imported at a duty of 20%, and components CBU exports, one rands-worth of CBU vehicles or for these vehicles may be imported duty free, except components could be imported duty free, and for for tyres, which are subject to a duty of 6% from the every rand of components exported, either R0,65 European Union, or 10% from anywhere else. of CBU imports or one rands-worth of components could be brought into the country duty free. In addition, the MIDP allows for registered industry producers to further reduce the duties payable, Since 2003, the value that may be imported for through four mechanisms – the duty free allowance, every rand of local content exported has begun the import/export complementation scheme, the to be phased down, and will reach the 70% level small vehicle incentive, and the productive asset by 2009, where it will stay until 2012. For 2007, allowance (PAA). exports will facilitate duty free imports of 78% of the value of the vehicles or components exported. In terms of the duty-free allowance, manufacturers of light vehicles are entitled to import original- The complementation scheme encourages exports, equipment components, duty-free, to the amount of and vehicle manufacturers use IRCCs to import, at 27% of the wholesale value of the vehicle. low duties, those vehicles only demanded in small volumes, and those components not produced Under the import/export complementation scheme locally. The result is that the industry is able to which, since 2003, has been phased down, import retain a full range of models in the domestic market, duties on vehicles, components and materials in spite of only a small number of models being can be offset by import rebate credit certificates produced in the country.

The provisions of the MIDP through 2012 Value of export Qualifying Year Import duty Ration of exports against imports performance PGM content Components, heavy Components, vehicles Built-up Original Catalytic motor vehicles and and tooling exported: CBU light Built-up light vehicles and equipment converters tooling exported: Components, heavy motor vehicles components components exported CBU light motor vehicles and tooling vehicles (excl. tooling) vehicles imported imported 1999 50.5% 37.5% 100% 90% 100:75 100:100 2000 47.0% 35.0% 100% 80% 100:70 100:100 2001 43.5% 32.5% 100% 60% 100:70 100:100 2002 40.0% 30.0% 100% 50% 100:65 100:100 2003 38.0% 29.0% 100% 40% 100:60 100:100 2004 36.0% 28.0% 90% 40% 100:60 100:100 2005 34.0% 27.0% 86% 40% 100:60 100:100 2006 32.0% 26.0% 82% 40% 100:60 100:100 2007 30.0% 25.0% 78% 40% 100:60 100:100 2008 29.0% 24.0% 74% 40% 100:60 100:100 2009 28.0% 23.0% 70% 40% 100:60 100:100 2010 27.0% 22.0% 70% 40% 100:60 100:100 2011 26.0% 21.0% 70% 40% 100:60 100:100 2012 25.0% 20.0% 70% 40% 100:60 100:100

Note: The duty-free allowance remains at 27% through 2012 and the production asset allowance 20%, in the form of a duty credit, will apply for the foreseeable future. Source: Naamsa Annual Report 2005

www.researchchannel.co.za 14 Automotive July 2007

Until 2003, importers were also able to reduce the imports will outnumber exports by over 160 000 duties paid through the small-vehicle incentive, vehicles a year. In the components sector, imports which provided a subsidy for the manufacture of have increased to such an extent that the local more affordable vehicles, through a duty drawback component-manufacturing industry is now under mechanism with the value of the drawback linked to threat. the value of the motor vehicle. The incentive has fallen away as a result of having had a limited effect In addition to the import-export complementation on making vehicles more affordable. scheme enabling the duty free importation of many of the components used by the automotive Through the PAA, the MIDP permits a reduction sector, the component manufacturing industry has in duties to be paid, as a reward for vehicle been struggling in periods of rand strength, when manufacturing companies investing in productive it is cheaper for motor manufacturers to import assets in the country. This allowance, which came components than to buy them locally. Further, into being following the 2000 review of the MIDP, the continued low levels of local content in South allows investors in new plants and equipment to African-manufactured vehicles is a concern for the qualify for a duty credit certificate of up to 20% of components sector, as it limits the opportunities for the value of their investment, spread equally over local manufacturers. five years. Another concern relates to the sustainability of Other general government incentive schemes are the country’s exports in the face of reduced MIDP also available to the automotive industry. benefits, and the industry will face challenges in trying to increase local content, so that it becomes globally competitive without the MIDP. Evaluation of the MIDP In all, under the MIDP, the automotive industry Based on the decision by government to extend has performed well in relation to macro indicators the MIDP to 2012, it can be seen that the State, such as sales, production, capital investment to some extent, regards the programme as having and employment, although performance in the potential to meet its stated objectives. Some terms of employment is debated among industry have gone so far as to call the MIDP one of the most commentators, several of whom hold that the sector successful examples of targeted industrial strategy has, in fact, seen substantial job losses, both in and, viewed purely in terms of export growth, it is the CBU and the components sectors. However, possible to say that the MIDP has been enormously official figures from industry associations show that successful. According to figures published by overall employment in the automotive industry has Naamsa, vehicle exports have grown significantly, been broadly stable, and has performed ahead of from about 16 000 in 1995 to almost 180 000 in the country’s manufacturing average over the last 2006, and are expected to increase to over 270 000 few years. in 2010. The automotive component sector has also experienced significant export growth, with the Further, the MIDP has improved the sector’s value of components exported up from R3,3-billion international competitiveness, and has encouraged in 1995, to over R30-billion in 2006. automotive manufacturers to achieve economies of scale through rationalisation. Vehicle and Owing to the import-export complementation component manufacturers have tended to reduce scheme, the increase in exports facilitated by the their product lines and to specialise, thus increasing MIDP has been accompanied by an increase in production in a narrow range of products, leading to imports which has, to some extent, countered the cost cutting. The range of models being produced exporting gains made by the industry, with the locally has fallen from 42 in 1995 to 21 in 2006. automotive deficit having grown substantially in the years since the implementation of the MIDP. The abolition of the local-content requirement has resulted in component sourcing based purely In the passenger vehicle sector, imports have on economics, also lowering the industry’s input increased from just over 22 000 in 1995 to 266 costs. However, the extent to which these reduced 247 vehicles in 2006, and are projected to increase costs have been carried through to the consumer to 284 000 in 2007, at which point passenger car remains questionable, and it appears that the MIDP www.researchchannel.co.za 15 Automotive July 2007 has not been obviously successful in improving the 2020. Such clarity is needed, as planning horizons affordability of vehicles. in the industry are long.

Additional criticism of the MIDP has stated that the Without ongoing support, it is widely feared that the programme is biased in favour of the OEMs and local automotive industry will fail to be sustainable, has not resulted in the same benefits to component and several international OEMs have indicated that manufacturers. The design of the programme South Africa is a profitable production location only through negotiation between government and if suitable incentives are on offer. There is a very industry participants has been criticised for favouring real possibility that manufacturers will withdraw from insiders and reducing, rather than increasing, South Africa if a similar programme is not introduced competition. to replace the MIDP after its expiry.

In addition, the system has been challenged for its The South African government has indicated that it high compliance costs, the great discretion it grants is committed to providing ongoing support, but the programme administrators, and the difficulties posed details of such support are not yet available. for firms in determining the tax implications. It is expected, though, that post-MIDP support will Due to the shortcomings of export promotion that tackle the challenge posed by the sector’s growing have been uncovered, suggestions have been contribution to South Africa’s trade deficit, which made that the MIDP’s incentive schemes should has been an unanticipated outcome of the MIDP. start to place more emphasis on investment than Specifically, it has been suggested that under the exports, as international evidence suggests that, post-MIDP support framework the IRCC system be when global car manufacturers make decisions replaced with a tax reduction system, whereby it will about where to invest, they are inclined to consider be possible to offset export credits against taxes, countries offering investment incentives more such as value-added tax, rather than just against favourably. The introduction of the PAA represents import duties, as is currently the case. a move towards this, although some are inclined to believe that the PAA should be amended, with the Further, it is expected that post-2012 support will removal of the condition that production from new be production- rather than export-based. Some factories must be exported. It has been added that motor analysts have maintained that the export the local automotive industry needs investment incentive element of the MIDP is not compliant with incentives that are more internationally-competitive WTO regulations, and that a move to a production- than the PAA. Suggestions have been made that based programme would eliminate the chance of investment support takes some form other than an challenges. import-duty credit, in order to put a brake on rising vehicle and component imports into South Africa. Initially, the system could include an increased PAA, It has also been suggested that the PAA, which is although this should not be export dependent, and currently only applicable to vehicle manufacturers, some industry participants have suggested that a be extended to component manufacturers. production-volume rebate system be introduced, whereby import duties on completely knocked-down Others insist that, for the MIDP to achieve its goal kits and fully built-up vehicles reduce as production of integrating the local industry into the global one, increases. exports must continue to expand, some even say double, and that the form that the MIDP takes going It is thought that a shift to a production-based plan forward, should reflect such a priority. will tackle the MIDP bias of providing support mainly to export participants, and could go some way towards putting South Africa on a level with other Post-2012 support emerging markets. Currently it is believed that, when compared with other emerging markets, South The automotive industry is keenly awaiting Africa lacks competitive investment incentives. For government’s announcement on the latest review of example, China, Poland, the Philippines and India the MIDP, initiated in 2005. This review is seen as offer tax incentives in what are known as ‘special being crucial to the sector’s future, and will put in economic zones’, with companies investing in those place the support framework that will run through to areas obtaining significant tax benefits. Further, www.researchchannel.co.za 16 Automotive July 2007

India, the Czech Republic, and Indonesia all offer tax breaks for incoming automotive investment.

It has also been suggested that post-2012 support includes a separate development programme for the component industry. This is seen as vital to increasing the local content of vehicles made locally, and thus contributing to a cut in the automotive sector’s trade deficit.

Based on an interview with Econometrix director Tony Twine, Engineering News reported that post-2012 support to the automotive industry would do well to promote growth from batch- to bulk-production, with the only local automotive sector currently having bulk status being the catalytic converter sector. According to Twine, if bulk production could be achieved, South Africa would suddenly have a motor industry structured on a completely different, more positive basis.

www.researchchannel.co.za 17 Automotive July 2007

Vehicle and component exports

Vehicle and automotive component exports from Automotive industry trade balance 1995 - 2005 South Africa have increased significantly since Imports Exports Trade balance 1995, largely owing to the MIDP. As a percentage (R billion) (R billion) (R billion) of total South African exports, automotive exports 1995 16,4 4,2 (12,2) increased nearly fourfold in the period, from 4,1% in 1996 19,2 5,1 (14,1) 1995 to just under 14% in 2006. 1997 17,2 6,6 (10,6) Despite, this, however, the automotive industry 1998 19,9 10,1 (9,8) remains a net user of foreign exchange, owing to 1999 22,8 14,8 (8,0) the importation of products not manufactured in 2000 29,7 20,0 (9,7) the relatively small domestic market. The industry 2001 38,0 30,0 (8,0) recorded a trade deficit in 2005 of R27-billion, which 2002 50,2 40,1 (10,1) is significantly greater than the R12,2-billion deficit it 2003 49,8 40,7 (9,1) recorded in 1995. 2004 58,0 39,2 (18,8) The widening of the trade balance during 2005 2005 72,0 45,0 (27,0) Source: Naamsa annual report 2006 was primarily due to the strong rand coupled with record growth in domestic new vehicle sales and against income tax, VAT or any tax paid to the South a buoyant economy. The strength in the exchange African Revenue Service. rate rendered imports more cost competitive and encouraged the importation of built-up vehicles, Some industry commentators have suggested that while the record demand for vehicles in the domestic the strong growth in automotive imports has been market also translated into higher imports of original a major shortcoming of the MIDP and that, despite equipment components used in the production of the role of the MIDP in transforming the automotive motor vehicles. Simultaneously, the strength of the industry from an inefficient protected sector to a rand impacted negatively on exports of components globally competitive manufacturer and exporter, the as well as vehicle exports. A weakening rand, programme has not been an unmitigated success. conversely, should contribute to the narrowing of the trade deficit. Nevertheless, the fact remains that the MIDP has been key in assuring the viability of an industry that The component sector has called on government could not be supported by current levels of local to amend the export credit system in the MIDP so demand and, since the inception of the programme, that motor manufacturers are not forced to import the automotive industry has performed better than to benefit from exporting, and has suggested the manufacturing industry average in each of the that government provide a system that allows key performance variables of sales, employment, manufacturers to use the MIDP export credits export levels, and capital investment.

South African automotive sector’s contribution to total South African exports 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total SA exports (R billions) 102,1 115,4 131,5 145,0 165,6 210,4 251,3 314,1 275,6 296,2 331,4 396,4 Total automotive exports (R billions) 4,2 4,8 6,7 10,0 14,8 23,4 30,0 40,1 40,7 39,2 45,3 55,1 Auto exports as a % of total SA exports 4,1 4,2 5,1 6,9 8,9 11,1 11,9 12,8 14,8 13,2 13,7 13,9 Source: Automotive Industry Export Council

www.researchchannel.co.za 18 Automotive July 2007

Vehicle exports DCSA currently exports C-Class Mercedes-Benz vehicles to the UK, Japan, Australia and other Pacific Passenger car exports have grown from 8 976 Rim countries, and exports Mitsubishi Cold L200 vehicles in 1995 to 119 171 vehicles in 2006. A vehicles into Africa. The company has also been slight decline was seen in 2004, owing to some awarded a contract to export the next-generation models reaching the end of their life cycle, as well C-Class vehicle, to the US, although the company as the strength of the rand and highly competitive may not be limited to exporting to the US, as global global market conditions, but, on the whole, growth requirements for the vehicle are to be filled from has been strong and is expected to continue on only three plants. an upward trend, reaching a projected 180 000 passenger car exports by 2010. FMCSA was, in 2003, awarded a contract to export 2 700 units a year of a commercial vehicle into Africa Exports in the LCV sector are on a similar growth and, in 2004, a more significant export contract was trend to exports in the passenger car sector, having announced, whereby the company will be ramping increased from 6 356 vehicles in 1995 to 60 149 up to export 30 000 Ford Focus passenger vehicles vehicles in 2006, and are expected to continue to a year to Australia and New Zealand. Ford was grow, reaching 90 000 in 2010. South Africa’s fourth-largest automotive exporter in 2006, having exported 20 479 vehicles. In the medium and heavy commercial vehicle sector, exports have remained stable, recording 432 In April 2005, GMSA was awarded a contract to exports in 1995 and 539 in 2006, and are projected produce Hummer H3 sports utility vehicles for local to have increased to about 700 by 2010. sale and for export. Exports of left-hand-drive Hummers, to markets in the Middle East, Europe Local content in locally assembled vehicles has and Israel, began in November 2006, and the first been decreasing gradually over the past three right-hand-drive Hummers were exported in May years, from an average of 59,7% in 2004, to 58,5% 2007, to markets in the UK, Australia, New Zealand, in 2005, and 56,5% in 2006. Japan, and Africa.

Much of the growth in automotive exports from South Nissan South Africa has been successfully Africa is attributable to the MIDP. The programme, exporting vehicles – predominantly Hardbody four- however, has also contributed to an increase in by-two and four-by-four single- and double-cab automotive imports. one-tonner commercials – to other African countries for a number of years, and holds 55% of the light Export contracts currently being fulfilled by South commercial market in the region. The main export Africa-based OEMs include the contract under destinations for the left-hand-drive vehicles are which BMW South Africa exports over 75% of all Ghana, Nigeria and Cameroon, while the major 3-series vehicles produced at its Rosslyn plant to right-hand-drive destinations for the vehicles are markets in the US, Taiwan, Japan, Singapore, New Zimbabwe, Kenya, Mozambique and Zambia. In Zealand, Hong Kong, Australia, and sub-Saharan 2006, Nissan was responsible for 17,7% of vehicles Africa. The company was South Africa’s second- exported from South Africa into Africa. Based on largest automotive exporter in 2006, having exported the success of its African export programme, Nissan 38 207 cars, and will know before the end of 2007 South Africa announced in 2004 that it would begin whether it has secured a contract to produce the exporting locally built Hardbody single-cab pick ups successor to the current 3-series. to Europe, Singapore, Australia and New Zealand in terms of a two-year contract.

Vehicle export figures 1995 - 2010 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* 2008* 2009* 2010* Passenger 8 976 3 743 10 458 18 342 52 347 58 204 97 599 113 025 114 909 100 699 113 899 119 171 120 000 155 000 165 000 180 000 cars

Light 6 356 7 125 8 000 6 806 6 581 9 148 10 229 11 699 11 283 9 360 25 589 60 149 80 000 80 000 85 000 90 000 commercials

Medium and heavy 432 685 1 111 748 788 679 465 582 469 448 424 539 500 600 650 700 commercials *projected Source: Naamsa www.researchchannel.co.za 19 Automotive July 2007

TSA, in 2006, was South Africa’s largest automotive Component exports exporter, having exported 49 142 vehicles for the year, and the company reportedly plans to increase In the components sector, exports valued at R30,5- its exports to around 100 000 units a year within the billion were made in 2006, continuing a trend that next three years. The company’s most significant has seen a significant increase in component export contract forms part of Toyota’s IMV project, exports since the advent of the MIDP in 1995, under which TSA exports a wide range of single- when components valued at R3,3-billion were and double-cab Hilux vehicles to various European exported from South Africa. According to the and African destinations, as well as a limited number Automotive Industry Export Council, such export of Fortuner vehicles to African countries. TSA growth is a necessary step towards international accounted for 71,5% of the vehicles shipped from competitiveness, with the South African market South Africa into other African countries in 2006. being too small to generate sufficient economies of scale for world-class production. VWSA was South Africa’s third-largest automotive exporter in 2006, having exported 36 071 cars in the Much of the growth in exports has been in a small year. The company first entered the export market range of products, most significantly catalytic in the early 1990s, when it clinched an export deal converters, for which the export value has increased for 12 500 left-hand-drive Jettas, for the Chinese from R389-million in 1995 to R15,8-billion in 2006. market, and the company then proceeded to win Such devices, which comprised over 50% of total orders for third-generation Golf GTIs to the UK, automotive exports in 2006, showed sharp growth as well as an order for fourth-generation Golfs to from 2005 to 2006, although much of this was Europe. In 2004, VWSA started exporting Polos attributed to rand weakness against major currencies and fifth-generation Golfs to the Asia Pacific region, and a rise in the platinum price, with platinum an including Japan and Australia, as well as New important component of catalytic converters, with Zealand, Brunei, Singapore, Sri Lanka, Hong Kong, only a slight increase in export volumes being Indonesia, and Malaysia. recorded.

In 2005, the South African automotive industry Catalytic converters have been the product of choice exported passenger cars and LCVs to 80 countries. for firms wanting to generate credits under the MIDP, The top export destinations for locally-manufactured as they are high-value products that require relatively cars and LCVs in that years were Japan, Australia, little value-addition. As the MIDP calculates rebates and the UK. on the basis of the value of exports, rather than on Destination of passenger car and LCV exports 2000 – 2005 value-addition, many automakers have established (percentage of the value of total exports) catalytic converter manufacturing facilities in South 2000 2001 2002 2003 2004 2005 Africa, and the local industry meets about 15% of Total value global catalytic converter demand. 7,0 10,8 16,3 18,6 17,0 21,4 (R billion) Japan 11 13 18 35 32 35 However, in terms of the MIDP, the percentage of the Australia 12 10 11 15 19 24 platinum used in a catalytic converter that may count UK 9 18 17 16 24 20 towards calculating the local value of the converter, US 7 18 23 20 14 4 and subsequently its offset value, is decreasing Singapore 2 3 1 1 1 2 and, currently, only 40% of the actual value of the Spain - - - - - 2 platinum-group metals used may be tallied. Some Hong Kong, consider this figure too low to ensure sufficient 1 2 2 1 1 2 China levels of profitability for companies involved in the Belgium - - - - - 2 sector, and expect that it may result in an exodus of New catalyst companies from the country. - 1 1 1 1 1 Zealand Taiwan 4 2 1 1 1 1 Another risk being faced by the industry is the fact Other 54 33 26 10 7 7 that it could lose much of its catalytic converter EU 52,8 37,6 29,9 19,5 24,5 23,6 industry should it be unable to attract production of North 7,3 17,9 22,6 19,5 13,9 3,7 a new emerging type of emission-control technology America for use in diesel-powered vehicles. The type of filter SADC 11,9 9,2 10,2 5,6 39 4,2 needed for the particles produced by diesel cars – a Source: Naamsa annual report 2006 www.researchchannel.co.za 20 Automotive July 2007 diesel particulate filter (DPF) – is new technology CSF production volumes in South Africa are likely that is expensive to manufacture. to be very small compared with the number of flow- through catalytic converters South Africa currently By August 2006, an undisclosed number of the makes and exports. five catalytic converter coating companies in South Africa were preparing to coat imported DPF According to the CCIG, without some government substrates, in order to make coated soot filters assistance, the odds are stacked against the South (CSFs), and several local companies that build the African catalytic converter industry. The group has metal can around the CSF to fit it into the exhaust lobbied government to improve the MIDP benefits system were preparing to build complete CSF units for the catalytic converter industry, to assist in for export, mainly to Europe. However, the Catalytic convincing potential investors that the country is still Converter Interest Group (CCIG) has warned that an attractive base for catalytic converter production.

Automotive component exports 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Country Value in Rand Millions Total 3 318 4 051 5 115 7 895 9 674 12 640 18 586 22 883 21 269 21 733 23 277 30 503 Catalytic converters 389 485 698 1 485 2 592 4 683 8 989 9 204 8 104 8 289 9 935 15 810 Stitched leather seat parts 1 019 1 227 1 364 1 729 1 840 1 915 2 391 3 184 2 899 3 113 2 693 2 549 Tyres 213 288 330 463 589 682 781 1 379 1 278 1 285 1 183 1 220 Engines 9 86 192 233 53 76 88 623 564 701 781 1 216 Engine parts 10 124 203 328 289 409 520 771 843 894 1 000 984 Silencers/exhaust pipes 76 168 241 488 593 377 282 340 327 407 493 880 Road wheels and parts 157 225 321 431 471 551 725 955 809 753 738 681 Car radios 7 4 28 47 73 89 115 171 332 257 268 377 Axles 3 3 7 26 34 63 81 129 119 140 201 375 Radiators 66 98 93 93 88 72 70 199 191 162 220 365 Transission shafts/cranks 55 64 42 34 41 127 149 236 263 332 553 351 Automotive glass 43 70 105 111 146 171 241 328 07 311 359 321 Automotive tooling 153 281 322 236 253 362 441 363 529 383 332 272 Filters 11 39 52 69 85 118 114 184 142 164 174 218 Wiring harnesses 42 95 135 206 284 319 391 457 427 359 258 208 Gauges/instrument/parts 19 28 29 21 50 56 77 119 128 142 161 184 Ignition/starting equipment 13 37 29 38 76 128 195 231 270 230 185 174 Brake parts 25 35 48 88 88 95 118 215 198 146 120 120 Body parts/panels 30 39 36 30 76 84 107 140 168 116 78 115 Gear boxes 1 2 3 5 17 21 21 38 29 34 82 113 Batteries 52 61 88 79 68 100 116 150 106 114 75 83 Clutches/shaft couplings 17 21 33 47 49 59 92 110 84 97 73 81 Alarm systems 10 13 24 79 55 65 75 86 65 55 55 81 Steering wheel/column/box 2 1 3 9 21 26 63 64 59 71 32 Lighting/signalling/wiping 8 10 9 8 15 22 25 54 43 38 54 63 Seat belts - - 1 3 16 45 71 63 57 49 61 60 Gaskets 4 6 8 7 9 16 19 38 37 43 36 45 Springs 15 18 22 36 37 47 44 38 26 23 28 38 Jacks 13 20 24 13 23 24 26 35 24 23 10 18 Air conditioners 5 3 6 8 6 8 20 14 21 12 14 11 Seats 5 2 3 37 44 49 2 6 6 3 3 7 Shock absorbers 27 46 49 62 74 81 75 21 6 5 5 1 Other components 727 452 567 1 346 1 519 1 700 2 062 2 938 2 808 2 982 3017 3 413 Source: Automotive Industry Export Council www.researchchannel.co.za 21 Automotive July 2007

Many of the countries competing with South Africa Main component export destinations 2004 – 2006 for investment in DPF plants offer significant (percentage) incentives. For example, eight DPF plants have 2004 2005 2006 been established in Poland, on the back of 30% to Germany 35,9 33,3 29,3 35% investment incentives. South Africa, on the Spain 8,3 9,7 11,5 other hand, offers no capital incentive to possible DPF investors. US 7,2 9,5 9,7 UK 9,0 9,6 9,3 The biggest stumbling block to comprehensive France 7,9 6,6 7,0 CSF manufacture in South Africa is the fact Belgium 3,1 3,1 4,4 that the country does not have a filter-substrate Poland 0,6 1,5 2,9 manufacturer. This means that the full value of the Japan 2,3 1,2 2,4 substrate is considered as imported content under Italy 2,5 2,2 2,2 MIDP rules, meaning no MIDP credits can be earned on the substrate value when the CSF is imported. Sweden 1,1 1,9 2,0 Turkey 1,0 0,8 1,9 The CCIG would like to see government provide Netherlands 2,8 1,9 1,8 suitable investment incentives to a substrate Australia 2,1 2,8 1,7 manufacturer to open a plant in South Africa, and Czech Republic 0,8 0,8 1,2 for government to offer enhanced MIDP incentives Zambia 1,1 1,0 1,1 for the manufacture and export of CSFs from South Africa, for as long as it takes for a local CSF Zimbabwe 1,2 1,1 1,0 manufacturing industry to develop critical mass. Mozambique 1,0 0,8 0,8 China 1,7 1,0 0,7 South Africa’s second-largest group of component export products in 2006 were stitched leather EU (expanded) 71,2 71,4 71,8 seat parts, with an export value of R2,6-billion, Nafta 8,4 11,1 11,0 representing 8,4% of total component exports for the Africa (incl SADC) 7,3 6,6 6,0 year. While the value of such exports has increased from R1-billion in 1995, leather seat export figures SADC 5,5 4,6 4,3 are now declining, on the back of the scrapping of Mercosur 0,6 1,0 0,9 the MIDP benefits available to automotive leather Source: Naacam product suppliers in terms of exports to Australia, and the limiting of benefits on exports to certain Trade agreements other markets. This decision was likely the result of Australia threatening to challenge the MIDP at the The increases South Africa has seen in vehicle and WTO. component exports have been largely a result of the MIDP, but have also been encouraged by certain Tyre and engine exports were the third- and fourth- trade agreements which South Africa is a party to. largest component exports in 2006, both with an export value of over R1-billion, followed by engine Within the SADC region, South Africa benefits parts, silencers and exhaust pipes, and road wheels from its involvement in SADC, and the automotive and parts. trade between South Africa and the EU has, since December 2006, fallen under a trade agreement, in The largest recipient of automotive component terms of which South Africa will reduce its duties on exports from South Africa is Germany, which European car imports from 25% to 18% by 2012, received 29,3% of total component exports in 2006. while also reducing duties on components and The European Union (EU) as a trading bloc received trucks. In return, the EU will phase down import 71,8% of component exports, while the North duties on cars from South Africa to 0% by 2008. To American Free Trade received 11% of component qualify for the tariffs, vehicles and components must exports. The Southern African Development have a minimum of 60% local content. Community (SADC) received 4,3%, while Africa as a whole, including SADC, received 6%. The Under the previous general system of preference Mercosur region, in South America, received 0,9%. (GSP), cars imported into the EU from South Africa, www.researchchannel.co.za 22 Automotive July 2007 as a developing country, were only subject to a 6,5% waivers that give a number of countries, including duty instead of the standard 10%. Components from South Africa, unlimited duty free access for certain South Africa were subject to 0% duty, instead of the products. norm of between 3% and 4,5%. However, in January 2006, South Africa partially graduated from the GSP However, Agoa is likely to be replaced and arrangement on certain levels, as its exports to the superseded at some point by the Southern African EU exceeded a predetermined limit. This meant Customs Union (Sacu)-US free trade agreement, that components from South Africa entering the EU currently under negotiation. This will have a bearing were subject to a 1,5% to 2,25% duty, while a 10% on the automotive industry’s long-term access to the duty was payable on vehicles imported from South US market, and will assist in transforming commercial Africa. As the new deal is implemented, the GSP relations between the US and Southern Africa into will fall away. a reciprocal partnership. The proposed agreement also has the potential to improve Southern Africa’s The new agreement is expected to substantially commercial competitiveness, better position the improve South Africa’s market access into the 25 region for success in the US market, and attract member states of the EU. foreign direct investment.

South African trade in general, and the automotive industry in particular, stands to benefit from the African Growth and Opportunity Act (Agoa), which represents a unilateral political gesture by the US, aimed at assisting and evaluating the growth and development of sub-Saharan African countries, through the extension of duty free and quota-free access into the US market, in respect of a range of products, including various automotive vehicles and components.

Automotive products eligible in terms of the Act include cars and other passenger vehicles; light, medium and heavy commercial vehicles and buses; road tractors and semitrailers; chassis fitted with engines; bodies, including cabs; silencers and exhausts; automotive bearings; vulcanised rubber beltings, transmission belts and fan belts; and steel springs for motor vehicle suspensions. In total, 37 African countries are designated as eligible to benefit from Agoa, and duty savings for South African automotive exporters in terms of Agoa amounted to R81,2-million in 2006.

Agoa came into effect on January 1, 2001, and was originally set to run until September 30, 2008. The Agoa Acceleration Act of 2004 extended the preferential access until September 30, 2015.

South Africa also benefits from the US GSP, although the country is facing the prospect of being excluded from these benefits, with the United States trade representative inviting public comment on whether to limit, suspend or withdraw the eligibility of certain countries classified as upper middle-income economies. This includes South Africa. The review will also examine whether to withdraw presidential www.researchchannel.co.za 23 Automotive July 2007

Automotive imports

The lower import tariffs implemented under the Passenger car and LCV imports into South Africa 2001 MIDP have meant that the South African automotive – 2005 (% of total rand value of imports) industry has very little protection from imports. This, 2001 2002 2003 2004 2005 together with the emphasis that the programme Germany 39 45 40 35 34 places on the production of high-volume models Japan 9 12 15 15 17 and the use of duty rebates generated by the Korea Rep 6 2 4 9 10 exportation of these models to import low-volume South models, has resulted in a significant increase in the France 12 9 8 10 7 number of new vehicles being imported into South Spain 1 2 5 5 6 Africa. Imports are also made more competitive UK 6 6 6 5 5 during periods of rand strength. US 10 12 11 8 4 In 2006, 266 247 passenger cars were imported India - - - - 4 into the country, which was up on the 208 892 Australia 2 1 2 1 3 cars imported in 2005, and continued the growth Sweden 4 2 2 3 3 trend that has come into play since 1995, when the Austria 4 4 4 2 2 MIDP was introduced and only 22 305 cars were Turkey - - - 1 2 imported. Passenger car imports into South Africa Italy 3 2 1 1 1 outnumbered exports from the country in 2006 by Slovak - - - 1 1 almost 150 000 vehicles, and imports are expected Republic to continue to grow, with import duties continuing to Other 4 3 2 4 1 decrease under the MIDP to 25% in 2012. Source: Naamsa annual report 2006

LCV imports have also been growing, although at With regard to the importation of used vehicles, a slower rate than passenger car imports, having strict control measures ensure that only a limited increased from 4 034 vehicles in 1995 to 40 208 number of permits are issued to allow vehicles to in 2006. The rate of growth in LCV imports has enter the country legally. Current legislation allows increased significantly over the past few years. for permits to be issued for vehicles belonging to returning residents or immigrants, vintage The primary countries from which South Africa cars, racing cars, donated vehicles for welfare imports passenger cars and LCVs include Germany, organisations, and vehicles adapted for people with Japan, and South Korea. physical disabilities.

Overall vehicle imports into South Africa have In the components sector, the MIDP has held the increased significantly under the MIDP, and South nominal import duty at a high level. This has not African consumers, who were able to choose from limited component imports, however, largely due 250 car variants in 1995, are now able to choose to the ability to rebate import duties by exporting. from over 1 100 model variants. This is despite local Further, vehicle manufacturers have greater manufacturers rationalising the number of vehicles flexibility to source globally from high-volume, low- that they are producing. cost suppliers and various multinational companies,

Passenger car imports 1995 - 2010 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* 2008* 2009* 2010* Passenger 22 305 41 768 51 978 59 951 54 426 61 749 79 508 78 128 81 919 127 389 208 892 266 247 284 000 300 000 315 000 332 000 car imports LCV 4 034 4 559 4 550 5 122 4 343 4 114 4 535 5 291 5 377 8 938 23 199 40 208 51 000 38 500 46 000 54 000 imports *projected Source: Naamsa

www.researchchannel.co.za 24 Automotive July 2007 due to the combination of the duty free allowance, the small vehicle incentive, and the abolition of the minimum local content requirements. Periods of rand strength have also meant that, in many cases, motor manufacturers can import components more cheaply than they can be manufactured locally.

Some of the components imported in significant volumes include engine parts, automotive tooling, tyres, stitched leather components, gauges, and brake parts. The major sources of automotive imports include Germany, Japan, the US, Italy, and the UK.

Industry commentators see the growth in automotive imports – both vehicles and components – as being an unintended negative consequence of the MIDP, which was originally developed to foster a local manufacturing industry.

www.researchchannel.co.za 25 Automotive July 2007

Investment in the automotive industry

Capital expenditure in South Africa’s vehicle heavily in its dealer network, including expenditure manufacturing industry reached the record level of on the construction of new dedicated premium R6,2-billion in 2006, including R5,1-billion in product, brand dealership facilities. Nissan South Africa has local content, exports and production facilities; R758- spent R250-million on upgrading its Rosslyn plant million in land and buildings; and R398,8-million in in order to fulfil a contract for the export of left- and support infrastructure. Expenditure for the year was right-hand drive pick up vehicles, and Fiat SA, which significantly up on the previous year, when R3,6- manufactures at the Nissan South Africa facility, billion was invested in vehicle manufacturing, and has invested more than R400-million to enable the expenditure is expected to remain near the 2006 export of right-hand drive pick up vehicles. TSA level in 2007. Naamsa has forecast expenditure of has invested about R2,4-billion, including R400- R5,8-billion for 2007. The 2006 and 2007 figures million on supplier tooling and R1-billion on a new exclude capital expenditure data from a number of water-based paint shop, to enable its production of specialist truck manufacturers and, if this data is vehicles for its IMV project. This followed substantial included, could be even higher. investments by the company into its Corolla export programme. VWSA has invested more than R3- Significant investments in the sector in the last few billion in plant, machinery and facilities over the past years have included BMW South Africa’s expenditure six years, and will invest a further R1-billion in these of R2-billion on retooling and re-equipping its plant areas over the next two years, which will enable the to enable production of its current 3-series model, company to double its vehicle export capacity. bringing to R3,5-billion the total amount invested by the company in South Africa since 2003. The Possible future investments could see the latest R2-billion invested by the company included establishment of assembly plants in South Africa by a new body-in-white assembling facility, along with Indian conglomerates Tata and Mahindra & Mahindra, new paint preparation and assembly extension and French carmaker Renault. Tata initially planned operations. DCSA has invested R2-billion in its to construct an automotive plant in Richards Bay, production facilities to enable the production of the but has since acquired the defunct Nissan truck successor to the C-Class Mercedes-Benz. This plant in Rosslyn, near Pretoria, from where it could investment included a new state-of-the-art body shop start manufacturing passenger vehicles. However, and assembly line. FMCSA has undertaken a R1- the company’s decision on whether to go ahead with billion investment at its Silverton plant, in Pretoria, to production will hinge, in part, on future incentives to enable its participation in an export contract for the the automotive sector. Mahindra & Mahindra has new-generation Ford Focus. GMSA has invested indicated that it may invest in a vehicle assembly R2-billion in its operations over the past three years, plant in South Africa, although such an investment including expenditure to enable the production of will only be viable if Mahindra South Africa achieves the Hummer H3 sports utility vehicle and the fifth- sales of about 1 000 units a month on a single generation Isuzu KB. The company plans to spend platform. Currently the company sells about 400 a further R620-million in 2007 on new tooling, and units a month. Renault is considering undertaking facility and equipment upgrades, and is investing the assembly of its no-frills Logan car in South Africa.

Investment expenditure by vehicle manufacturers (R millions) 2000 2001 2002 2003 2004 2005 2006 2007* Product/local/content/export /production facilities 1 311,2 1 800,1 2 311,4 1 989,4 1 816,3 2 805,3 5 058,1 4 741,9 Land and buildings 109,7 33,3 152,0 141,5 129,6 512,1 758,0 576,4 Support infrastructure (IT, R&D, technical, etc). 140,6 244,9 262,4 193,9 273,7 258,7 398,8 434,6 Total 1 561,5 2 078,3 2 725,8 2 324,8 2 219,6 3 576,1 6 214,9 5 752,9 Source: Naamsa quarterly review of business conditions: motor vehicle manufacturing industry: 1st quarter 2007 www.researchchannel.co.za 26 Automotive July 2007

OEMs are also investing in the manufacture of which may serve as a disincentive to investors. components and, the investment by vehicle and Congested ports and terminals, particularly in component production facilities has the direct result Durban, insufficient car-train capacity, especially of increasing the need for investment by component between Durban and Gauteng, as well as traffic manufacturers, and several such companies have congestion on major routes are causing lengthy announced expansion and upgrade plans. For delays and additional costs. In light of this, urgent example, global manufacturers of automotive and steps have been called for to reduce the cost of industrial technology, Bosch, announced in late logistics and optimise every step of the supply 2006 that it will be investing R100-miliion in South chain. Africa over the next three years, including investing in its automotive component manufacturing facility One such step has been an expansion at the port in Brits. of Durban’s car terminal, increasing capacity from 3 500 to around 6 500 parking bays, and improving However, the South African automotive industry efficiency from a handling rate of 100 vehicles faces certain challenges in attracting new an hour to 170 vehicles an hour. The expansion investment. While investment in the industry has entailed an investment of R100-million. However, been encouraged by the MIDP, the failure of the the terminal – which handles the vehicles of Toyota, programme to offer significant incentives directly Ford, Nissan, BMW and Associated Motor Holdings, aimed at facilitating investment has been identified which imports brands such as Kia, Renault, Daihatsu as one of its shortcomings, with directly competing and Citroen – is experiencing significant growth economies offering a range of investment incentives in vehicle volumes. In 2006, 389 681 units were not available in South Africa. For example, most handled at the terminal, which is a 41% increase countries that have emerging automotive industries over the previous year’s volumes. Growth in 2007 offer tax incentives, such as special economic is forecast to be 18%. As a result, it is believed zones, where companies can obtain significant tax that the terminal needs between 12 500 and 14 benefits if they invest in those areas. Countries that 000 parking bays, and further expansions will be have implemented such strategies include China, required. Poland, the Philippines, and India. India, the Czech Republic, and Indonesia all offer tax breaks for An expansion has also been undertaken at the port of incoming automotive investment. Port Elizabeth, from which Volkswagen and General Motors export, increasing the facility’s capacity from Further, delays in offering clarity on the MIDP going 41 600 to 94 565 vehicles. Developments are also forward may have deferred investment by some under consideration for the port of East London, manufacturers. from which DaimlerChrysler exports its vehicles.

Another challenge is the distance of South Africa A further development aimed at enhancing logistics from major foreign markets, and the high transport in the country has been the establishment of costs associated with sourcing products from South automotive supplier parks – a global concept which Africa. This is true for the component- and vehicle- groups different technologies, suppliers and service manufacturing sectors. providers together to ensure ease of supply into the automotive manufacturers’ logistics chain. South Africa’s international isolation, prior to 1994, resulted in a certain level of stagnation in the European studies have indicated that a supplier park automotive industry, and logistics competitiveness can significantly cut logistics costs for companies, was considered unimportant. The situation has and the concept has acquired global appeal, with changed significantly and, in the past 13 years, over 80 such parks existing around the world. the inbound and outbound, in addition to internal, movements of goods have increased dramatically, The first supplier park established in South Africa as interaction between South Africa and foreign is in Rosslyn, Pretoria, and development of the first markets is becoming increasingly common. phase of a second park, the Nelson Mandela Bay Logistics Park, has been completed, with planning Unfortunately, logistics costs in South Africa are and design work for phase two of the park under extremely high, and logistics standards are lagging way. Further, construction of an automotive supplier behind those of Europe, Japan and the US – factors park in Prospecton, Durban, is expected to start in www.researchchannel.co.za 27 Automotive July 2007

2007, and another park is planned for East London, in the city’s industrial development zone.

Despite these developments to enhance automotive logistics in South Africa, participants in the automotive sector continue to believe that OEMs and component companies require globally competitive investment incentives that take into account and compensate for geographic dislocation. Such incentives should also take into account economies- of-scale constraints and infrastructural limitations.

The advantages South Africa offers to companies choosing to invest in the local automotive industry include low labour and management costs, and cheap land. Previously an abundant supply of cheap electricity was listed as one of South Africa’s competitive advantages, but the current power situation in the country is rather less favourable than it was in previous years, although prices are expected to remain below those charged in other countries.

South Africa has abundant readily available raw materials, and offers manufacturing flexibility as well as easy access to sub-Saharan Africa. Furthermore, South Africa’s productivity levels are improving, with labour productivity in the industry having improved from an average output panemployee of 7,5 vehicles in 1996 to 13,3 in 2003.

To maintain and improve productivity levels, local vehicle assemblers are beginning to spend significant sums on training. According to Naamsa, over R1-billion will be spent over the next six years by the local motor industry in a joint project to improve and develop technical skills. TSA alone has a projected spend of R600-million over the next six years to meet its extensive and increasing training needs, and VWSA will be investing more than R400- million between 2006 and 2010 on a special training and skills development project. Naamsa, the Retail Motor Industry Association of South Africa and the National Association of Automotive Component and Allied Manufacturers will train 24 000 people, as artisans, technicians or through learnerships, up to 2012.

www.researchchannel.co.za 28 Automotive July 2007

Main original-equipment manufacturers

BMW South Africa Local content in South African-produced 3-series vehicles stands at 54%, which is up on the 42% The South African subsidiary of German-based local content found in the previous 3-series, and the carmaker BMW operates a manufacturing facility plant is now targeting local content of 60%. The in Rosslyn, Pretoria, which is considered to be biggest imported components are the engine and one of the most advanced automotive plants in the gearbox. southern hemisphere. The import rebates obtained from the exportation At this plant, BMW produces between 50 000 and of 3-series vehicles, together with those obtained 60 000 vehicles a year, all of which are 3-series from component exports, enable BMW South Africa models, including left- and right-hand drive vehicles, to import those models not produced locally, such and all engine derivatives. Production at the plant as the 5- and 7-series vehicles. could be increased to over 80 000 vehicles a year without much modification or investment. BMW South Africa holds 7% of the local automotive market, which is the highest overall market share of The current 3-series range, the E90, was launched any BMW market outside Germany. simultaneously in 2005 by the South African plant and other global production locations, marking a significant milestone for the local facility which, DaimlerChrysler South Africa for previous models, had only been able to launch production a year after the car was unveiled in DaimlerChrysler South Africa (DCSA) is a wholly Germany. The E90 will have a life cycle of about owned subsidiary of DaimlerChrysler AG, of seven years and, BMW South Africa will know before Germany. In 2006, DCSA recorded its ninth the end of 2007 whether it has secured a contract to consecutive year of growth in South Africa, reporting produce the successor to the current model. turnover of R32,5-billion.

To enable production of the E90, BMW South Africa The company, which employs about 3 000 people invested more than R2-billion in retooling and re- at two operating locations, markets a full range of equipping its plant, bringing to R3,5-billion the total vehicles in South Africa – including Mercedes-Benz amount invested by the company in South Africa passenger cars and commercial vehicles, Maybach since 2003. Plant improvements for the new model vehicles, smart vehicles, Chrysler and Jeep included a new body-in-white assembly facility, vehicles, Dodge vehicles, Mitsubishi passenger cars along with new paint preparation and assembly and LCVs, Mitsubishi Fuso commercial vehicles, extension operations. In turn, BMW’s suppliers have Freightliner custom-built trucks and Western Star invested R1-billion towards providing the necessary HCVs. components for the new model. In 2006, DCSA sold 53 515 vehicles, the bulk of BMW has a long history of exporting from South which were imported, with DCSA only undertaking Africa, and currently over 75% of production the local manufacture of Mercedes-Benz C-Class from the Rosslyn plant is exported, with primary passenger vehicles and Mitsubishi LCVs. The C- export destinations being the US, Taiwan, Japan, Class is exported into the right-hand drive markets of Singapore, New Zealand, Hong Kong, Australia, Africa, the UK, Japan and Australia, among others, and sub-Saharan Africa. In 2006, the company was and Mitsubishi LCVs are exported into Africa only. South Africa’s second-largest automotive exporter, DCSA has direct access to the port of East London, having exported 38 207 vehicles. from where it exports its vehicles. www.researchchannel.co.za 29 Automotive July 2007

In July 2004, it was reported that the German Ford Motor Company of Southern parent of DCSA had awarded a contract for the manufacture of the next-generation C-Class vehicle Africa – the W204 – to the South African manufacturer, which will be one of only three sites in the world to US-based Ford Motor Company first established produce the new-look C-Class – the other two being assembly plants in South Africa in the 1920s, but in Germany. The DCSA plant currently produces 40 disinvested in 1988 as a result of political pressures. 000 C-Class vehicles a year, and production of the It reinvested in the country in the country in new model is expected to start at 20 000 vehicles November 1994, acquiring a 45% share in the Ford in 2007, rising to more than 50 000 a year. DCSA Motor Company of Southern Africa (FMCSA), and is hoping to increase the local content of the new has since increased its shareholding in FMCSA to model to 35%, up from 18% in the current model, 100%. and the new contract will see DCSA exporting to the US, a left-hand drive market, for the first time. FMCSA has five house brands – Ford, Mazda, The current C-Class contract is for right-hand drive Volvo, Land Rover, and Jaguar – and, in 2006, vehicles only. reported sales of 79 924 vehicles, production of 72 000 vehicles, and exports of 21 000 vehicles. The new model, which will enter the South African market in August 2007, will be manufactured using The company has a manufacturing plant in Silverton, sophisticated precision equipment that will require Pretoria, from which it produces a variety of models. new manufacturing technologies. As these could It imports the vehicles that are not manufactured not be introduced into the existing body shop in locally, using import rebates earned from the parallel to the current series production, a new exportation of vehicles and components. state-of-the-art body shop is being built at the East London plant. Highly specialised robotic equipment Following its reinvestment in South Africa, Ford has been installed to take care of functions such initially proved reluctant to source vehicles from the as laser welding and laser brazing, as well as high- country on a significant scale, partly due to having a strength steel welding and structural gluing. In total, surplus capacity worldwide, as well as already having preparation for the production of the successor to assembly plants in all significant markets. However, the C-Class has seen DCSA investing R2-billion. in 2003, it was announced that FMCSA had been awarded a contract to export 2 700 units a year of a A further investment of R350-million will be commercial vehicle into Africa, and in 2004, a more undertaken in order to enable DCSA to produce significant export contract was announced whereby Mitsubishi Triton pick-up vehicles, which will replace FMCSA will be ramping up to export 30 000 Ford the current production of the Mitsubishi Colt vehicle. Focus passenger vehicles a year to Australia and Local content in the Triton will be 23%, and will New Zealand. include South African-made seats, bumpers, axles, and load boxes. To fulfil its export contract, FMCSA has undertaken a R1-billion investment at its plant. Since 2002, DCSA has been investing in its dealer network in a programme that has included the introduction of BEE partners to Mercedes-Benz, General Motors South Africa Chrysler, and Mitsubishi dealerships. General Motors South Africa (GMSA), which DCSA has also undertaken to introduce BEE employs almost 4 000 people, is 100% owned by participation to its business through the involvement the world’s largest vehicle manufacturer, General of empowerment company Ikhwezi Trucktech in the Motors (GM). local assembly of DCSA’s commercial vehicles. Ikhwezi Trucktech is 30% owned by Ikhwezi GM first established operations in South Africa in Investment Holdings, and 20% owned by Sisonke the 1920s, but disinvested from the country in 1986 Truck Assemblers. as a result of the political climate at the time. The company was bought out by a local management group, and relaunched as Delta Motor Corporation, in 1987. Ten years later, GM acquired a 49% stake www.researchchannel.co.za 30 Automotive July 2007 in Delta and, in early 2004, acquired the remaining Nissan South Africa 51% of the local company, and changed its name to GMSA. Nissan, a Japanese-based company, has been involved in South Africa for 40 years, initially though GMSA is the local distributor for the brands of Opel, the importation and local assembly of completely Isuzu, Chevrolet, Saab, Hummer, and Cadillac, and knocked-down vehicles, and later through the local in 2006 sold 87 121 vehicles in the country, giving production of vehicles at its manufacturing facility in the company a 13,5% share of the local market, Rosslyn, Pretoria, which has the capacity to produce including an 8,9% share of the passenger vehicle about 50 000 units a year. market and a 24,8% share of the LCV market. Nissan Motor Company, which is the third-largest Local manufacture of Opel Corsa passenger automotive company in the world in terms of profit, vehicles and utilities, and Hummer H3 vehicles, owns a controlling interest in Nissan SA, which takes place at the company’s Struandale plant, employs over 2 500 people. in Port Elizabeth. The plant is one of only two locations internationally where the H3 is being The company manufactures the Almera passenger produced, the other being in Shreveport in the US, vehicle and the one-ton Hardbody, and 1400 bakkie and the South African plant will be the sole global commercial vehicles. source of the right-hand drive H3, although it is also producing left-hand drive models. Export markets The company has been successfully exporting for the vehicles will include the Middle East, Europe, vehicles – predominantly Hardbody four-by-two and the Asia Pacific region. The contract to export and four-by-four single- and double-cab one-tonner these vehicles runs from 2006 to 2012, and will see commercials – to other African countries for a number the export of 10 000 Hummers a year. Currently of years and, in 2006 the Nissan was responsible local content in the H3 stands at 15%, although for 17,7% of the vehicles exported from South Africa the company is looking to increase this figure over into Africa. The company has a presence in more time. Opel vehicles are also exported from South than 30 countries in Africa. The company has also Africa, largely into Africa, although in much smaller been awarded a contract to export Hardbody single- quantities than the Hummer. cab pick-ups to Europe, Singapore, Australia, and New Zealand. GMSA also has a manufacturing plant in Kempston road, Port Elizabeth, where it manufactures Isuzu The company has also been successful in exporting LCVs and trucks, although as of 2007, GMSA is only various automotive components, such as alloy responsible for the distribution of the Isuzu KB pick- wheels, portions of chassis, sheet metal, some up range, while all Isuzu trucks from 3,5 t upwards electrical components and windscreen wipers, are the responsibility of a new joint venture known as and is investigating further component export Isuzu Truck South Africa. The primary export markets opportunities. for GMSA’s Isuzu vehicles are the right-hand drive territories of Africa, particularly Zimbabwe, Zambia, In addition to manufacturing Nissan vehicles, Nissan Malawi, Mauritius, Mozambique, and Kenya, with SA’s Rosslyn plant has, since July 1998, undertaken the majority of the vehicles exported being one-ton the assembly of Fiat Pallio, Siena and Weekend double-cab Isuzu pick-ups. models, in terms of a contract set to run until 2008. Nissan SA has decided against extending this Those models distributed by GMSA that are not agreement, however, and Fiat Auto South Africa will manufactured locally are imported. have to assess alternative options to remain in the country. GMSA also exports components – including catalytic converters, stainless steel exhaust components, One option may be for Fiat to switch from local alloy wheels, car jacks, door locks and power train production to importing cars into the country, aided pulleys – to markets including the US, Mexico, Chile, by rebates earned from exporting components, Europe, Australia, India, and Egypt. although the Italian Deputy Minister of International Trade indicated in March 2007 that the company is seriously considering the assembly of various models in South Africa. www.researchchannel.co.za 31 Automotive July 2007

Toyota South Africa and maniverters. Towards being one of TMC’s regional parts supply hubs, TSA has opened a bulk Toyota South Africa (TSA) was established in 1962 store at its national distribution centre, and is already by Dr Albert Wessels, and remained in the control responsible for supplying parts to 24 countries in of the Wessels family for over 40 years. During Africa. On a country-by-country basis, TSA will be that time, the company established itself as a local taking over responsibility for the distribution of parts market leader, but was limited in its ability to export throughout Africa. owing to the small stake held in the company by its Japanese parent, the Toyota Motor Corporation (TMC). Volkswagen South Africa

It was only when TMC took a 75% controlling interest Volkswagen South Africa (VWSA), in which in TSA, in 2002, that meaningful export contracts Volkswagen AG, in Germany, has a controlling became available to the local company, and by interest, has a manufacturing plant in Uitenhage, in 2006, TSA had become South Africa’s number the Eastern Cape, which produced 106 113 vehicles one automotive exporter, having exported 49 142 in 2006, over one third of which were exported. The vehicles during the course of the year. Within the company sold 128 001 vehicles in the local market, next three years, the company plans to be exporting with those that are not produced locally being 100 000 vehicles a year. imported.

Initially, the company’s export contracts were fairly Owing to its integrated position in the global low volume, shipping Corollas to Australia. However, Volkswagen supply network, VWSA has an active in 2005, South Africa was designated as a global export programme, including completely built- supplier base for Toyota’s international multipurpose up vehicles and components. The company was vehicle project that spawned a number of variants, awarded its first big export contract in 1991, for the including the new Hilux and its sports utility vehicle export of Jettas to China, and since then has secured stablemate, the Fortuner. a number of significant export contracts, including an order for the exportation of third-generation Golf TSA now exports a wide range of single- and GTIs to the UK, as well as an order to export fourth- double-cab Hiluxes to various European and African generation Golfs to Europe. In 2004, VWSA started destinations, as well as a limited number of Fortuners exporting Polo hatch vehicles and fifth-generation to African countries. In total, the company exported Golfs to the Asia Pacific region, including Japan 24 664 vehicles to countries outside Africa, and 24 and Australia, as well as New Zealand, Brunei, 478 vehicles to African countries. The main African Singapore, Sri Lanka, Hong Kong, Indonesia, and destination for South African-built Hiluxes is Algeria, Malaysia. In 2006, the company exported about with 11 985 units exported to that country in 2005. 36 000 vehicles, and could increase its exports to between 40 000 and 50 000 vehicles a year from To prepare the company for its high-volume export 2009. project, TSA invested R2,4-billion in its Prospecton, Durban, plant over a period of three years, including VWSA is also involved in the exportation of expenditure of R1-billion on a new paint shop. This components, including catalytic converters, engines, followed substantial investments into the Corolla alloy wheels, leather seatings sets, electronic export programme. control units, wiring harnesses, driveshafts, and rubber metals parts. In 2007, the company plans During 2007, the company plans to increase the on earning foreign exchange of about R1,3-billion capacity of its body panel press, and commission a from the export to Germany of 50 000 five-cylinder new resin bumper plant. These developments will TDI engines manufactured at VWSA’s Uitenhage contribute towards its plans of producing 220 000 engine plant. These exports are part of a six-year vehicles a year by the end of the year. In 2006, the export contract awarded to the company in 2004, company produced 148 507 vehicles at the plant, worth about R12-billion, and involving the export of and sold 151 056, including imports. about 400 000 engines by 2011.

In addition to exporting vehicles, TSA is involved in VWSA has recently moved into the MCV market, exporting components, including catalytic converters having begun importing the LT range of panel vans, www.researchchannel.co.za 32 Automotive July 2007 which are one of Europe’s most popular cargo carriers, and having announced early in 2005, that it would be entering the local heavy-truck-and bus- market with Brazil-sourced vehicles. The production of buses started in late 2006 on a semiknocked down basis, with truck assembly to begin in 2007. The production facility for these vehicles is situated next to VWSA’s existing plant, and 104 buses were assembled in 2006.

Black-owned company Mzantsi Truck & Bus will be partnering VWSA in its heavy-truck- and bus- programme, in the areas of logistics, assembly and maintenance.

Volkswagen vehicles in South Africa are marketed through a dealer network consisting of 122 Volkswagen and Audi dealerships, which are linked to the company’s technology support centre, which provides technical product support, and a direct link to Volkswagen and Audi in Germany. The HCVs will be marketed by a separate and specialist 13-dealer network, and will also be served by nine specialist commercial-vehicle service-only outlets.

In total, VWSA has undertaken investment of almost R6-billion over the period from 2000 to 2008.

www.researchchannel.co.za 33 Automotive July 2007

Contact list for the automotive industry

Ford Motor Company of Southern BMW South Africa Africa

Postal address: Postal address: PO Box 2955 PO Box 411 Pretoria Pretoria 0001 0001 South Africa South Africa

Telephone: Telephone: +27 12 522 3000 +27 12 842 2911

Fax: Fax: +27 12 522 2347 +27 12 842 3111

Website: Website: www.bmw.co.za www.ford.co.za

DaimlerChrysler General Motors South Africa South Africa

Postal address: Postal address: PO Box 1717 PO Box 1137 Pretoria Port Elizabeth 0001 6000 South Africa South Africa

Telephone: Telephone: +27 12 677 1500 +27 41 403 9111

Fax: Fax: +27 12 677 1900 +27 41 403 2937

Website: Website: www.daimlerchrysler.co.za www.gmsa.com

www.researchchannel.co.za 34 Automotive July 2007

National Association of Automobile Manufacturers of South Africa Nissan South Africa (Naamsa) Postal address: Postal address: PO Box 40611 PO Box 911010 Arcadia Rosslyn 0007 0200 South Africa South Africa

Telephone: Telephone: +27 12 323 2980 +27 11 847 6649

Fax: Fax: +27 12 326 3232 +27 86 686 9602

Website: Website: www.naamsa.co.za www.nissan.co.za

National Association of Automotive Component and Allied Manufacturers Toyota South Africa (Naacam) Postal address: Postal address: PO Box 9558 PO Box 481 Edenglen Bergvlei 1613 2012 South Africa South Africa

Telephone: Telephone: +27 11 454 0250 +27 11 809 9111

Fax: Fax: +27 11 454 0320 +27 11 809 2917

Website: Website: www.naacam.co.za www.toyota.co.za

www.researchchannel.co.za 35 Automotive July 2007

Volkswagen South Africa

Postal address PO Box 80 Uitenhage 6230 South Africa

Telephone: +27 41 994 5615

Fax: +27 41 394 5170

Website: www.vw.co.za

www.researchchannel.co.za 36 Automotive July 2007

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Engineering News. SA OEM prepares for C-Class successor. (April 14, 2006). Engineering News. Auto firm secures two new autocat contracts, one for diesel market. (June 9, 2006). Engineering News. New-generation Mitsubishi Fuso Canter truck into SA. (July 28, 2006). Engineering News. SA autocat industry secures work linked to new-generation emission-control systems. (August 18, 2006). Engineering News. SA new-vehicle sales could reach 900 000 by 2010. (August 24, 2006). Engineering News. Capex, jobs, exports up. (August 25, 2006). Engineering News. Competition body approves Control Instruments’ Gabriel buy. (September 6, 2006). Engineering News. R1bn paint plant key to Toyota SA’s export ambitions. (September 8, 2006). Engineering News. KZN welcomes Toyota’s contribution to economic growth. (September 8, 2006). Engineering News. Auto sector keen to support SA’s logistics overhaul. (September 11, 2006). Engineering News. Auto firm spends R16m to upgrade parts store. (September 18, 2006). Engineering News. Toyota SA invests R500m in new press shop. (September 22, 2006). Engineering News. PE Port expanded for Hummer exports and component imports. (October 4, 2006). Engineering News. First Hummer rolls off PE plant’s production line. (October 10, 2006). Engineering News. R350m facility upgrade for new GM-Isuzu truck entity. (October 20, 2006). Engineering News. GMSA promises to raise local content in H3, which currently stands at just 15%. (October 20, 2006). Engineering News. First tenants move into E Cape auto park, phase two eyed. (October 20, 2006). Engineering News. SA’s auto scheme a ‘clear differentiator’, ‘must stay’. (October 24, 2006). www.researchchannel.co.za 38 Automotive July 2007

Engineering News. Tata mulls ramp-up of SA vehicle manufacture ahead of 2020. (October 27, 2006). Engineering News. Volkswagen to invest R400m in skills development. (November 3, 2006). Engineering News. ‘SA should target production of 1m cars by 2020. (November 6, 2006). Engineering News. Tata Africa to make SA vehicle-assembly decision soon. (November 10, 2006). Engineering News. GM and Isuzu to set up new SA trucking venture. (November 10, 2006). Engineering News. Bosch plans to invest R100m in SA auto-part facility. (November 17, 2006). Engineering News. DaimlerChrysler mulls technology intensive solutions to compete with low-cost Asian components. (November 17, 2006). Engineering News. Value of automotive exports now exceeding that of gold. (November 24, 2006). Engineering News. Secret is in local production, not mere selling, says auto-body head. (November 24, 2006). Engineering News. New bakkie assembly. (November 24, 2006). Engineering News. Rosslyn factory confident of winning rights to assemble next-generation luxury car. (November 24, 2006). Engineering News. EU-SA car-tariff deal will save millions. (December 1, 2006). Engineering News. Motor industry to spend R1bn to enlarge technical-skills pool. (December 8, 2006). Engineering News. Supply constraints easing. (December 8, 2006). Engineering News. Commercial vehicles now driving the market. (December 15, 2006). Engineering News. SA new vehicle sales rose 15,7% in 2006. (January 9, 2007). Engineering News. Recovery in SA car exports to US likely to support bilateral trade growth in 2006. (January 19, 2007). Engineering News. Local initiative to combat automotive industry skills shortage. (January 26, 2007). Engineering News. What the automotive industry needs to make a million vehicles by 2020. (January 26, 2007). Engineering News. Car giant unveils luxury sedan to be made in East London. (February 2, 2007). Engineering News. Japanese auto giant overtakes German competitors as SA’s biggest car exporter. (February 2, 2007). Engineering News. Auto giant eagerly awaits final BEE codes for multinationals. (February 9, 2007). Engineering News. Automotive industry training programme rocked by budget cuts. (February 9, 2007). Engineering News. East London IDZ draws investors. (February 9, 2007). Engineering News. New automotive contract to boost local economy. (February 9, 2007). Engineering News. Mahindra SA to spend R150m on expanding local footprint. (February 23, 2007). Engineering News. Big rise in value of autocat exports attributed to metals prices and currency movements. (February 23, 2007). Engineering News. Globally, SA becomes Toyota’s seventh-biggest market. (February 23, 2007). Engineering News. Feb new-car sales decline y-on-y. (March 2, 2007). Engineering News. ‘MIDP review expected to shift emphasis towards production’. (March 2, 2007). Engineering News. SA auto firms spent R6,2bn on capex last year as capacity utilisation rose. (March 2, 2007). Engineering News. SA to be Indian group’s hub for region. (March 9, 2007). Engineering News. Fiat mulls SA export platform, as Italian officials are briefed on MIDP’s future. (March 14, 2007). Engineering News. Auto group to spend R620m on facility upgrades and tooling in 2007. (March 23, 2007). Engineering News. VWSA’s Uitenhage factory marks 300 000th export. (March 23, 2007). Engineering News. Automotive component manufacturers increase exports by 32%. (March 26, 2007). Engineering News. Medium to extra-heavy commercial vehicles to lead market in 2007. (March 30, 2007). Engineering News. Value of SA car-part exports rises to over R30bn. (April 6, 2007). Engineering News. Car maker reports solid sales rise for 2006, expects good times to last. (April 13, 2007). Engineering News. SA assembly of right-hand drive Hummer gets rolling. (April 20, 2007). Engineering News. Auto policy review tangled in web of c omplexity, but announcement expected soon. (April 20, 2007). Engineering News. SA-based car giants weighing up empowerment options. (April 27, 2007). Engineering News. Trial production of new Mercedes-Benz C-Class under way in East London. (April 27, 2007). www.researchchannel.co.za 39 Automotive July 2007

Engineering News. Auto group to spend R620m on facility upgrades and tooling in 2007. (March 23, 2007). Engineering News. VWSA’s Uitenhage factory marks 300 000th export. (March 23, 2007). Engineering News. Automotive component manufacturers increase exports by 32%. (March 26, 2007). Engineering News. Medium to extra-heavy commercial vehicles to lead market in 2007. (March 30, 2007). Engineering News. Value of SA car-part exports rises to over R30bn. (April 6, 2007). Engineering News. Car maker reports solid sales rise for 2006, expects good times to last. (April 13, 2007). Engineering News. SA assembly of right-hand drive Hummer gets rolling. (April 20, 2007). Engineering News. Auto policy review tangled in web of c omplexity, but announcement expected soon. (April 20, 2007). Engineering News. SA-based car giants weighing up empowerment options. (April 27, 2007). Engineering News. Trial production of new Mercedes-Benz C-Class under way in East London. (April 27, 2007). Engineering News. MIDP review results expected by end-May. (May 8, 2007). Engineering News. Diesel derivative of SUV on the way. (May 11, 2007). Engineering News. Vehicle exports may rise 11,5% this year – association. (May 15, 2007). Engineering News. Luxury car group confident that SA can remain competitive. (May 26, 2006). Engineering News. State-of-the-art plant producing 250 units a day. (July 28, 2006). Engineering News. Rosslyn factory confident of winning rights to assemble next-generation luxury car. (November 24, 2006).

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www.researchchannel.co.za 40 South Africa’s Automotive Industry 2007 The material contained in this report was compiled by the Research Unit of Creamer Media (Pty) Ltd, based in Johannesburg, South Africa. The information contained in this report has been compiled from sources believed to be reliable, but no warranty is made as to the accuracy of such information. This document is designed to be used as a source of information for subscribers to Creamer Media’s Research Channel Online and is not to be reproduced or published for any other purpose. The reports draw on information published in Engineering News and Mining Weekly as well as from a range of other sources, and should ­provide an invaluable, and easy-to-read snapshot of key industrial sectors.

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