Healthy component industry needed to drive local content

The drive towards local content in respect of South Africa’s automotive industry production could support the components industry, says National Association of Automotive Manufacturers of South Africa (Naamsa) president and Nissan South Africa MD Mike Whitfield.

“We have committed to support the Department of Trade and Industry (DTI) in formulating a future policy plan for the industry. This plan should consider the components sector and include trucks and buses, and perhaps even motorcycles and heavy machinery.”

This will ramp up automotive components production and is part of the building blocks to developing a robust, competitive components industry, which remains one of the most important goals for the sector, he adds.

Whitfield highlights that the local motor industry’s contribution to South Africa’s overall economy in 2015 was 7.5% of the gross domestic product, with the production of vehicles and components contributing roughly 54% of that figure.

Local Vehicle Production

A Naamsa presentation in June, which focused on the automotive industry’s development, indicated that South Africa was ranked about twenty-first in the world in yearly vehicle production, comprising about 0.7% of global production of 90-million vehicles.

Vehicles have to be efficiently produced and cost effective for components manufacturers to remain profitable and competitive in a tough trading climate, he outlines.

Naamsa aims to expand South Africa’s vehicle production – principally through exports – to close to 1.0% of global production by 2020.

Meanwhile, Whitfield explains that the target of producing 1.2-million motor vehicles in the local industry in 2020, as set out in the Automotive Production and Development Programme (APDP), has been adjusted to 900 000 vehicles, owing to the country’s economic outlook, which is the result of expected slow growth in the short to medium term and economic pressures in many of the larger vehicle export markets.

“The adjusted figure is a better target to aim for. With the estimated production of 630 000 vehicles this year, it would represent 42% growth,” he details.

Whitfield points out that the 900 000 vehicles represent a global market share of 0.88%, which is higher than the current 0.7% market share, but falls short of the 1.1% share that South Africa would have if 1.2-million vehicles were to be produced by 2020.

The original APDP target was formulated in 2007, before the 2008 global financial market collapse and subsequent economic pressures globally.

In spite of the local automotive industry’s vehicle production output adjustment, Whitfield predicts a positive future for the country’s automotive sector.

In terms of issues pertaining to labour relations, Whitfield is pleased to report that the automotive industry – with the assistance of the DTI – has agreed to a remuneration deal with the National Union of Metalworkers of South Africa for 2016 to 2019. Earlier this month, Reuters reported that the deal would result in workers receiving a 10% salary increase in 2016 and an 8% increase in each of the following two years. Importantly, it ends fears of labour volatility in the sector, which is part of a globally integrated industry where the need for predictability is an important factor for global manufacturers to consider.

The expectation is that the DTI will work on a new industrial support and development plan to complement this encouraging development.

“The plan will replace the current APDP after 2020,” Whitfield adds.

According to him, the deal is expected to ensure growth for the automotive industry, good policy guidelines in support of future investment and market growth in the medium term for the country.