SA car makers 'dying'

Port Elizabeth - The South African automotive industry could cease to exist in the next five to seven years unless steps are taken to improve its competitiveness.

"And we need to this in the next one to two years," said Dave Powels, president of the National Association of Automobile Manufacturers of South Africa (Naamsa).

Powels was addressing industry representatives at the Automotive Industry Conference at the 2009 South African Automotive Week in Port Elizabeth.

The local motor industry's lack of competitiveness is illustrated by South Africa's 24th world ranking in terms of automotive manufacturing. This equates to a mere 0.8% contribution to total world output.

South Africa's main export partners are Japan, the United States and the European Union. However, automotive exports have been severely hurt by the worldwide credit crisis and economic slowdown over the past 12 months.

Increase local component content

Naamsa anticipates component exports to decline by 40% in 2009, while finished car exports are expected to contract 35% in the current calendar year.

Powels said one of the key proposals to make the industry more competitive is to increase locally produced car components to over 70%. At present, just over a third of the parts in South African cars are local.

"If we don't have higher local content, there's no reason for the South African motor industry to exist," said Johan van Zyl, president and CEO of Toyota Motors South Africa. He added that this may mean restructuring car makers' supplier bases.

Powels said importing a big portion of components makes local cars expensive. According to Naamsa calculations, the manufacturing process in South Africa is 20% to 30% more expensive than that of China and India.

Representatives of the component industry have agreed that the industry's viability lies in increasing local content.

"But we cannot do it alone. We need the support of government, banks and car manufacturers," said Stewart Jennings, president of the National Association of Automotive Components and Allied Manufacturers.

Jennings said the component industry needs interest rate subsidies of at least 2% as well as easier loan terms.

"Banks and the Industrial Development Corporation need to stop hiding behind models as an excuse for cost increases," said Jennings.

Further challenges faced by component manufacturers include hard-to-source raw materials - for example the resin used in making interiors - and quality, such as locally produced steel used for exteriors.

- Fin24.com