Crisis won't stop car makers

Johannesburg - Car manufacturers will ramp up investment in new technologies that promote fuel efficiency and affordability in new vehicles. This is according to a global survey of the industry by financial services group KPMG.

The KPMG survey is based on interviews with 200 senior executives of vehicle makers and suppliers worldwide.

The automotive sector, overseas and in South Africa, is in serious decline characterised by depressed demand and cash-flow constraints. KPMG's Africa chairperson of its automotive practice, Gavin Maile, said that the slowdown will not deter the sector from moving forward.

"The executives clearly understand that even with the sudden downturn in vehicle sales, they can't take their eyes from investment in technological innovation," he said. Hybrid systems and electric and battery-controlled technology is expected to receive the biggest chunk of the spend.

Another key issue coming out of the survey was the unfolding crisis in the sector.

The vast majority of companies surveyed said they do not expect to see profit growth, or at least cannot predict profit, over the next five years, according to KPMG.

Both the South African export and domestic markets have suffered. At home, credit shy consumers don't want to make major investment such as cars. This is evidenced by new vehicle sales numbers, which shrank 36.3% in February 2009 compared to the same month last year.

In 2008 South Africa was a net exporter of both components and finished products. The country's main export markets are the US, Australia and Japan. According to KMPG research, sales in these areas contracted considerably in January 2009.

South Africa's biggest overseas customer is the US, where sales declined 37% year-on-year. In Australia and Japan, sales fell 18.5% and 27.9% year-on-year respectively.

The department of trade and industry and industry bodies are discussing a possible support plan for the auto sector. Details have not been finalised but car makers are asking for financial help in the form of bridging finance.

"We are not asking for a bailout, just some assistence," said Maile. He added that South African car makers have to compete against their international counterparts, which are financing their businesses at interest rates much lower than those in South Africa.

"Is that a level playing field?" said Maile.

Econometrix transport economist and director Tony Twine said that the industry will start to improve towards the end of 2009 or in early 2010.

"The patient isn't dead, although some [firms] may be terminally ill and might not make it," he said.

- Fin24.com