Johannesburg - More job losses and slashed profits are likely to befall South Africa's hard-hit automotive component makers if Eskom's proposed electricity tariff hikes go ahead.
This is according to Roger Pitot, executive director of the National Association of Automotive Component and Allied Manufacturers (Naacam).
The industry body submitted a proposal to the National Energy Regulator South Africa (Nersa) in December 2009 outlining its members concerns.
Nersa is currently holding countrywide public hearings ahead of making a decision on whether Eskom will be granted the tariff increases it requested last year.
Eskom is asking for a 35% price hike annually over the next three years to fund its R385bn expansion plans.
"More Eskom tariff hikes would have a dramatic impact on many of the country's component makers," said Pitot.
"Power costs already make up between 5% to 10% of our members' total costs, so this will really squeeze their profit margins. We can't sustain such a big increase."
South Africa's automotive component makers have been one of the hardest hit sub-sectors of the local vehicle industry since the demand for new cars skidded in late 2008.
"The industry is already under pressure in terms of declining volumes," said Herbert Arnold, general manager of Magna Mirrors, which produces vehicle rear view mirrors and door handles in the Western Cape. "Many are struggling with their margins as it is."
Several component makers closed doors in 2009, including Kolbenco, South Africa's only automotive piston manufacturer, which eliminated the country's ability to manufacture this product.
Naacam president Stewart Jennings said the industry is under even more pressure in 2010 because the strong rand is rendering local exports uncompetitive. Auto industry bodies have estimated that component exports nosedived 40% over the course of 2009.
"You can't sustain an industry at an exchange rate of R7.40/$1. I already know of companies that are about to announce more retrenchments if the rand continues being so strong," said Jennings.
Jennings is also CEO of PG Group, which makes and distributes automotive and building glass. The operations are high energy intensive. Jennings said power price hikes alone have already resulted in a R27m cost increase in 2009 at PG Group.
"If we get this 35% increase and the rand stays where it is, we [PG Group] will have to get out of exports," he said.
"That will mean a plant will be shut down and more jobs will be lost. There's no doubt about it."
- Fin24.com