Motor industry fears double dip

Johannesburg - The fragile recovery of the local vehicle sector is under threat and the industry may be due for another slowdown, said the National Association of Automotive Manufacturers SA (Naamsa), which released a report on the industry for the second quarter on Monday. 

The industry has amazed market participants with average sales growth levels of about 20% month-on-month in the first half of the year.

"Statistically, the industry appears to be doing well," said Naamsa director Nico Vermeulen. "However, the numbers we saw in the first half were compared to the extremely depressed conditions we had last year and pent-up demand in the market."

He added that compared to the second half of 2009, the second quarter of 2010 has seen undeniable improvement. However, there has been a significant slowdown since the first three months of the year, raising the possibility of a small double dip in the sector's growth.

Vermeulen listed a number of risks to the automotive sector. These include the introduction of carbon emmission tax on light commercial vehicles and small bakkies.

Details of the tax have not been finalised, but industry experts have estimated that the retail price of these vehicles will increase by about 2%.
 
Another risk is collective wage bargaining currently taking place between the National Union of Metalworkers of South Africa (Numsa) and the Automobile Employer Organisation. Numsa is asking for a 20% wage increase.

Vermeulen said that unless a resolution is reached soon, strikes will take place and these could result in product shortages.

Uncertainty about the global economic recovery is also adding pressure to the industry, in particular export security. Naamsa has forecast a 30% export hike for this year compared to 2009, provided there is no deterioration of economic conditions.

The biggest positive emerging for the automotive industry at the half-year mark is the encouraging creation of jobs.

Vehicle manufacturers, including truck and bus makers, created 427 jobs in the sector during April, May and June which brings the number of jobs in the sector to 31 784 - an improvement of 5.4% from the end of 2009.

This compares to the worsening job situation in the South African economy as a whole during the second quarter of this year. 

"We are one of the few sectors currently creating employment in South Africa," said Vermeulen. He added he was cautiously optimistic that this level of job creation could be maintained or even improved going forward.

This is partly because the industry is expected to almost double its capital expenditure projects next year to R4.6bn - the majority of which will be spent on increasing local production facilities. 

The reason why automotive manufacturers are embarking on a capex drive is due to investment incentives in the Automotive Investment Scheme, which is part of the impending industrial policy for the sector, the Automotive Production and Development Programme.

 - Fin24.com