Johannesburg – Government’s new Automotive Production and
Development Programme (APDP) for the motor industry will probably not mean that
vehicles become more affordable.
Volkswagen South Africa managing director David Powels said
there are no structural clauses in this incentive programme that mean vehicles
produced for the domestic market will be much cheaper.
The economies of scale and greater competitiveness that
could potentially flow from the programme could however ultimately lead to cost
benefits for purchasers.
Powels said there is a perception that South African
vehicles are expensive compared to those in other countries. But, he said, it's
a myth that motor companies are colluding to keep prices at a certain level.
“The market and competition regulate the price – not a
couple of guys sitting in a dark room,” he said.
Fierce competition, with 65 brands fighting for market
share, has for the past two to three years kept inflation on passenger vehicles
considerably below the official consumer price inflation rate, he said.
Powels reckons the APDP will help the industry become more
competitive, leading to increased exports, volumes and benefits of scale. With
better economies of scale competitive forces could significantly reduce prices,
But there is no guarantee.
“Competition will drive this, not the programme.”
Powels said although some reckon it would have been better
to increase import duties, as in the old days – they are currently 25% compared
with up to 115% before 1995 – to protect the local industry, the only way to
ensure that the industry survives is to streamline production.
This is done in order to produce larger quantities through
fewer platforms, so that more local content can be used, developing suppliers
downstream of the value chain.
If tariff protection is increased and all manufacturers continue
to produce small amounts from different platforms this would be totally
counter-productive, he said.
Powels believes that although such an approach might have
certain advantages in the short term, in the long term it would have
far-reaching consequences. “The world has changed. That’s no way to do business
– you need the benefits of scale.”
Powels believes that, apart from an incentive programme such
as the APDP helping the industry to become competitive, a programme to raise
demand for South African vehicles from the current 600 000 a year to 1.2m is
“The two must work in tandem,” he said.
Powels reckons government can also play a part.
He said the cumulative effect of all the direct and indirect
levies on vehicles as well as the fringe benefit tax makes government the
The industry has to invest billions in plants and complex
production processes and eventually receives a mere 3% to 4% profit margin,
while the taxman gets 35% to 40%.
Powels said efforts should now be directed towards
additional incentive programmes to make local vehicles more affordable – not
necessarily by means of adjusting prices but by reviewing taxation.
But it's important for the whole model to work for government,
The entire price-volume model could possibly also be
reviewed. Powels says that with vehicle sales of a million a year the fiscus
could for instance collect more at a lower rate of taxation than the current
high duties on 600 000 vehicles a year.
Last week Volkswagen South Africa launched its new Beetle in
Cape Town. At the event David Powels, managing director of the group, said he
expected the new APDP would have a more evolutionary impact on the market than
its predecessor, the Motor Industry Development programme (MIDP), which had
radically altered the market mix. With the lower import duties that have
obtained under the MIDP in recent years an increasing proportion of vehicles
sold locally (around 65%) are imported models.
What is the APDP?
The production and development programme is an incentive
programme to improve local vehicle manufacturers’ global competitiveness. The
aim is to increase vehicles’ local content and in so doing create more jobs.
In terms of the programme manufacturers producing at least
50 000 vehicles a year can earn credits that can be set off against duties on
imported vehicles. The APDP replaces the Motor Industry Development Programme
(MIDP), which was in force for more than a decade and was export-focused.
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