Share

New state plan won't make cars cheaper

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, he said.

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 also required.

“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 biggest winner.

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, he said.

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.

 - Sake24

For more business news in Afrikaans, go to Sake24.com.


*Follow Fin24 on Twitter and Facebook.

 
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.93
+0.0%
Rand - Pound
23.90
+0.0%
Rand - Euro
20.41
+0.1%
Rand - Aus dollar
12.32
+0.1%
Rand - Yen
0.13
+0.0%
Platinum
908.05
+1.2%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders