Mahindra begins building bakkies in SA

Mahindra has begun building bakkies in Durban as the Indian automotive giant rolls out a canny, incremental growth strategy rather than trying to muscle into the African continent.

The first locally put-together Pik Up rolled off a new assembly line near the King Shaka International Airport this week as Mahindra announced plans to increase local content by value to 10% “very soon” and to 40% within about a year.

Company officials at the plant’s official launch on Friday said reaching that target would qualify Mahindra to sell to southern and east African countries without attracting import duties.

Arvind Mathew, chief of international operations, said Mahindra regarded South Africa as a “second home” and a “base from which it could grow its market share on the continent”.

Mahindra has brought in a South African partner, consultancy firm Automotive Investment Holdings, to help establish and run the plant, capitalising on local knowledge.

It has invested R10 million in equipping the plant, at the Dube Trade Port Special Economic Zone, and in training 25 workers, 80% of whom were previously unemployed.

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These are modest figures when stacked against the R11 billion that Beijing Automobile International Corporation has promised to plough into a planned Coega car plant, but there’s method to Mahindra’s measured approach.

The Durban plant, with 5 500m² of undercover space, has capacity to produce 2 500 units a year but has a modular design which Mahindra said would allow it to “easily scale up” and achieve 4 000 units.

The assembly operation was already “cost neutral” compared with continuing imports of built-up vehicles, which attracted a 25% duty, said Jacques Mellet, Mahindra SA national logistics manager.

He said there were some rebates for local assembly that effectively reduced the duty to 9%.

Beyond the rands and cents, Mahindra SA chief financial officer Avinash Bapat emphasised the investment was really about signalling to the local market that it was committed to operating in the country while giving impetus to its African ambitions.

Rajesh Gupta, CEO, was anxious to highlight the company’s history of growth, from humble beginnings assembling Willys Jeeps in 1945 in India to a global titan, with 200 000 employees in more than 100 countries and diversified interests, including tractor building, where it is the world’s biggest company.

The CEO noted that his company had, on the back of its light commercial vehicle sales, recorded a compound annual growth rate of 4.6% in the past five years.

And this growth included last year, when industry sales dropped by 8.6% amid an economic crisis deepened, according to some, by a completely different Gupta family.

Bapat said: “Our focus is on the bakkie segment, where Mahindra is now one of the six bestselling bakkie brands in South Africa. We will start with the assembly of the Mahindra Pik Up range, but this does not mean that we could not, in future, add another pick-up or commercial vehicle or even one of our tractor models or heavy-duty power-generator systems to the assembly line.”

The National Association of Automobile Manufacturers of SA (Naamsa) said Mahindra had made headway in the light commercial vehicle sector – but from a relatively low base.

Last month it sold about 200 units, about 2%, in a market dominated by Toyota, which sold 3 987 light commercial vehicles, followed by Ford (2 456), Nissan (1 796) and Isuzu (1 071).

Norman Lamprecht, Naamsa executive manager, welcomed the investment, particularly in the light of recent political uncertainty in the country.

“It’s very positive. It has been in the country a long time,” he said of Mahindra, which first set up shop in South Africa in 2004.

“The next step is to increase volumes,” said Lamprecht, adding that automakers needed to reach volumes of 10 000 to earn substantial government subsidies.

“This industry is all about volume. You need to export to get economies of scale benefits.”

He said Africa would be Mahindra’s priority focus.

According to SA Revenue Service figures, vehicles and accessories are South Africa’s third-biggest export into the rest of Africa.

The continent accounted for R29.72 billion, or 18.0%, of South Africa’s total automotive exports of R164.9 billion in 2017, according to an Automotive Industry Export Council report.

Sam Rolland, an economist and auto industry expert at Econometrix, said the opening of the plant could represent a “cautious step” by Mahindra to expand.

“If that’s its strategy, it’s admirable,” he said.

He said Mahindra would be hoping to take advantage of the growth in agriculture in southern Africa with the end of the drought in the region.