Local auto industry shifting gears

The automobile market contributes 7.4% to GDP and is one of the few success stories in the local manufacturing sector. But for some years now new car sales have been wilting. 

June however showed promise with a small rise and July was 4.1% higher than July 2016, primarily on the back of significant government purchases, Andrew Kirby, president and CEO of Toyota South Africa Motors (TSAM) revealed at the recent Toyota State of the Motor Industry (SOMI).

Over the last 10 years the small car segment has been the biggest contributor to sales, averaging 44% to 45%, and Kirby does not think that will change.

But there has been a strong movement away from classic body shapes (like those within the C-segment where sales have declined from 19% in 2007 to the current 11%) to segments that, like SUVs and cross-overs, hold more excitement.

The fashionable and versatile SUV has caught on globally and perhaps even more so locally, where sales have leapt from 13% of sales in 2007 to the present 30%.

Indicative of the pressures facing smaller commercial businesses, volumes of single-cab light commercial vehicles have dropped from 37% of sales to 30% over the 10-year period.

Paradoxically, the double-cab market is significantly stronger, up from 19% in 2007 to 34% this year. This, says Kirby, shows support coming from more affluent buyers.

For the new car market, the second half of a year is traditionally stronger than the first six months. The new car market is forecast to grow at 0.9% from 547 000 in 2016 to 552 000 vehicles in 2017, says Kirby.

But with Kirby of the opinion that sales in SA will grow over the long term at only a moderate pace and the 2018 forecast remaining flat at around 555 000, the question is where to for growth?

Appears that it’s Africa where low levels of motorisation, limited public transport and a burgeoning middle class still present opportunity for growth for SA’s motor manufacturers.

Looking to Africa and ‘Afrilennials’ for growth

“Africa is crucial to the growth of the industry in South Africa,” states Kirby. “Africa is likely to be the fastest-growing auto market in the world and while that will only happen in the next five to 10 years, that needs to be part of our future.”

Exports are already central to new car sales, with 18.3% of total exports going into the rest of the continent, according to the National Association of Automobile Manufacturers of SA (Naamsa). TSAM currently export 55% of its cars produced here and the numbers into Africa have been steadily increasing, Kirby says.

But realising growth from the African continent relies on a number of key factors.

Curtailing the importation of used and grey vehicles is one of them. Says Kirby: “There are changes in legislation in many of the markets to curtail the importation of used vehicles; that is a key issue.”

Grey products have dominated the car market on the continent, some of this stemming from lack of access to finance with consumers having to pay cash for cars, says economist Lumkile Mondi.

But with motor brands now developing operations in sub-Saharan countries there is what Mondi terms, “a shift coming about on the continent. Take Kenya,” he says, “where people are buying new cars because of the after sales service.”

Flexible financing options will also aid sales on the continent many car manufacturers introducing shorter-term products with rental or ownership options, the latter with guaranteed buy-back values.

Many African countries are attempting to introduce their own motor industry. While that might sound like it is competition to South Africa, Kirby says SA’s car manufacturers can partner with these countries to bring about a win-win scenario.

Perhaps the most pivotal element to realising growth from Africa is the trade agreement, Mondi stating that intra-Africa trade comprises only 12%.

“As a continent it is important that we collaborate to create a trade environment where countries in Africa can support each other,” Kirby says.

SA is up against key competitors for exports into Africa such as Morocco, Turkey, Thailand, Mexico and to a lesser degree India. So creating a platform on which the country can compete is vital.

“It is incumbent upon the department of trade and industry (dti) to generate trade agreements in Africa where there are beneficial trade agreements with SA so that we have an economic advantage over these other countries,” adds Kirby.