Key sectors

South Africa's automotive industry

South Africa's automotive industry is a global, turbo-charged engine for the manufacture and export of vehicles and components. The sector accounts for about 10% of South Africa's manufacturing exports, making it a crucial cog in the economy.

With annual production of 535 000 vehicles in 2007, expected to rise to 630 000 in 2008, South Africa can be regarded as a minor contributor to global vehicle production, which reached 73-million units in 2007.

But, locally, the automotive sector is a giant, contributing about 7.5% to the country's gross domestic product (GDP) and employing around 36 000 people.

The government has identified the automotive industry as a key growth sector, with the aim of increasing vehicle production to 1.2-million units by 2020, while significantly increasing local content at the same time.

Growth
South Africa has been one of the best performing automobile markets in the world in recent years. New vehicle sales figures soared to record-breaking levels for three years in succession, from 2004 to 2006. In 2006, sales increased by 14.4% to just under 650 000 units, generating revenue of R118.4-billion.

Sales dropped by 5.4% in 2007, and are expected to drop further in 2008 as higher interest rates and rising prices curb spending.

Vehicle sales in South Africa
Vehicle sales in South Africa
(Data source: National Association of Automobile Manufacturers of South Africa)

However, major export programmes are likely to keep the local industry buoyant. Vehicle exports were around 170 000 units in 2007, and the National Automobile Association of South Africa (Naamsa) expects this to jump to 285 000 in 2008. This is extraordinary growth, especially when compared to 1997, when the number of units exported was below 20 000.

South Africa currently exports vehicles to over 70 countries, mainly Japan (around 29% of the value of total exports), Australia (20%), the UK (12%) and the US (11%). African export destinations include Algeria, Zimbabwe and Nigeria.

Investment
All of the major vehicle makers are represented in South Africa, as well as eight of the world's top 10 auto component manufacturers and three of the four largest tyre manufacturers. Many of the major multinational companies use South Africa to source components and assemble vehicles for both the local and overseas markets.

Between 2000 and 2006, the industry's investment in production and export infrastructure quadrupled, from R1.5-billion to R6.2-billion, before slowing to R3-billion in 2007. Capital investment is expected to be around the R4-billion mark in 2008.

Most of this has been foreign investment, with the parent companies of local car manufacturers expanding local operations to improve production capacity, export facilities and supporting infrastructure.

All of the large manufacturers in the country have launched major export programmes in recent years - the latest (in January 2008) being Ford Motor Company of South Africa.

Ford, GM, Mercedes-Benz, Toyota, VW ...

Ford
In January 2008, Ford Motor Company of Southern Africa announced plans to invest more than R1.5-billion to expand its operations in South Africa for the production of Ford's next-generation compact pickup truck and Puma diesel engine.

The local arm of the US car giant said the new investment would start in 2009 and be split between its assembly plant in Silverton, Pretoria and engine facility in Struandale, Port Elizabeth, with most of the vehicles produced earmarked for export.

General Motors
General Motors South Africa, which is based in Port Elizabeth in the Eastern Cape, markets the brands Chevrolet, Opel, Isuzu, Saab, Cadillac and Hummer. In 2005, the company was awarded a six-year contract to assemble and export the Hummer H3, resulting in a US$100-million investment in its Struandale plant.

GM South Africa is building a new multimillion-rand vehicle conversion and distribution centre and is investing another R481-million in its operations, upgrading its production facilities and tooling in 2008.

Mercedes-Benz
Mercedes-Benz South Africa manufactures Mercedes-Benz and Mitsubishi vehicles at its manufacturing plant in East London in the Eastern Cape. The company's headquarters are located in Gauteng province, from where the Mercedes-Benz, smart, Maybach, Mitsubishi Motors, Freightliner, Western Star and FUSO brands are marketed and financed.

Mercedes-Benz SA recently spent about R2-billion on upgrading its manufacturing plant, and now produces both right- and left-hand drives versions of the latest Mercedes-Benz C-Class car for domestic and export markets

Toyota
Toyota South Africa recently completed a five-year, R2.4-billion modernisation and revitalisation programme. Its Prospecton facility, just south of Durban, is now one of the most technologically advanced Toyota facilities in the world outside of Japan, and is capable of producing around 220 000 units a year.

As a global production facility, Toyota South Africa has transformed from a purely local supplier into an effective export base to supply vehicles into markets in Europe and Africa. The company, which exports to more than 40 destinations, says it expects to export around 140 000 units in 2008, or almost 60% of total automotive exports from South Africa.

Volkswagen
Volkswagen South Africa is located at Uitenhage near Port Elizabeth in the Eastern Cape. In 2007, the company celebrated its 56th anniversary in South Africa - and its 2.5-millionth vehicle off the production line. It is a local leader in the passenger market, accounting for around 21% of all new vehicle sales.

Between 2000 and 2008, Volkswagen South Africa invested around R6-billion in new models, a new paint shop and a new truck and bus assembly plant.

Motor Industry Development Programme
The catalyst for this phenomenal growth has been the government's Motor Industry Development Programme (MIDP). Introduced in 1995, the programme is legislated until 2009 and will be gradually phased out until 2012.

The MIDP has boosted exports by enabling local vehicle manufacturers to include total export values as part of their local content total, then allowing them to import the same value of goods duty-free. This has allowed auto makers to concentrate on manufacturing certain vehicles or components for export, while importing other models.

The programme also grants a production-asset allowance to vehicle manufacturers that invest in new plants and equipment, giving them 20% of their capital expenditure back, in the form of import-duty credits, over a period of five years.

The government plans to introduce a successor to the MIDP, which will be aimed at improving the domestic value chain. The new programme, which will last until 2020, will focus on value addition while being consistent with South Africa's multilateral obligations. It is likely to take the form of a subsidy to production.

The Department of Trade and Industry says the new support programme will result in more jobs as well as the long-term sustainability of the industry. The plan will support production and investment plans that "intend to reach a minimum volume of output for each platform of 50 000 units a year within a reasonable period of time".

Competitive advantages
South Africa's automotive industry offers a number of competitive advantages to international concerns. These include a world-beating cost ability on short- or low-volume runs, competitive tooling costs, and a high degree of manufacturing flexibility. The local industry also has good access to southern hemisphere and African markets.

The South African industry boasts several unique technologies, such as differential locks for off-road vehicles, aluminium welding technology for radiators, and the ability to design components, such as air cleaners and air conditioners that can cope with the higher temperatures and dust levels in Africa.

The country's first-world production facilities are coupled with access to raw materials and relatively cheap electricity, as well as stable transport and telecommunications infrastructure.

The Automotive Industry Development Centre and the Gerotec testing centre near Pretoria are world-class facilities for research, design, testing and training.

New investment opportunities are being created for the industry by the introduction of free trade agreements with the European Union and the South African Development Community, as well as the US government's African Growth and Opportunity Act.

Auto component manufacturers
There are more than 200 automotive component manufacturers in South Africa, and upwards of another 150 that supply the industry on a non-exclusive basis. The component industry has a turnover of about R50-billion, or approximately 2% of the country's GDP, and is looking to strong growth as export potential continues to increase.

South Africa exported R30.3-billion worth of auto components in 2006, a 32% increase over 2005. Catalytic converters continued to be the country's most exported vehicle part, accounting for almost half of all component exports.

Other key exports include engines, silencers and exhausts, radiators, wheels and tyres, stitched leather car seat covers, car radios and sound systems, and axles, especially for heavy trucks.

Germany, Spain, the UK, the US, France and sub-Saharan Africa are the leading destinations for South African auto parts exports.

Spoilt for choice
There are a "staggering" 1 390 variants of cars, recreational vehicles and light commercial vehicles on South Africa's showroom floors, according to a report by business website Fin24.com

The choice available has more than doubled over the past 10 years. In 1997, soon after the re-entry of Alfa Romeo, Renault and Chevrolet into South Africa - and when locals first got a taste of Mahindra, SsangYong, Dacia, Kia, Hyundai, Daewoo, Saab and Subaru - there were 37 manufacturers offering 595 different models.

Since then, Bentley, Cadillac, Citroën, Dodge, Maybach, Mini, Proton, TVR, GWM, Lexus and Tata have established dealerships in South Africa, either independently or by joining forces with established distributors and related group companies.

However, despite the new entrants, the majority of South African buyers tend to choose the well known, established brands such as Toyota, Volkswagen, Ford, Mazda and BMW. These brands together still account for more than 80% of new vehicle sales in the country.

Article last updated: April 2008

SAinfo reporter. Sources:

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