NAACAM Presentation to Portfolio Committee on Trade and Industry. Thursday, 11 th March 2010

Transcription

1 NAACAM Presentation to Portfolio Committee on Trade and Industry Thursday, 11 th March 2010

2 Structure of the industry in SA All local vehicle assemblers (OEMs), BMW, Mercedes Benz and VW, Ford and General Motors, Nissan/Renault and Toyota are now 100% foreignowned subsidiaries. All other major marques are imported European (Peugeot/Citroen, Fiat), Japanese (Daihatsu, Honda, Subaru), Korean (Hyundai, Kia), Indian (Tata, Mahindra), with Chinese brands recently entering the SA market (Chery, Chana, GWM, and a myriad of smaller brands). The majority of the Tier 1 (direct OEM) suppliers are multi-national companies or JVs. There are however a few locally owned suppliers. The majority of the upstream suppliers are locallyowned. 2

3 Motor Industry Employment ( 000s) * Vehicle Assembly 34,3 37,9 38,3 35,9 31,1 53,2 Component Manufacturers Tyre Manufacturers - Total Manufacturing Motor Trade and Servicing 71,2 72,5 75,1 65,3 55,9 112,8 6,8 6,5 6,9 6,7 6,1 10,7 112,3 116,9 120,3 107,9 93,1 176,7 202,7 224,7 204,7 212,3 203,4 N/A Total Employment 315,0 341,6 325,0 320,2 296,5 * The APDP Model by Dr. Justin Barnes projects 2020 Employment assuming vehicle production reaches over 1,1 million

4 Industry Performance: International competitiveness Significant improvement in quality and productivity. Progressive economies of scale with local platforms down from 42 to 18. Average volume per model (cars/lcv s) produced increased from units to In 2008, 3 models > units and 9 models > units per annum. One model > units. Substantial increase in number of vehicles produced per employee from less than 10 vehicles per annum to 15,5 vehicles per annum an improvement of over 55%. Significant rationalization and economies of scale production has reduced complexity for domestic component suppliers and enhanced efficiencies. 4

5 Industry Performance: Other key performance benchmarks Affordability New vehicle prices below inflation for 11 out of 14 years to Above inflation increases in 2009 related to weaker currency. Exceptional growth in industry exports and up to 2007 significant growth in domestic market. Massive drop in local sales over past 2 years and exports in Through mid-2008, relatively stable overall industry employment. Employment losses in past 18 months. Trade deficit narrowed substantially during 2008 and Future direction uncertain. 5

6 Industry Performance Since 1998 Passenger Car Product Quality PP100 PP PP a 2000b Problems / 100 vehicles Trend Source:Synovate 6

7 Import Duties and the MIDP Although there are nominal duties of 27% on vehicles and 22% on components in 2010, these can be fully rebated in the MIDP: Vehicle assemblers (OEMs) can import components totalling 27% of the ex-works vehicle price free of duty. The OEMs earn credits on vehicle and parts exports which can only be used by offsetting duties on imported vehicles and components. The OEMs earn an investment incentive which is also in the form of a duty credit. As a result, in 2009 OEMs paid average duty of only 0,2% on components, and 1,1% on vehicles imported.

8 How Important are Auto Exports to SA? YEAR Total SA Exports (R bn) Total Automotive Exports (R bn) Total Gold Exports (R bn) Automotive Exports as % of Total SA Exports Ratio of Automotive: Gold Exports 102,1 210,4 655,8 4,2 23,4 96,1 21,5 27,8 48,5 4,1% 11,1% 14,7% 0,2:1 0,8:1 2,0:1

9 Major Exports by OEMs in SA Volkswagen SA Polo series to Australia, UK and Japan BMW SA 3-Series to Japan, Australia and USA Mercedes Benz of SA C-Class to USA Toyota SA Corolla and Hilux/Fortuner to Europe and Africa 9

10 Current Breakdown of costs and Local Content XX%: % of total material cost YY%: true local material plus value add as % of total material cost Harnesses Starter motors Alternators Wiper systems HVAC 15% Body Electrical / Electronic 19% 5% Exterior 10% Interior Cockpit Seats Door panels Carpets 3% Glass Paint Bumpers Mirrors 23% 7% 6% Bonnets Bootlids Sideframes Doors Chassis and Drivetrain 33% 14% Axles Differentials Drive shafts Brakes

11 Challenges in expanding and deepening local content Electrical / Electronic Low volumes / economies of scale Frequently changing technology Distance from design centres Exterior Lack of common specifications across OEMs Lack of competitive suppliers Low volumes / economies of scale Interior Body Local steel quality Local steel specifications Investment costs Differing raw materials specs (resins, carpets) Differing technologies Chassis and Drivetrain Differing OEM specifications Local steel quality Local steel specifications

12

13 Other Challenges & Opportunities Challenges: Increasing Economies of Scale Vehicles and Components. Maintaining local content on new models with high levels of new technology: Some recent launches no new suppliers or technologies Excess capacity of many global suppliers. Supplier development capabilities of local organisations? Suppliers controlled form offshore. Strong currency has two negative effects encourages imports and restricts exports. Increase electricity costs considerable for some component suppliers. Opportunities: Fast track introduction of certain new suppliers through JVs with and/or acquisition of existing suppliers. NAACAM supplier development initiative (AIDC, UNIDO, SAABC). Consider new proposals to put to Govt. to enable increased local content: e.g. 1) a preferential funding program for tooling / equipment / development / validation testing costs, linked to performance 2) more supplier-specific incentives.

14

15 The Thailand Example The Thai Government focussed on one-ton pickup production. 40% duty on pickups and components, 80% on imported cars; excise duty: 3% pickups, 30 to 50% on cars result is pickup production and sales far exceed cars, with 90% localisation. Significant investment incentives, but no specific export incentives. $300 million spent by Thai and Japanese governments on Auto HR Development Project. Wages and salary rates in Thailand are 64% below average SA, equal to 11,7% of total component cost. Overhead costs average 8% below SA, including electricity 3% lower (in 2009).

16 Silver Bullets Needed for SA Auto Manufacturing Industry to survive Average production volumes per model must increase to > p.a. Perhaps selection of models need attention. (Ideally to units p.a.) Local Content levels need to increase from <40% to 70%. Supplier Competitiveness has to improve within next 2/3 years. A major Industrialisation Strategy is required in the supply chain to increase manufacturing depth (2 nd and 3 rd Tier suppliers). IPAP, APDP and IDC to provide support for the Industrialisation Strategy. Productivity must improve dramatically from <20 cars to >30 cars per employee per annum. Massive investment needed in Training and Skills development at all levels - Operator, Specialist/Artisan, Engineer, Leadership. Skilled immigration program. Competitive currency required.

17