SA car makers prepare to restart plants
Automotive production is the bedrock of the South African manufacturing sector – and the engine needs to be started sooner rather than later. This is the view of Martyn Davies, automotive leader at Deloitte Africa.
While acknowledging a “balancing act between health interests and the economic imperative”, he spoke of factors that may assist the motor industry in regaining traction as lockdown measures begin to ease.
“We have reduced interest rates and low petrol prices – there is a good opportunity for creative and concessional financing models for retailers.”
He cautioned, however, that the restoration of supply chain functions may take time, opining that the priorities for manufacturers in this period should be to “conserve cash” and “protect jobs”.
Last week President Cyril Ramaphosa announced a five-level plan that will see the gradual relaxation of restrictions implemented on March 27, aimed at curbing the spread of Covid-19.
Under Level 3 guidelines of the “risk-adjusted strategy” developed by government, automotive manufacturing with full personnel capacity and vehicle sales will be permitted.
Level 4 of the programme takes effect this Friday, which will enable manufacturing to continue, albeit with a limitation on staff numbers.
“Europe is our primary export market, but their consumers will be in recovery, exporters may be more aggressive in their expansion into Africa – one silver lining – to make up for this loss,” Davies asserted.
TimesLIVE Motoring this week reached out to brands with local manufacturing and assembly operations for insight on the looming reboot.
According to manager of business communications at BMW, Alexander Parker, the Rosslyn, Tshwane plant that produces the X3 is expected to reopen on May 18 – though he said this would still be subject to market and regulatory developments.
Ford said it was not yet ready to comment on activities at its facilities in Gauteng and the Eastern Cape, at which it produces Ranger pickups and power plants.
Denise van Huyssteen, corporate affairs, strategy and legal executive at Isuzu welcomed the imminent return to activity at its Port Elizabeth set-up, which is home to the D-Max pickup in addition to the N-Series and F-Series trucks.
“We are developing and implementing the required plans to ensure that our operations will be in compliance with government regulations.”
She believes that the effects of the 2008 global financial crisis are not comparable to the current environment caused by the coronavirus pandemic. “During [2008 and 2009] the market declined due to a global downturn, whereas this time around the global economy has been basically halted, this is a very different situation which requires that we take time to assess potential market recovery patterns.”
Van Huyssteen predicts a 30% decline in volume for the brand. “We, however, do have the flexibility to increase volumes should the market begin to grow again.”
She said reduced working hours, including one down-day per week until the end of 2020, would help preserve current levels of employment. “This means that all employees will be required to make sacrifices, whether they are hourly workers or executives, which will ultimately serve the greater good of the company and our people as a whole.”
In 2018 Indian automaker Mahindra established an assembly plant in KwaZulu-Natal, producing the Pik-Up range of workhorses through a semi-knocked-down (SKD) kit process. Rajesh Gupta, CEO of the local arm, said the doors of its Durban production line were unlikely to open in May.
“It makes sense that the brands that build vehicles for the export market would like to restart as soon as possible, but for brands like ourselves, who only build vehicles for the local market, it doesn’t make sense to restart before retail sales can commence.”
Gupta added, “We at Mahindra South Africa [have] committed to saving every single job for as long as possible, our future actions are, however, dependent on how we can manage our fixed costs and how the business responds to the new economic environment.”
He concluded by saying that the cost-conscious product range served by the brand would ensure buoyancy, anticipating a market shift towards more affordable offerings.
At its East London, Eastern Cape plant, Mercedes-Benz has been building cars in South Africa since 1958. It produces the C-Class and employs more than 3,000 people.
“As of May 4, we will ease back into production in adherence to the prescriptions laid out by government,” confirmed Thato Mntambo, corporate affairs manager.
“The rebooting of plant activities is a complex exercise, which is compounded by the social distancing measures and government regulations.”
She said risk control measures would include floor markings to enforce a distance of 1.5m apart at stations, electronic documentation replacing verbal shift handovers, regular screening, temperature checks and testing.
“Given the continuing effects of the Covid-19 pandemic, it is not possible to make any precise forecasts regarding the impact on our business.”
On the subject of job security among the workforce, she said, “There are several non-personnel levers that the company would need to pull before considering the option [of] job cuts.”
Nissan, whose Rosslyn establishment builds the NP200, NP300 and Navara, said discussions were taking place between local and international management with a view to resuming activities safely.
“At this point we are not disclosing finer details in this regard, but rest assured that Nissan Group of Africa [will] adhere to the lockdown regime and will act according to government guidelines,” said spokesperson Veralda Schmidt.
Toyota last week held a digital roundtable meeting chaired by president and CEO Andrew Kirby. He said that the Prospecton, KwaZulu-Natal plant, which produces the Hiace minibus, Fortuner sport-utility vehicle, Hilux pickup and Hino commercial vehicles had recorded a decrease in volume by as many as 13,433 units since lockdown began.
“In monetary terms it’s hard to put a price on this as it’s not just the value of the lost production that needs to be taken into account, you’ve also got to factor in a workforce of line workers who are essentially idle.”
He said, “It is not going to be business as usual, so we have put measures in place to ensure employee safety first by providing for multiple scenarios, including a staggered start-up, strict hygiene protocols and numerous remote working options.”
At its Uitenhage facility in Nelson Mandela Bay, Volkswagen produces the Polo and Polo Vivo. Andile Dlamini, head of group communications, confirmed “production will recommence in a phased approach on the week starting on May 4.”
He said maintenance was under way to ensure that equipment and tools are in working condition ahead of this commencement date, as well as efforts to ensure parts availability on the production line.
Employees will be given information booklets and a set of masks for work and home, as part of Covid-19 prevention measures.
Michael Mabasa, CEO of the National Association of Automobile Manufacturers of South Africa (Naamsa), said the organisation was in talks with the government about further adjustments to regulations concerning manufacturing and dealership sales.
“The April new vehicle sales and exports [figures], to be released on May 4, would be the best barometer of the Covid-19 impact on the industry and is anticipated to reflect a decline of about 90% in new vehicle sales and 80% in exports,” he said.
“Considering the anticipated economic recession, with the economy contracting by 6% plus in 2020, as well as the significant added pressure on consumers and businesses debt levels due to Covid-19, new vehicle sales are projected to decline year-on-year by 15 to 20% in 2020.”
Mabasa said Naamsa would continue its engagement with the government and organised business, discussing proposals on automotive policy, including tax payment extensions, with the collective aim to “get the industry back on track during and after Covid-19".
He added, “Naamsa has a track record in South Africa of making a difference, as well as promoting the concept of unity, while affording members the opportunity to shape important decisions.”