Logistics woes threaten SA motor industry, says Ford Africa boss

If the South African automotive manufacturing industry keeps going the way it is, it is in trouble. That is the warning from Ford Africa president Neale Hill as the local industry navigates logistical problems, affordability, unfair competition and uncertain government policy.

At the South African launch of Ford’s Puma small SUV in November 2023, Hill cautioned that the country’s persistent logistics and energy crises were a “slow poison” that could have grave repercussions for the future of local auto manufacturing which contributes more than 5% of GDP and provides direct employment to more than 33,000 people and hundreds of thousands more in the components supply chain.

Local motor manufacturers require imported components to assemble vehicles, and delays in exporting those cars could cost South Africa future automotive investments as the country might be seen as too much of a risk.

Neale, whose company builds the Ford Ranger and VW Amarok one-tonne bakkies in Silverton for the local market and export in a R21bn investment, told TimesLIVE Premium this week there were some green shoots since he made those comments but he was not optimistic that South Africa had turned the corner and that future local automotive production contracts were still under threat.

Ford is one of seven original equipment manufacturers (OEMs) building cars in South Africa — the others are BMW, Mercedes-Benz, Nissan, Isuzu, Toyota and Volkswagen — with Stellantis and Mahindra planning to build local factories.

Load-shedding had become far less prevalent but Transnet’s problems with rail transport and bottlenecks at South Africa's ports — blamed on years of underinvestment in equipment and maintenance — remained major hurdles which affected the cost of doing business in the country.

South Africa competes with plants around the world to assemble cars and these factors come into play when multibillion-rand decisions are made about future investments in the country.

“We’re still mostly moving vehicles by road and we’re too heavily reliant on Durban as a port,” said Hill.

Ford and other Gauteng-based manufacturers BMW and Nissan moved most of their vehicle exports through Durban and not enough progress had been made on developing the north-south rail corridor between Gauteng and the Eastern Cape automotive hubs of Gqeberha and Coega, he said.

Though Transnet has made some improvements to the rail service between Gauteng and Durban, Hill said Ford was still heavily reliant on trucking Rangers along the N3 freeway with about 640 to 660 units built each day, of which about 65% are exported. Rail freight was as expensive as road transport in South Africa, where it’s typically 30% cheaper in other countries, he added.

Hill said he would have felt more comfortable if finance minister Enoch Godongwana had made a commitment to upgrading the country’s logistics capacity in last week’s budget speech.

“The minister didn’t mention cost reduction or infrastructure projects and growing the economy.”

Hill welcomed Godongwana’s moderation on the VAT increase to 0.5 percentage points for the coming year and the next, saying a one-off hike would have hit consumers very hard, but said vehicle affordability remained a problem.

Low-priced imports from China and India were threats to the local manufacturing industry, as were vehicles built on a semi knock-down (SKD) basis that required minimal local investment and attracted import duties of only 5% instead of the 18%-25% (depending on country of origin) for fully imported models.

Competitively priced Chinese imports have heavily disrupted South Africa's vehicle market. Sales of Chinese sourced cars increased by 645% between 2018 and 2023 at the expense of several legacy brands from Japan, Germany and South Korea, some of which build cars locally.

Regarding vehicle affordability, Hill did not believe a solution necessarily lay in allowing local motor manufacturers to convert unused import-duty credits into the cash equivalent to reduce production costs and keep retail prices down, as recently proposed by MD of Volkswagen Group Africa, Martina Biene.

The credits reward motor companies for high-volume vehicle manufacture and allow them to reduce duties on cars they import to South Africa, but some companies had a large surplus of unspent credits that could be used to keep vehicle prices down, she said.

Hill cautioned against this approach and questioned whether the government could afford it.

“We need to look at affordability but it’s a delicate balance in a motor industry that the government believes is over subsidised. We must be prudent with how South Africa's seven auto manufacturers and government move forward,” he said.

He said a discussion needs to be held over the ad valorem duty on imported vehicles, a luxury tax that increases the higher the value of the product. South Africa has not adjusted the ad valorem formula in more than three decades, which means budget cars are taxed similarly to luxury models of previous years.

The motor industry also urgently needed policy certainty from government to ensure its survival in a global motor industry fast moving from internal combustion engines to new-energy vehicles (NEVs), which include hybrids, plug-in hybrids and full electrics.

The government has announced manufacturing incentives for local production of battery-electric vehicles from 2026 and said there will be subsidies to accelerate consumer uptake of electric vehicles.

Hill said motor industry executives had a “very constructive” meeting with trade, industry and competition minister Parks Tau earlier this month to develop the 2021-2035 automotive production and development programme (APDP), but the mechanism to make NEVs cheaper for consumers, and the time frame, were not confirmed.