Naamsa facing grave ‘challenges’

23 June 2019 - 00:06 By CHRIS BARRON

SA shouldn't take its vehicle manufacturers for granted, says the CEO of the National Association of Automobile Manufacturers of SA (Naamsa), Michael Mabasa.The industry accounts for 29% of total South African manufacturing output, 16.2% of exports and almost 8% of GDP. It provides jobs for more than 1.5-million people.But it's facing "serious challenges", says recently appointed, Mamelodi-born Mabasa, 45, who has extensive executive experience in the private sector.Local sales are down and will remain flat at best until the economy turns. Cheaper vehicle prices are a must but not feasible while 42% goes to the government in taxes."We understand the government's fiscal pressures, and this is going to be one of our most difficult conversations," he says. "But it's a very necessary conversation."Exports have slumped for the first time, and a no-deal Brexit will do more damage. The industry is looking to Africa for new markets, but these are clogged with imported second-hand vehicles.The industry is lobbying governments to ban or limit these so-called "grey imports".The cost of doing business in SA will force the big multinational manufacturers to consider their options.It won't take much for them to divest like they did in Australia, Mabasa says.It's why GM left SA two years ago. It said it could produce vehicles much cheaper elsewhere."Divesting is a very real threat. All our manufacturers are mindful of that," he says.They're coming under pressure from their principals around the world."BMW always reminds us they are no longer competing with a Toyota or Volkswagen in SA. They're competing with another BMW factory in Malaysia or Mexico or Germany. And they're looking at the costs."Is it cheaper for them to produce their BMW X3 in SA or can they do it cheaper and more efficiently in Malaysia? They're competing against their own global businesses."These are realities that we have to confront."The rising cost of doing business in SA is not only about Eskom, whose tariffs have increased more than 500% since 2005 and whose blackouts cause havoc on production lines.It's about the failure of infrastructure such as railways and ports."In the freight supply-chain space it's becoming a challenge to move products."Inland manufacturers such as BMW, Nissan and Ford rely heavily on freight logistics to move their products to the ports.This means Transnet. But the Passenger Rail Agency of SA shares the same infrastructure with Transnet."So if there's a train full of cars en route to Durban or Richards Bay, you find that along that corridor they give preference to trains carrying passengers."Trains transporting new cars to meet tight schedules and fill orders are shunted aside "for longer periods than we would like", Mabasa says.There are more delays and exorbitant costs at the ports, where the National Ports Authority can't clear backlogs.Durban is so clogged that Ford's assembly plant in Tshwane is shipping vehicles out of Port Elizabeth, which is twice the distance."We've been highlighting some of these issues quite proactively with government," says Mabasa. The results have been less than spectacular, but "we are beginning to see at least some urgency and an understanding of some of the challenges we're experiencing".They've learnt not to expect too much."The fact that we're talking to each other is something."But manufacturers are not going to put up with this kind of thing indefinitely."We're going to be putting more pressure on government to act with urgency."Labour costs and instability are about to come into sharp focus again as another round of wage negotiations begins.In an effort to prevent disruptions the industry cannot afford, Naamsa has roped in former National Union of Metalworkers unionist and minister of trade and industry Alec Erwin to facilitate direct talks between the CEOs of the seven major auto manufacturers and the Numsa leadership."We want the CEOs to share with Numsa some of the challenges they're having," says Mabasa. And talk to them about the need to re-skill workers in order to save their jobs."The auto industry is changing very fast. We're talking about electrification of our vehicles, bringing in hybrids and so on, the automation of factories."These advances are bringing SA's skills deficit into sharp relief.The government needs to make it easier to import skills, he says."That is critical because we don't have the skills we require. The acquisition of skills is very critical, particularly for multinational corporations."Another challenge is the new edition of the Automotive Production and Development Programme, which introduces new local content rules to speed up transformation but might result in fewer incentives for manufacturers."These are some of the conversations we're currently having with the department of trade & industry," says Mabasa. The programme comes into effect in January 2021, "so we have 18 months to talk about some of the unintended consequences".The new rules will force manufacturers to source more locally manufactured components or lose their incentives."The likes of VW, BMW and Mercedes-Benz are putting pressure on their principals in Germany and Japan to understand that the chance of them losing incentive programmes in SA and ending up going the Australian route is very huge if they don't get the support they require, and to convince some of their global components manufacturers to set up shop in SA."But SA is not seen as an attractive investment destination. Apart from all the other reasons, component manufacturers need economies of scale"It doesn't make sense for them to come here and produce a low number of products they can produce in another market much cheaper and import into SA."Ongoing policy confusion about the Reserve Bank and other issues could be ruinous for the industry."All we're asking is that government and the ANC speak clearly and consistently and with one voice."All these manufacturers report to their principals, and they're watching carefully what is happening in SA. The last thing you want is for them to doubt that SA is an attractive investment destination."

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