Abstract
The long-term viability of some manufacturing operations in South Africa' s
automotive industry is being
called into question as output slumps by
nearly a third in the face of a collapse in export markets and
plummeting
domestic demand.
The operating environment worsened in the first few
months of 2009, with NAAMSA expecting a 36%
decline in export volumes of
cars and light commercial vehicles with the industry due to stay under
pressure until 2011. However, it suggests an increase in medium and heavy
commercial vehicles and bus
exports to Africa.
New vehicle sales in
Q408 were down 30.2% y-o-y to 62,835 units, marking new lows in a market
that
was already depressed before the international financial crisis
affected the market from September. New
vehicle sales in South Africa
dropped by 36.3% y-o-y in February 2009 and by 35.4% y-o-y in January
2009. The decline in sales represented the largest fall in the last eight
years, and was expected to worsen
as economic growth, global demand and
consumer confidence declined further in 2009.
BMI does not believe there
will be a recovery in market conditions before 2011, despite our earlier
optimism about World Cup-related sales to car hire fleets. We forecast a 19.4%
drop in sales to just over
430,000 units. Growth will return at a modest
5.9% in 2010 and at 11-13% annually in 2011-13 as the
economy recovers and
lending resumes. A major risk factor is the value of the rand, which is
pushing up
the price of imported cars. By March 2009, the currency had
fallen by 41% and 31% against the yen and
euro, respectively, over the
period of a year. Market leader Toyota South Africa said that it would have
to
raise prices by 40% in response just to break even, but in order to
maintain its market presence it may
only be able to raise prices by
10-20%, therefore running at a loss. Other players often wait for Toyota
to
set out its pricing policy before making a move, with Honda South
Africa indicating said that vehicle
prices were likely to rise by 40% over
the next two years as a result of the rand' s depreciation and Nissan
suggesting price increases of 15%.
With Mercedes-Benz South Africa (MBSA)
set to slash output by over 50% in Q209, BMI believes the
pressure on
domestic carmakers will continue well into 2010, with the negative impact of
the economic
downturn increasing throughout the year. In 2009, BMI
forecasts output down 30.4% to just over
392,000 units. Output will remain
flat in H110 with capacity utilisation rates likely to remain unchanged.
It will not be until H210 that growth will return to the South African
automotive industry and by 2013,
production could easily exceed 600,000
units and reaching new highs. The main threat to this outlook is
the
possibility of plant closures as majors seek to cut costs and consolidate
operations. The poor domestic
market situation, the logistics involved in
exporting vehicles from South Africa to key markets in Europe
and Asia and
exchange rate volatility are all factors that could count against the
long-term viability of
operations in the country. This will undermine the
objective of the Automotive Production and
Development Programme (APDP) to
double the country' s vehicle output to 1.2mn units by 2020 by
offering
incentives to manufacturers investing in local production.
| 
View Cart
