SOUTH Africa’s motor industry must avoid following its Australian counterpart into oblivion, or risk losing not only tens of thousands of jobs but also scarce manufacturing skills.
This is the view of Professor Göran Roos, an internationally acclaimed leader in business model innovation in manufacturing.
Speaking at an automotive conference in Midrand, Gauteng, this week, he said the impending collapse of the Australian motor industry held important lessons for South Africa – not least that the effects would be felt far beyond the industry.
For every direct automotive job lost in Australia, many more would be shed in service industries, and thousands of small businesses would face collapse.
Australia’s three remaining light-vehicle manufacturers – Ford, General Motors and Toyota – will all disinvest in the next three years, bringing to an end more than 75 years of vehicle production in that country.
Some truck assembly will continue, but from 2018, Australia will import all its cars and bakkies.
From a peak of more than 400000 in 2004, Australia will be lucky to build 200000 vehicles this year.
Reasons include the dismantling of import tariffs, from a peak of more than 50% in 1984 to 5% today, and a series of free-trade agreements with Asian countries allowing low-cost vehicles free access to the Australian market.
But the biggest nail in the coffin, said Roos, was the dramatic strengthening of the Australian dollar as a result of spiralling Chinese demand for Australian raw materials.
From having a relatively low-cost manufacturing base before 2008, Australia today had the world’s most expensive. Australian industry, not just automotive, was utterly unprepared, he said.
Most manufacturers were brought up to operate in a low-cost environment and had failed to make the transition.
The motor industry, he said, was Australia’s “only remaining large-scale, complex, complete manufacturing ecosystem” able to design, develop and produce its own goods.
As such, it had deep links to the rest of the economy. So while the three vehicle makers and their components suppliers directly employed 55000 people, they helped support 260000 people across more than 20000 support and service companies.
The industry in South Africa does not have the same depth but it is the country’s biggest manufacturing segment by far, contributing nearly 7% to gross domestic product, and it acts as a major source of technology and skills transfer from overseas.
South Africa’s automotive manufacturing and its related industries employ about 90000 people.
There are no official estimates of support-sector employment.
Many Australian service companies had become too dependent on the motor industry, said Roos. Having waited too long to diversify, many would sink with it. He estimated 200000 jobs could be lost.
A rule of thumb was for companies to rely on the motor industry for no more than 30% of their total business – “particularly if decisions directly affecting your future are taken by multinationals outside your country”.
The motor industry in South Africa faces similar challenges to Australia’s.
It is a low-volume producer by international standards, with lagging productivity rates, and so struggles to be cost-competitive.
Professor Justin Barnes, chairman of Benchmarking and Manufacturing Analysts SA, said on Monday that having once been on the fringe of the world’s top 10 vehicle manufacturing countries, South Africa was now outside the top 20.
But it is doing better than Australia.
This year South Africa expects to build more than 550000 vehicles, and 650000 next year.
It also has the advantage of a government committed to it. Unlike Australia, where Roos said the government “de facto told the remaining motor companies last year that they could leave”, South Africa has committed to long-term protection, including investment incentives and tariff protection that will not fall below 25%. There is also little chance of the rand suddenly strengthening.
Barnes said South Africa had a further advantage: it had 1.2-billion African consumers to the north.
David Furlonger writes for the Tiso Blackstar Group
Take a lesson from Oz motor industry oblivion
This is the view of Professor Göran Roos, an internationally acclaimed leader in business model innovation in manufacturing.
Speaking at an automotive conference in Midrand, Gauteng, this week, he said the impending collapse of the Australian motor industry held important lessons for South Africa – not least that the effects would be felt far beyond the industry.
For every direct automotive job lost in Australia, many more would be shed in service industries, and thousands of small businesses would face collapse.
Australia’s three remaining light-vehicle manufacturers – Ford, General Motors and Toyota – will all disinvest in the next three years, bringing to an end more than 75 years of vehicle production in that country.
Some truck assembly will continue, but from 2018, Australia will import all its cars and bakkies.
From a peak of more than 400000 in 2004, Australia will be lucky to build 200000 vehicles this year.
Reasons include the dismantling of import tariffs, from a peak of more than 50% in 1984 to 5% today, and a series of free-trade agreements with Asian countries allowing low-cost vehicles free access to the Australian market.
But the biggest nail in the coffin, said Roos, was the dramatic strengthening of the Australian dollar as a result of spiralling Chinese demand for Australian raw materials.
From having a relatively low-cost manufacturing base before 2008, Australia today had the world’s most expensive. Australian industry, not just automotive, was utterly unprepared, he said.
Most manufacturers were brought up to operate in a low-cost environment and had failed to make the transition.
The motor industry, he said, was Australia’s “only remaining large-scale, complex, complete manufacturing ecosystem” able to design, develop and produce its own goods.
As such, it had deep links to the rest of the economy. So while the three vehicle makers and their components suppliers directly employed 55000 people, they helped support 260000 people across more than 20000 support and service companies.
The industry in South Africa does not have the same depth but it is the country’s biggest manufacturing segment by far, contributing nearly 7% to gross domestic product, and it acts as a major source of technology and skills transfer from overseas.
South Africa’s automotive manufacturing and its related industries employ about 90000 people.
There are no official estimates of support-sector employment.
Many Australian service companies had become too dependent on the motor industry, said Roos. Having waited too long to diversify, many would sink with it. He estimated 200000 jobs could be lost.
A rule of thumb was for companies to rely on the motor industry for no more than 30% of their total business – “particularly if decisions directly affecting your future are taken by multinationals outside your country”.
The motor industry in South Africa faces similar challenges to Australia’s.
It is a low-volume producer by international standards, with lagging productivity rates, and so struggles to be cost-competitive.
Professor Justin Barnes, chairman of Benchmarking and Manufacturing Analysts SA, said on Monday that having once been on the fringe of the world’s top 10 vehicle manufacturing countries, South Africa was now outside the top 20.
But it is doing better than Australia.
This year South Africa expects to build more than 550000 vehicles, and 650000 next year.
It also has the advantage of a government committed to it. Unlike Australia, where Roos said the government “de facto told the remaining motor companies last year that they could leave”, South Africa has committed to long-term protection, including investment incentives and tariff protection that will not fall below 25%. There is also little chance of the rand suddenly strengthening.
Barnes said South Africa had a further advantage: it had 1.2-billion African consumers to the north.
David Furlonger writes for the Tiso Blackstar Group
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