The automotive sector is the biggest manufacturing industry in the country, contributing 6.4% to the economy in 2019, with manufacturing and assembly providing 4% and the retail dealerships 2.4%.
Assemblers and component suppliers were allowed to restart operations under level 4 of the lockdown with stringent conditions, including having only 50% of work forces in plant.
However, Naamsa’s Mabasa was concerned that assemblers could not stay at level 4 for too long.
“It will force companies to review their staffing capacities — they have a lot of people on the payroll but are unable to use them.”
But sales will be sluggish, even if the industry introduces incentive packages, largely dependent on contributions from manufacturers, dealers, the banking sector and the government.
Mabasa said no agreement had been reached yet on a stimulus package to drive post-lockdown sales.
Interest rate cuts and a drop in the fuel price during the national lockdown may give a bump to sales when dealer doors open, Naamsa suggested on Tuesday, although it acknowledged positive indicators were offset by a raft of negative factors, including the weakening exchange rate and the ratings agency downgrade.
Bruton expected total passenger vehicle sales to drop to 220,000 vehicles for the full year, compared with 355,378 in 2019.
But any sales projections depended on when the retail sector was allowed to operate, he cautioned.
Covid-19 thumps Eastern Cape vehicle makers to ropes
Image: Gallo/Getty
SA’s automotive industry could shrink by a brutal 40% as a result of Covid-19, with dire consequences for the Eastern Cape economy where three of the country’s seven assemblers and scores of component suppliers are located.
In addition, the retail sector is not yet functioning and dealer showrooms may reopen only early next week, bringing up to 60,000 people back into the economy, although restrictions are also likely on the numbers of employees allowed back.
The three Eastern Cape assemblers, Mercedes-Benz, Volkswagen and Isuzu, did not release figures on production or sales for the rest of the year, although Naamsa, the representative body for 41 automotive firms doing business in the country, said total sales in the local market could drop by 15- 20% this year.
“We do not anticipate any growth, either in terms of local sales or exports. The impact will be severe on both assemblers and retailers,” Naamsa CEO Mike Mabasa said.
Car assembly resumes but sales remain under lockdown
He said trade and industry minister Ebrahim Patel would probably announce by the end of this week that dealerships could open from next week.
However, industry analyst Dr Neal Bruton estimated a 40% decimation in local passenger car sales compared with a year ago.
Port Elizabeth-based Bruton, who has spent a lifetime as an analyst in the industry, said: “It’s looking a little bit grim. Demand will not come back immediately. It’s going to be a long, hard year for the motor industry.”
Car sales dropped to almost nothing during the lockdown.
Naamsa reported 574 vehicles were sold in April, mainly light commercial vehicles.
In total in 2019, local manufacturers produced 631,983 cars, of which 387,125 were exported.
Total automotive exports were R201.7bn, of which vehicles were valued at R148bn.
With imported units, a total of 536,611 vehicles were sold within the country, of which 355,378 were passenger cars.
Job losses and salary cuts force car buyers to look down-market
The automotive sector is the biggest manufacturing industry in the country, contributing 6.4% to the economy in 2019, with manufacturing and assembly providing 4% and the retail dealerships 2.4%.
Assemblers and component suppliers were allowed to restart operations under level 4 of the lockdown with stringent conditions, including having only 50% of work forces in plant.
However, Naamsa’s Mabasa was concerned that assemblers could not stay at level 4 for too long.
“It will force companies to review their staffing capacities — they have a lot of people on the payroll but are unable to use them.”
But sales will be sluggish, even if the industry introduces incentive packages, largely dependent on contributions from manufacturers, dealers, the banking sector and the government.
Mabasa said no agreement had been reached yet on a stimulus package to drive post-lockdown sales.
Interest rate cuts and a drop in the fuel price during the national lockdown may give a bump to sales when dealer doors open, Naamsa suggested on Tuesday, although it acknowledged positive indicators were offset by a raft of negative factors, including the weakening exchange rate and the ratings agency downgrade.
Bruton expected total passenger vehicle sales to drop to 220,000 vehicles for the full year, compared with 355,378 in 2019.
But any sales projections depended on when the retail sector was allowed to operate, he cautioned.
Motorists impacted by lockdown are desperate for dealerships to open
While there are no hints any of the seven automotive manufacturers may close down local operations entirely, both Mabasa and Bruton warned that the government could not allow the local automotive manufacturing capacity to disappear completely, as had happened in Australia.
But they also acknowledged there was a limit to how much support the government could provide to an ailing industry, given pressures on other sectors of the economy and in society in general.
“In the long term, it wouldn’t be surprising if one of the manufacturers decided it’s no longer economically viable to continue operating in the country,” Burton said.
“Undoubtedly, the industry is under significant pressure. Globally, the holding companies of some of the SA manufacturers are under huge pressure.”
“Government support has been fundamental for the industry. The government regards it as a strategic industry because it employs hundreds of thousands of people, because of the technological input it brings to the country and the contribution to the GDP.”
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Mabasa said losing a manufacturer “is not on the horizon”, with none of the manufacturers indicating an intention to move elsewhere, but he added “the situation is very fluid and we are monitoring it closely”.
He said SA was not unique in favouring its automotive industry.
“The auto industry globally is looked after. And if you don’t keep it alive you will end up with the situation in Australia, where they lost the entire industry and it is now based on imports.”
But Mabasa confirmed that Chinese automotive group BAIC was unlikely to open its new PE plant as planned later this year.
“They have been directly affected by what is happening — many of their current team setting up that plant are back in China.”
Asked if the economic impact of the pandemic provided a reset opportunity for the local motor industry, Bruton said: “As long as it happens in a free market context, where manufacturers decide it is no longer economically feasible to operate in SA. I would be more concerned if the government steps in to rationalise the industry.”
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