Firing Up A Vital Economic Engine

Finweek English|4 June 2020

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Firing Up A Vital Economic Engine
South Africa’s carmakers are finally able to start their engines, but the effects of COVID-19 constraints on operations have caused significant drag for the industry
Glenda Williams

South Africa’s automotive industry can finally start its engine. Albeit still on idle, vehicle production is gradually beginning to ramp up and dealerships have at last been given the green light to trade.

The automotive industry is vital to the economic health and welfare of SA and its citizens. The industry, both manufacturing, and retail contributed R500bn in revenue to the country last year (2018: R503bn) and 6.9% to GDP (4.4% manufacturing; 2.5% retail). It is also responsible for around 457 000 jobs.

It is a manufacturing mainstay for SA’s economy, accounting for 30.1% of manufacturing output, with vehicle production last year rising to 631 983 units while exports of vehicles (387 125) and automotive components accounted for R201.7bn, according to the National Association of Automobile Manufacturers of South Africa (Naamsa).

But the coronavirus lockdown slammed the brakes on vehicle manufacturing, sales and exports. The toll has been heavy, the effects of which will resonate for some time to come.

“The industry’s significant 6.9% contribution to GDP means that many jobs are potentially impacted, across manufacturing and retail, as is foreign currency revenue from exports. Mobility plays a vital role in providing the necessary stimulus to all sectors of the economy,” says Lebogang Gaoaketse, head of marketing and communication at WesBank.

New car sales in April, when SA’s lockdown was in full effect, plunged a staggering 98.4% compared with the same period last year, according to Naamsa. Only 574 vehicles were sold against 36 787 units in April 2019.

Exports plummeted by 97.3% with just 901 units leaving SA’s shores, in contrast to the 32 828 units in April 2019.

“During the lockdown, we had finished cars sitting in manufacturing plants, with transporters and at ports with Transnet,” Naamsa CEO Michael Mabasa tells a fine week.

Some are starting to leave the country. But many countries are still in lockdown so now, before vehicles leave Durban or Richards Bay, the receiving authority for each consignment must be confirmed to ensure that the ship will be allowed to dock, says Mabasa.

Given production constraints, May export numbers are still expected to be low, albeit an improvement in April. Mabasa expects a decline of around 50% to 60% in exported units in May 2020 compared to May last year (29 850 units).

Dampened demand

The spread of the coronavirus and necessary containment measures are expected to seriously dampen demand across all major markets. Moody’s Investors Service has predicted that global demand for passenger vehicles will shrink by approximately 14% in 2020.

Statista reports that the global auto industry expects to sell 59.5m vehicles in 2020, a 20% decrease compared with the 75m vehicles sold in 2019.

Moreover, there’s chatter about the European market (SA’s largest export destination, accounting for 73% of vehicle exports) possibly declining by 30%.

“I would not be surprised if our exports drop 20% or more as a result,” Dr Martyn Davies, managing director for emerging markets and Africa, and the automotive sector leader at Deloitte Africa tells finweek.

Davies believes the global recovery will be Asia-led and suspects the Asian export markets will remain quite buoyant.

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4 June 2020