Johannesburg - Imperial Holdings, whose motor vehicle import business has been battered by the deterioration in the value of the rand, is considering establishing a manufacturing plant in South Africa to produce Hyundai passenger cars.
If Imperial proceeds with local assembly of Hyundai passenger cars, this will be the first new brand to be manufactured in South Africa since 2009 when Nissan started producing the Renault Sandero as part of the global Renault Nissan alliance. Local production of the Sandero was subsequently discontinued.
First Automobile Works (FAW), the Chinese vehicle manufacturer, has invested R600 million in South Africa in a state-of-the-art truck and passenger car plant at the Coega industrial development zone (IDZ) outside Port Elizabeth in the Eastern Cape.
Study
The plant was commissioned last year, but has not started producing passenger cars yet.
Hyundai Automotive South Africa, which is part of Imperial’s vehicle import and distribution business Associated Motor Holdings (AMH), will also commence next month with semi-knocked down (SKD) assembly of Kia bakkies at its R130m truck assembly plant in Benoni.
Manny de Canha, AMH’s chief executive, confirmed this week that the group had commissioned a study to determine the difference between an Automotive Production and Development Programme (APDP) passenger car and an imported passenger car.
“That study should tell us whether we should talk to government and go to Korea to [discuss] setting up a small plant to manufacture, which obviously depends on numbers and the viability, or do we stay as is,” he said.
De Canha was adamant that if Imperial decided to proceed with local assembly, it would have to set up its own plant and the planned multi-brand vehicle assembly plant at the East London IDZ would not be suitable.
He stressed that the plant would assemble Hyundai passenger cars but Imperial would also have to secure export contracts for the model produced to make local assembly viable.
“We will study it and say which car we can export and pick a car or SUV (sports utility vehicle)… we can export into Africa,” he said.
“At the moment we are chipping away with every manufacturer and saying how can we help South Africa?
“The problem is that all the studies are showing us that the cost of manufacturing in South Africa is probably 10 percent more than anywhere else. How can you justify it?” he asked.
De Canha said the APDP study would be completed in the next two weeks.
Competitiveness
Mark Lamberti, the group chief executive of Imperial, confirmed at the group’s annual financial results presentation this week that apart from the negative impact of the deterioration of the value of the rand on the group’s motor business, its competitiveness was being further undermined by the APDP benefits received by locally based original equipment manufacturers (OEMs).
Lamberti said the group was “busy both studying and trying to counter” this competitive advantage.
He said the value of the rand had deteriorated by 14.5 percent in Imperial’s financial year to June after an about 7 percent decline in the previous year and had probably deteriorated “by a similar number” since this June.
The depreciation of the rand was largely responsible for the operating profit of Imperial’s vehicle import, distribution and dealerships division, the exclusive importer of 16 automotive and industrial vehicle brands including Hyundai, Kia and Renault, dropping by 37 percent to R960m in the year to June from R1.52 billion in the previous year.
This was in contrast to the group’s vehicle retail, rental and aftermarket parts division, which grew operating profit by 7 percent to R1.68bn from R1.57bn in the same period.
De Canha said the depreciation of the rand meant AMH had to increase the price of the vehicle brands it represented every quarter by between 2 percent and 2.5 percent.
He said Imperial might be able to take a decision soon on local assembly but the problem was the time it would take manufacturers to take a decision although they were eager to establish plants in Africa “because all of Africa’s currencies have collapsed”.
BUSINESS REPORT