Automotive sector will miss target, says PwCComment on this story
South Africa’s automotive industry has no chance of achieving the target it agreed with the government of 1 million new car sales and 1.2 million units of production a year by 2020, according to auditing and consulting firm PwC.
Rick Hanna, the PwC global automotive leader, said yesterday that the motor industry faced a number of challenges in achieving the sales target, including the unemployment rate, the weak currency and consumer confidence.
Hanna said PwC forecast about 790 000 light vehicle sales in South Africa by 2020, which was 200 000 short of this target.
Light vehicles include cars and light commercial vehicles.
Hanna said the failure to hit this target would also be a purchasing power issue caused by high or increasing interest rates, growing inflation and the increased cost of vehicles because of rand weakness.
“These will all limit people’s ability to buy cars in South Africa. If the OEMs [original equipment manufacturers] come up with low-cost car solutions, these numbers could certainly improve.”
Hanna did not believe the industry would achieve the production target of 1.2 million units a year by 2020 with the investment programmes that had been announced to date.
He said the industry was building at near its total installed capacity of 765 000 units a year and would require significant investments to reach the 1.2 million unit production target.
Hanna added that it cost $1 billion (R11bn) to establish a new car plant with a capacity of about 200 000 units a year and an engine factory.
South Africa was competing against faster-growing regions, such as China and India, and chief executives would probably put a new factory in China before coming to South Africa, particularly with some of the structural, labour and currency weakness issues.
“So there are challenges in attracting that next round of investment.”
However, he was confident a Chinese car manufacturer would establish a manufacturing presence in South African within the next five years.
Nico Vermeulen, the executive director of the National Association of Automobile Manufacturers of SA, said the figures of 1 million car sales and 1.2 million units produced were a target, not an objective, and “not cast in concrete”.
He said the target might be adjusted to take into account global and domestic economic conditions and developments.
The modelling for the target was done in 2007, shortly before the global financial and economic crisis, and South Africa’s automotive industry was now running at 30 percent below the base line. The global economic crisis and challenges and recession in the euro zone were a major factor in this.
He said that despite being an ambitious target, it was something to strive for, and one or two additional OEMs could establish manufacturing facilities in South Africa in future.
Hanna said worldwide automotive chief executives were more optimistic this year about the global economy, with 44 percent believing it would improve over the next 12 months and only 7 percent expecting it to deteriorate, despite concerns about a wide range of threats.
He said this was a turnaround from last year, when only 16 percent of chief executives expected the economy to improve and 31 percent expected it to decline. This was based on PwC’s 17th annual global survey of 87 automotive chief executives in 34 countries worldwide.
Hanna said the survey identified the five global megatrends that were driving the industry as accelerating urbanisation; demographic shifts; climate change and resource scarcity; shifts in economic power; and technological breakthroughs.