It would be highly risky and far too early to make structural changes now to the Automotive Production and Development Programme (APDP), Volkswagen South Africa (VWSA) managing director David Powels warned.
The APDP had only been in place for four quarters, two normal quarters and two abnormal quarters in the second half of last year, with a seven-week strike and disruption to the automotive industry’s supply chain, Powels said last week.
He doubted structural changes were needed to the APDP but admitted “some tweaking of the elements” might be needed.
Powels said a major positive during the 17 years of the Motor Industry Development Plan (MIDP) and the second year of the APDP was the stability of these programmes and of government policy.
This was one of the reasons the global motor manufacturers continued to invest significant amounts into South Africa despite some of the other challenges, such as labour, he said.
Capital expenditure by original equipment manufacturers between 1995 and 2012 totalled R48.6 billion, according to the Automotive Industry Export Council. Powels said it would be counterproductive to the intention of creating long-term industry stability and attracting global investment to South Africa if the government changed the automotive industry incentive programme significantly every two or three years. His comments follow Trade and Industry Minister Rob Davies’ confirmation in October that the APDP ‘s early review would begin before the government’s next financial year.
Davies said the aim and objective of this review was to address any further tweaks that might be necessary in the APDP to create confidence about the long-term support programme for the automotive industry.
This followed Davies indicating in 2012 the need for an early review of the APDP because some automotive component manufacturers were facing difficulties in the transition from the MIDP to the APDP as the architecture of the APDP meant some components might no longer receive the same level of incentives they qualified for under the MIDP.
Powels added that the government and industry had through the MIDP and APDP been working on measures and programmes to grow production and exports but there had not been any discussion in the past 20 years about growing new vehicle demand.
He questioned who was going to buy the cars for the industry to achieve the government’s target of doubling domestic sales to 1 million vehicles by 2020 and increasing production to 1.2 million locally by the same date.
He said some of the ingredients “of the cake” to achieve these targets were present now but some were still missing, including finding a way to make cars more affordable and drive up demand.
Powels said the cumulative taxes on some vehicles were more than 40 percent of the retail price and questioned if there was a way to restructure these taxes to improve consumer affordability and grow the vehicle market while also growing the gross revenue the government received.
He stressed he was not suggesting the solution was only to cut the taxes.
“We have to come up with a model which shows all the stakeholders that the aggregate revenues and aggregate profits out of having this new way of running the business… everybody wins.”