JOHANNESBURG - German based vehicle manufacturer BMW has cautioned the South African government about proposed changes to its automotive policy that would endanger the growth and future existence of the domestic industry.

BMW is particularly concerned about the possible scrapping of export credits and high local content targets in the new programme that, from 2020, will replace the existing Automotive Production and Development Programme (APDP).

The export credit incentive in the APDP allows locally based original equipment manufacturers (OEMs) to use the credits earned from the export of locally manufactured vehicles to offset the duties imposed on the importation of other fully built-up (FBU) models.

Oliver Zipse, the management board member at BMW responsible for production and the chairperson of BMW South Africa, said if a decision was taken to remove the export credit incentive from the new programme, it would endanger the successor model to the BMW X3 at the group’s plant in Rosslyn in Pretoria.

Zipse stressed that if the export credit incentive was endangered, there was no reason for BMW to have a plant in South Africa.

“It's far away from any other big market. That is the only reason why we have the plant in South Africa. It is the combination of serving a market and having production. It’s a perfect synergy between different needs,” he said in a media round table discussion in Munich in Germany following the release of BMW’s global financial results.

Zipse added that before 1999 the Rosslyn plant only produced vehicles for the South African domestic market.

“The local market for us is about 18000 units and the plant today has a more than 70000 unit capacity. And what will happen? It will shrink to its original size, endangering hundreds of people working there,” he said.

Zipse said BMW had been very outspoken about the consequences of changing the automotive policy system dramatically, which would also negatively impact on other OEMs that were large vehicle exporters.

Zipse said BMW had just invested R6.2billion in South Africa, which was the group’s single biggest investment in South Africa in 50 years, and it was necessary to maintain the current policy or it would endanger their use of that investment.

Safeguard

He added the decision by BMW to shift production at the Rosslyn plant from the 3-Series to the X3 was extremely positive because it had safeguarded the existence of the plant.

“The X3 is a much better product for South Africa than a limousine and we think our market share will increase.

“The X3 safeguards the existence of Plant Rosslyn because it's in a growing market segment. The limousine is not a growing market segment worldwide.

"We saw it (the decision) extremely positively because we have additional production capacity in a growing market segment where we did not have sufficient capacity,” he said.

Zipse said the proposed increase in local content targets in the new automotive policy was also problematical.

He said BMW was a fairly small producer in South Africa, which made the economic case for localising extremely difficult as a direct result of the size of the domestic market and this was also an issue for BMW’s competitors in the South African market.

Zipse said the size of the domestic market had halved from what it was about six years ago and to push manufacturers into more localisation in the current market environment would have the opposite effect.

“If will force manufacturers to leave. The market is too small at this current time. We sold more than 30000 units some five or six years ago but only 18000 units last year, so it’s shrunk drastically.

“In these times, I would be extremely careful to push anything further. It's not the right time to have huge industrial demands. When the market returns to the size (it was) six years ago, then you can demand that we localise,” he said.

A senior executive from another OEM, who did not want to be identified, told Business Report that some of the proposed changes to the APDP would make it extremely difficult for some manufacturers to justify why they should be in South Africa because producing for both the domestic and export markets provided them with scale.

“The market for the local prestige brands is quite small and if the APDP review is going to impact negatively on their business, there might be some casualties,” he said.

Nico Vermeulen, the director of the National Association of Automobile Manufacturers of South Africa (Naamsa), said the process to finalise the post-2020 automotive development programme was well advanced and on track.

However, Vermeulen said there were certain aspects that were the subject of ongoing discussion and review between the government and industry stakeholders, including some of the technical elements of the new programme and the long-term targets.

- BUSINESS REPORT