CAPE TOWN - The automotive sector, the bedrock of South African industry, will face severe headwinds in the local and export market when it comes out of lockdown, and it needs to begin full production as soon as possible.
This was according to Deloitte’s managing director for emerging markets and Africa, Dr Martyn Davies, who said in an interview yesterday that the industry needed to be freed from the lockdown soon or face the possibility of having to “re-industrialise” later in the year, as large parts of the industry collapsed or closed.
Restrictions to prevent the spread of Covid-19 will be eased from Friday, so that parts of the economy can re-
open as the government introduces a five-level phased response to restart the economy.
The motor industry value chain, from component manufacture to retail, and which employs about 500000 people has been closed since the start of the lockdown.
Vehicle export contracts, mainly to Europe, continued to fall away, said Davies. In terms of the draft proposals under Level 4 lockdown, the car and component manufacturing industry could scale up production to 50percent of employment from Friday. Under Level 3, production was allowed to increase to 100percent of employment.
Davies said starting up a highly mechanised and robotic automotive manufacturing plant with a blanket restriction of 50percent of employment did not make much sense, because how would one choose who to employ and who not to employ?
Most car manufacturing plants operated continually on shifts to remain globally cost-competitive.
In addition, he said there were a range of unanswered questions relating to the proposed start-up of the automotive industry.
Much of the international car industry was also in lockdown, so there were no component cargoes.
There were questions whether components could be imported to South Africa, whether the ports were functioning sufficiently to be able to accept the imports, and even whether there would be transport services available through the lockdown to get the components from the port to the factories.
Davies said local vehicle sales were expected to decline by between 20 and 25percent this year in line with international trends, with consumer confidence heavily dented by the Covid-19 crisis.
However, the recent interest rate cuts and low fuel prices should provide some tailwind for increased vehicle sales after the lockdown, he said. In addition, support measures introduced by the government through the lockdown should also help protect consumer incomes, he said.
Davies said the market for new cars was also likely to be reduced by a large number of pre-owned cars entering the market post-lockdown, due to the car rental industry de-stocking, as a result of the tourism and travel industry going into a slump for at least two to three years.
The new car market was also likely to be impacted by rising prices of locally made vehicles. This was because the devaluation of the rand had increased the prices of more expensive imported-vehicle components, such as drive-trains, which form part of all locally produced vehicles.
He said the automotive component industry was also facing severe financial difficulties arising from closure through the lockdown.
“It is going to be a very uncertain and difficult marketplace going forward,” he said.