"Local car manufacturers like Toyota are growing their export programmes, and Mercedes Benz is increasing its C-class exports this year, enabling this growth in the automotive component sector. This is in the face of the local market showing a downward trend," he comments.
"The challenge is to remain competitive in the export market, because every year the Motor Industry Development Programme (MIDP) incentives are decreasing. The challenge to remain globally competitive is increasing, with countries like China and India making huge strides in the production quality, and thus taking their place in the automotive components industry."
Pitot says that there have been significant changes since the MIDP was established. "The MIDP was introduced in 1995, prior to which the automotive industry was very protected. When the markets were opened, with the advent of democracy in 1994, the industry had to compete in an open, global market, without many of the previous protections."
Put simply, the MIDP is an import/export complementation arrangement, whereby the local content value of components or built-up vehicles exported, earn credits that can be used to rebate import duties on components and vehicles. The arrangement is due to come to an end in 2012.
However, the industry is still facing significant cost-pressures, and this is not helping its global competitiveness.
Pitot explains that power cutbacks, power price hikes and fuel price hikes are all affecting the global competitiveness of the local automotive industry. "Naacam members are supplying parts to the original equipment manufacturers (OEMs) and they have to meet set target prices.
To be competitive on the global scale the local set-up has to be conducive to global pricing. In South Africa the infrastructure costs penalise the manufacturers and port costs are also very high. Cargo dues have to be paid on all imports and exports, and South Africa is the only country in the world that has this penalty payment. This makes it the most expensive automotive port in the world."
Another challenge to cost competitiveness is South Africa's inefficient and congested rail and road transport systems. Many of the road links, like the corridor between Gauteng and the Eastern Cape, are underdeveloped. Pitot states that a lot of money has to be spent on upgrading this infrastructure, which is essential for the transportation of goods within the industry, as well as to ports for export.
In addition to the problems above, Pitot says that South Africa's automotive industry suffers at the hands of monopolistic raw material suppliers. "Local prices are just one or two percent lower than the import prices, including duty and transport."
Another problem the local industry is encountering is the country-wide demand for wage increases. The industry has a three-year wage agreement with the unions that was negotiated in 2007. Pitot says that it remains to be seen if the unions will be honouring this agreement. "From a humane point of view it will be understandable if the workers say that they have a problem surviving in the face of the rising inflation, but we cannot afford the cost penalty."
Pitot believes that growth in the industry depends on the MIDP announcement in August. "The industry has been liaising with the Department of Trade and Industry (DTI) and its task team for a while now, and is reaching the final stages. The industry has pointed out the shortcomings of the MIDP programme, and has indicated what the industry believes is required for the future.
What is required is a discretionary incentive investment package that is globally competitive. I think the government is beginning to understand this better," he says. "Local manufacturers also have to look at reducing costs by becoming more efficient, less energy reliant, and find other innovative ways to reduce costs to remain competitive."
International exposure
Building on previous successes in other international exhibitions, Naacam set up its first national pavilion at the Automechnika in Dubai, in early June to help its members stay globally competitive, and to grow awareness of the South African automotive industry internationally. The association plans to make this an annual event.
Pitot reports that nine South African companies exhibited at the show this year, and were happy with the exposure, especially to the fast growing, lucrative Middle Eastern market.
In October Naacam will take a trade delegation to China to promote some South Africa's products there. This is all part of a drive to inform other countries and expose the automotive industry to the world. "A lot of the world is not even aware that South Africa makes cars," says Pitot.
In preparation for the Automechnika in Frankfurt this September, Naacam has already sent out 800 of its directories, to advertise and expose the South African automotive component industry. This is apart from the directories the association plans to hand out at the show itself.
Pitot adds that, 'Naacam has also endorsed and is fully behind South African Automotive Week (Saaw) in October 2009. The association understands the expected significant benefits this will bring to South Africa's automotive component industry. To this end Naacam has recommended its members participation and has also scheduled its annual general meeting during Saaw."
Lags
Locally Naacam has started an initiative called the Local Action Groups (Lags). There are a number of Lags in Gauteng, the North West and the Eastern Cape. The first meetings were held in September last year and the first groups were formed from these meetings.
Lags is a clustering process, where a few companies who share geographical proximity, are clustered together to share skills development, training opportunities and HIV/Aids awareness.
A local partnership that Naacam's head office, with members in its proximity, has fostered is with the Ekurhuleni Metropolitan Municipality, on the issue of HIV/Aids. This partnership has helped members become aware of what is available in the area for awareness training, counselling and treatment, who is responsible for the clinics and if there are problems, whom to contact. In this way HIV/Aids awareness can be carried out at a town or regional level.
Other local issues where working together as a group will help decrease costs, time and efforts and where non-production materials, like protective clothing or photo copy paper, can be bought through this buying collaborative or Lags.
To build the power of Naacam's members as a buying collaborative, the association has signed up with international company Quadrem. Quadrem supports the collaborative purchasing process of industries with similar interests through the use of the internet, to facilitate cost saving initiatives at a national level. "This means a pooling of the buying power of over 200 companies, which employs over 50 000 people," adds Pitot.
Quadrem is in the processing of gathering data from Naacam's members to ascertain what their requirements are. The internet-based system will enable members to go online and access a choice of three companies that Quadrem has researched, and found to have the most competitive pricing, from which to make purchases. One of the three choices would be a highly rated black economic empowerment company.
Source-engineeringnews.co.za
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