The South African automotive industry is grappling with notable difficulties arising from a reduction in vehicle production. This downturn has far-reaching implications, particularly for component manufacturers, who are experiencing a decline in orders both locally and from overseas. These challenges have brought the sector to a critical point, impacting employment and economic stability within this crucial industry. As the domestic market contracts and export volumes decline, the ripple effects extend throughout the supply chain. Component manufacturers are confronting a “double whammy” scenario, struggling with diminished demand from local vehicle assembly plants and a downturn in direct components exports. The evolving landscape of car sales, driven by consumer preferences and regulatory changes, further complicates matters, especially with the slow growth in electric vehicle (EV) demand.
Decline in Local Vehicle Production
The South African auto industry is witnessing a significant drop in vehicle production. Domestic car sales have fallen by 5.1%, while sales of light commercial vehicles (LCVs) such as bakkies and minibuses have declined by 9.3%. This reduction is not only affecting the domestic market but also impacting export numbers. Over two-thirds of vehicles produced locally are meant for overseas markets, yet car exports have dropped by 7.7%, and LCV exports have plummeted by 24.3%. The lower production rates are directly tied to reduced demand both locally and internationally. Many locally sold cars are imported, while LCVs are predominantly manufactured in South Africa, containing an average local content of 40%. The decrease in production volumes is significantly hurting component manufacturers, who are seeing a reduction in orders from assembly plants.
Particularly for the South African auto industry, which has relied on exports to maintain production levels, the reduction in vehicle output poses a severe challenge. The economic fallout from these cutbacks extends beyond numbers, affecting livelihoods and disrupting the broader manufacturing ecosystem. The decline in local vehicle production signals a troubling trend that has stirred concerns among industry stakeholders. As the market grapples with this slump, the long-term implications for investment, production stability, and competitiveness in the global market hang in the balance. The complexities associated with changing consumer preferences and stricter international regulations are exacerbating the situation, leaving both manufacturers and policymakers searching for viable pathways to stabilize and revitalize the industry.
Impact on Component Manufacturers
The cutback in vehicle production has led to significant challenges for those in the component manufacturing sector. Renai Moothilal, director of the National Association of Automotive Component and Allied Manufacturers (Naacam), emphasizes the “significant” impact of these cutbacks. Diminished orders from local vehicle production and reduced direct exports have created a dual blow to component manufacturers. The situation is dire for many companies, resulting in operational changes like reduced working hours and potential job cuts.
Specific companies illustrate the gravity of the situation. Mercedes-Benz SA (MBSA) moved from three working shifts to two at its East London plant due to lower-than-expected export sales of the C-Class car. BMW SA is also facing a slowdown due to the phasing out of the current X3 sports utility vehicle range. Suppliers like MA Automotive Tool & Die in Rosslyn are implementing short-time working arrangements until the end of the year. Changes in European Union (EU) engine homologation rules are adding complexity to production schedules. For instance, Toyota SA is experiencing delays in Hilux bakkie production, impacting their suppliers. The full extent of the economic fallout and job losses within the component manufacturing sector remains uncertain, but smaller suppliers lower in the supply chain are particularly at risk.
The challenges brought forth by decreased production rates and diminished exports underscore the importance of strategic planning and robust policy interventions. As the sector contends with these multifaceted issues, the emphasis is on finding sustainable solutions that can support recovery and long-term growth. Industry participants are calling for collaborative efforts between manufacturers, suppliers, and government entities to navigate these challenges effectively. The strain on component manufacturers highlights the need for diversification and innovation to build resilience against market fluctuations and external shocks. Looking ahead, identifying new market opportunities, investing in advanced manufacturing technologies, and fostering a skilled workforce will be crucial in ensuring the sector’s recovery and continued relevance in the global market.
Slowdown in Electric Vehicle (EV) Demand Growth
Globally, the electrification trend continues, but the immediate demand growth for EVs has slowed. For South Africa, this slowdown has short-term benefits for local producers of platinum-based catalytic converters, used in internal combustion engine (ICE) vehicles. While the global shift towards full electrification is inevitable, the near-term market dynamics show a resurgence in hybrid vehicle adoption. In the South African market, consumer preferences reveal a stronger inclination towards traditional hybrids rather than full-electric vehicles. According to the National Association of Automobile Manufacturers of South Africa (Naamsa), traditional hybrids dominated the EV sales in the first part of 2024. Brandon Cohen, chair of the National Automobile Dealers’ Association, attributes this to insufficient recharging infrastructure and prevalent “range anxiety” among consumers.
This preference has created a window of opportunity for producers relying on technologies supporting traditional hybrids and ICE vehicles. However, it is essential to recognize that this trend presents only a temporary reprieve. The global movement towards reducing carbon footprints and adhering to stricter environmental regulations is ongoing, suggesting inevitable future demand shifts towards fully electric vehicles. Industry stakeholders must weigh the short-term benefits against long-term strategic decisions to align with sustainable practices and market demands. For now, the hybrid solution offers a middle ground, addressing current consumer needs while gradually orientating towards complete electrification. The response from manufacturers and policymakers to these evolving trends will play a crucial role in determining the trajectory of South Africa’s automotive sector.
Global Trends in Automotive Sales and Technologies
The reduction in vehicle production has created substantial challenges for those in the automotive component manufacturing sector. Renai Moothilal, director of the National Association of Automotive Component and Allied Manufacturers (Naacam), underscores the “significant” impact of these cutbacks. With diminished orders from local vehicle production and reduced direct exports, component manufacturers face a severe dual blow. This situation has led many companies to implement operational changes like reduced working hours and potential job cuts.
For instance, Mercedes-Benz SA (MBSA) has cut back from three to two shifts at its East London plant due to lower-than-expected export sales of the C-Class car. BMW SA is also slowing down as it phases out the current X3 sports utility vehicle range. Meanwhile, suppliers such as MA Automotive Tool & Die in Rosslyn have initiated short-time working arrangements through the year-end. Additionally, changes in European Union (EU) engine homologation rules are complicating production schedules for many manufacturers. Toyota SA, for example, faces delays in Hilux bakkie production, affecting their suppliers.
This turmoil highlights the critical need for strategic planning and robust policy interventions. Navigating these multifaceted issues will require collaborative efforts between manufacturers, suppliers, and government entities. To build resilience against market fluctuations and external shocks, there’s a need for diversification and innovation. Looking forward, identifying new market opportunities, investing in advanced manufacturing technologies, and fostering a skilled workforce will be vital for the sector’s recovery and ongoing relevance in the global market.
