The South African Automotive Industry, the MIDP and the APDP
Presentation by Roger Pitot ‐ NAACAM October 2011 1
SA Automotive Industry: Structure •
•
•
•
The vehicle manufacturers present in SA‐ Mercedes Benz, BMW, Volkswagen, Nissan/Renault, Toyota, General Motors and Ford are all wholly owned subsidiaries. Other major brands are imported – European (Peugeot/Citroen), Japanese (Daihatsu, Honda, Subaru, Suzuki), Korean (Hyundai, Kia), Indian (Tata, Mahindra), with Chinese brands also entering the market (Chery, Chana, GWM and others) There are approximately 400 auto component suppliers including diversified manufacturers. 16 of the 20 major global first tier suppliers are present in South Africa
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Industry Performance Since 1995 ‐ New vehicle sales and projections New Vehicle Markets in South Africa History and Forecast - 1995 to 2012 Medium and Heavy Commercial Vehicle Market Light Commercial Vehicle Market Passenger Car Market 800000
600000 500000 400000 300000 200000 100000 2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0 1995
Annual Sales Volume
700000
3
Industry Performance Since 1995 ‐ New vehicle Production
4
OEM capital expenditure (R millions) Total industry investment since 1995 over R40 billion
5
Annual Average Industry Capacity Utilisation
2005
2006
2007
2008
2009
2010
4th Qtr 2010
Cars
81,1%
80,1%
67,7%
68,3%
59,4%
77,1%
87,2%
LCV
79,9%
87,8%
82,7%
73,9%
56,5%
68,4%
76,4%
MCV
84,4%
97,9%
91,7%
89,9%
64,6%
77,2%
82,6%
HCV
95,9%
95,1%
95,3%
87,6%
66,1%
77,5%
81,1%
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Vehicle Production Production (000s) • VW Polo (new) • Toyota Hilux/Fortuner • Merc C‐Class • BMW 3‐Series • Toyota Corolla Total Light Vehicles
2008 ‐ 107.7 51.6 36.6 74.7 515.2
2010 94.0 89.3 51.7 49.2 33.9 448.4
The Motor Industry Development Programme (MIDP) Introduced 1995 ‐ Key Objectives: • To improve SA automotive industry’s international competitiveness • To improve vehicle affordability in the domestic market • To encourage growth in vehicle and component manufacturing, particularly through exports • To stabilise employment levels in the industry • To create a better industry foreign exchange balance
Industry Performance:1995‐2010 International competitiveness • Significant improvement in quality and productivity. Progressive economies of scale with local vehicle platforms down from 42 to 15 • Average volume per model (cars/LCV’s) produced increased from 9 000 units to 30 000 • In 2010, 4 models > 40 000 units and 6 models > 20 000 units per annum. • Increase in number of vehicles produced per employee from less than 10 vehicles per annum to 17 vehicles per annum in 2010. • Significant rationalization and economies of scale production has reduced complexity for domestic component suppliers and enhanced efficiencies 9
Passenger Car Market Makes & Models : 1994 to April 2010 April 2010 60 Marques 1,187 models
January 1994 17 Marques 192 Models
Motor Vehicle Export since 1995 (units) 284,211
300,000
291,000
Export units
250,000
239,465
179,859
200,000
171,237
174,947
139,912 125,306 126,661
150,000
110,507
108,293
100,000
68,031 59,716
50,000
15,764
11,553
19,569 25,896
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year
Major Vehicle Exports – 2010 Volkswagen - Polo series to Europe
BMW - 3-Series to Japan, Australia and USA
Mercedes Benz - C-Class to USA
Toyota - Hilux to Europe and Africa
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Major Vehicle Exports – 2010 (cont.)
General Motors – Isuzu KB to Africa
Toyota - Corolla to Europe and Africa
Nissan - Hardbody to Africa
Ford - Focus to Australia
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Global fuel standards
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Profile of NAACAM • Established 1980 to represent component and spare parts manufacturers • Over 190 members with 260 plants • Members comprise 70% of dedicated auto component manufacturing companies in SA • Independently elected National Executive Committee, 5 Regions with Chairmen and Deputy Chairs • The servicing, spares and retail sectors are represented by the RMI
0 1 1 1 1 0 1 1 2 2
# EMPLOYEES
12
1000 PLUS
950 TO 1000
900 TO 950
850 TO 900
800 TO 850
750 TO 800
700 TO 750
651 TO 700
600 TO 650
3 550 to 600
6 6 6
500 TO 550
9
450 TO 500
400 TO 450
350 TO 400
4
300 TO 350
10
250 TO 300
15
200 TO 250
150 TO 200
20
100 TO 150
50 TO 100
30
10 TO 50
5
< 10
# MEMBER COMPANIES
Size of Component Companies – 2007 Analysis NAACAM MEMBERSHIP ANALYSIS SURVEY
28 27
25
17 16 11
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Component Manufacturers – Key 2010 Data • The employment of the component manufacturers totals 65,000, down from the peak of 82,000 (NAACAM membership 44,000) • Sales exceeded R65 billion ($9 bn), with 35% OE, 45% export, 20% aftermarket • Capex was R2 billion • Average local content of components exported was 75% • Real Vehicle local content averages 35%
Service and Sales Outlets • • • • • • •
Workshops 2500 Petrol Stations >1800 New & Used vehicle Dealers 1200 Tyre workshops 600 Engine specialists 250 Panelbeating shops >1000 Spare parts dealers >700 • Employment over 200,000 18
Current Breakdown of costs and Local Content 65%: % of total material cost 35%: true local material plus value add as % of total material cost
Exterior 10%
Electrical / Electronic •Harnesses •Starter motors •Alternators •Wiper systems •HVAC
19%
3%
5%
Interior
•Glass •Paint •Bumpers •Mirrors
23% •Cockpit •Seats •Door panels •Carpets
Body 15% 6%
•Bonnets •Bootlids •Sideframes •Doors
Chassis and Drive‐train 33%
14%
7%
•Axles •Differentials •Drive shafts •Brakes
Why is Local Content so low? • Volumes in SA much lower than elsewhere, except where component companies export • The MIDP allows OEMs to offset duties through exports • The Rand is overvalued, reducing the prices of imported components • The SA component manufacturers are not yet globally cost competitive
The MIDP: Duty Credits • A Duty‐Free Allowance for OEMs to import components to the value of 27% of selling price • A Duty credit certificate system which incentivises component and vehicle exports, equivalent to 14% of the local content of the exports • A Productive Asset Allowance for OEM and related component investments, equal to a duty credit of 20% All these encouraged more imports!
Component Exports (R mil) 1995
2000
389
4 683
1 019
1 915
3 282
2 898
Engines and Parts
111
485
2 938
2 470
Tyres
213
682
1 670
1 133
Silencers/Exhausts
76
377
1 900
1 696
Transmission shafts/cranks
55
127
782
415
153
362
518
447
43
146
314
305
3318
12 640
Component Catalytic Converters Seats, Stitched Leather
Automotive tooling Automotive glass Total Components
2008
2010
24 245 14 761
44 055 30 802
Car Imports - Share of market 80.00% 70.00% 60.00% 50.00% 40.00% 2005
2006
2007
2008
2009
2010
Car Imports % of market Source : NAACAM
FBU Import Duty MIDP introduced 1 September 1995 EU preferential duty rate introduced end 2006 2006: minus 2% 2007: minus 4% 2008: minus 5% 2009: minus 6%
Background and Objectives of the 2013 Automotive Production and Development Program (APDP) •
Production increase to 1.2 million vehicles per annum by 2020 with associated deepening of the components industry.
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Provide appropriate levels of support for these ambitious targets.
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Achieve better balance between domestic and export sales to supply growing domestic demand.
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Ensure consistency with WTO rules.
Background and Objectives of the APDP The APDP consists out of 4 pillars that will drive the programme: – Import Duty . – Vehicle Assembly Allowance (VAA). – Production Incentive (PI). – Automotive Investment Scheme (AIS).
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Duty
Rebates
Automotive Investment Scheme
Production Incentive
Vehicle Assembly Allowance
Import Duty taxation
APDP
Background and Objectives of the APDP
Import Duty and Assembly Allowance The New APDP will have stable, moderate import tariffs from 2013: • 25% for Completely Built Up Vehicles (CBUs). • 18% for CBU’s out of Europe via the EU preferential rate. • 20% for CKD components used by vehicle assemblers. The Vehicle Assembly Allowance (VAA) will allow vehicle manufacturers with a plant volume of at least 50,000 units per annum to import a percentage of their components duty free. • 20% of the ex‐factory price reducing to 18% over 3 years. This equates to approximately 30% of the components.
Background and Objectives of the APDP
The Production Incentive (PI) The Production Incentive will be in the form of an allowance for duty‐free importation of vehicles or components: • 55% of value added in the South African supply chain, reducing to 50% over 5 years. • Additional 5% for vulnerable sub‐sectors. = Net benefit of 11% of Value‐added, reducing to 10% It is expected to increase the depth of localisation by encouraging OEMs and suppliers to source sub‐components locally
Automotive Incentive Scheme (AIS) • AIS is part of the APDP which is to replace the MIDP in 2013 • Launched in July 2009 • Targets companies that are: – Automotive assemblers (OEM’s) – Automotive component suppliers
• Objectives: – To stimulate investment and job creation in SA’s automotive sector – Investment in technologically advanced automotive production & new and replacement models/ components – Increased plant production volumes & strengthen the automotive value chain
AIS Incentive Benefits • A taxable cash grant paid over 3 years • Base benefit calculated at 20%; • An additional 5% and 10% benefit subject to Economic Benefit Requirements • The base benefit is calculated on the investment in the following Qualifying assets that includes: – – – – – – –
Plant, Machinery, Equipment and Tooling; for example Jigs, dies, moulds; In‐plant logistics (software and hardware); Material handling equipment; Production testing and design equipment; IT equipment and supporting software. Owned land and buildings – limited to the value of investment in plant, machinery and equipment
AIS Incentive Benefits (cont) • An additional taxable cash grant of 5 or 10 percent can be granted to projects that contribute to the following economic benefits: – Substantial support for the local tooling industry – Significant Research and Development in South Africa related to the project – Maintain employment levels throughout the incentive period and or result in the creation of new jobs – Strengthening the automotive supply chain through backward and forward linkages – Substantial increase in local value addition – Increase in unit production per plant for OEM’s in line w ith vision 2020 – Increase in turnover for component manufacturers
Other dti Incentives Incentive
Benefit
Main Conditions
The Enterprise Investment Program (EIP)
The EIP (manufacturing) is a cash grant for locally based manufacturers who wish to establish a new production facility, expand an existing facility or upgrade an existing facility in the clothing and textiles sectors
the EIP will be used to stimulate investment within manufacturing and tourism, it will also be used to deliver on some of the IPAP's key performance areas, as well as priority sectors.
Foreign Investment Grant
To compensate qualifying foreign investors for the cost of moving qualifying new machinery and equipment from abroad to SA.
Foreign investors only
Industrial Development Zone
Exemption from VAT when sourcing goods and services from South African customs territory and duty-free imports of raw materials and inputs for export
Prospective IDZ operator companies must apply for permits to develop and operate an IDZ
In Conclusion • Many European OEMs and Suppliers already buy components from South Africa – more than €2 billion annually • The automotive sector is expanding its capabilities and gearing up for the higher production and localisation levels of the APDP • Ten new large multinational suppliers have started production in South Africa in past 3 years
Thank You! Roger Pitot Executive Director NAACAM •
[email protected] • 011‐3924060
