Outgoing DaimlerChrysler SA chairman Christoph Köpke says that foreign investment in the South African automotive sector could “stop dead in its tracks” if proposed changes to the Motor Industry Development Programme (MIDP) were too radical.
Outgoing DaimlerChrysler SA chairman Christoph Köpke says that foreign investment in the South African automotive sector could “stop dead in its tracks” if proposed changes to the Motor Industry Development Programme (MIDP) were too radical.
CARtoday.com reported last year that the Department of Trade and Industry would review the MIDP (which was based on the now-suspended Australian automotive industry assistance programme) with the help of that country’s government. At the time, Econometrix economist Tony Twine said changes to the plan, scheduled to be phased out by 2012, were bound to be extensive.
The DTI announced that the review would be launched in the first quarter of this year and would be completed, after consultation with representatives from the manufacturing and labour sectors of the motor industry, among others, in December 2006.
“I am extremely nervous that the basic structure of the MIDP will be tampered with,” quoted Köpke as saying in an interview last week. He added that such a move “could shake global parent companies’ confidence in the South African market and could see them halting investment– expected to be to the tune of about R15 billion in the next five years”.
For example, DaimlerChrysler AG’s investment in retooling its East London plant to manufacture the new Mercedes-Benz C-Class model from 2007 would be stopped if benefits under the MIDP were substantially reduced, Köpke said.
The MIDP was challenged last year (General Motors’ Australian subsidiary, Holden, switched from buying leather trim from a local company to a South African supplier, prompting the firm that lost the contract to lodge a complaint with the Australian government), sparking fears that significant changes could be made to the plan to bring it in line with World Trade Organisation rules.
Köpke, who will shortly become the head of DaimlerChrysler’s sales division in Germany, added that there were various ways of reforming the rules of the programme to make it fully compliant with trade regulations without detracting from its core benefits.
He said that among the changes he expected was the simplification of administration. According to the report, much fraud was committed under the MIDP’s predecessor programme, Phase Six, and in order to prevent this, burdensome mechanisms were put in place in the MIDP.
As part of successful efforts to placate the Australians, government agreed to consult the Australian government during the review. However, former BMW SA managing director and Naamsa president Ian Robertson, who will become chairman and chief executive of BMW’s Goodwood-based Rolls-Royce division on February 1, said in October that a review of the MIDP had been scheduled in line with a recommendation to the government by the motor industry development council, and not at the behest of the Australian government.
Robertson said at the time that without government support, “the motor industry will be a function of critical mass… that’s the way it has always been”.
In similar vein, Twine recently told CARtoday.com: “The fact that the review will be the product of a two-year process of extensive consultation within the motor industry indicates that the changes to the MIDP will be significant and that the benefits of the programme to the industry will in all likelihood be sequentially scaled down”.
But, given the current weakness of the dollar/strength of the rand and growing competition from manufacturers and suppliers in overseas markets, would most automotive producers in South Africa remain profitable without the MIDP in the future?
“The MIDP has in general achieved what it was set out to do… it perhaps did not generate as many jobs as many expected, but in some cases it helped to save jobs,” Twine said. “It (MIDP) was never expected to continue forever and industry is aware of that… It can be argued that if the MIDP in itself is the sole reason certain people are in business, that is not necessarily a good thing”.
