After the first half of 2009 the South African motor industry is still in dire straits on all fronts: low production volumes, poor sales and a substantial drop in exports. What is really worrying is that there does not seem to be light at the end of the tunnel, writes Roger Houghton.One hears horror stories of component makers slashing staff and working short time as they try and stay afloat, while a number have already gone to the wall. Most vehicle manufacturers are working short time or arranging mini shutdowns.
It was very concerning to hear the president and CEO of Toyota SA, Dr. Johan van Zyl, saying in his recent mid-year address to the media that he does not foresee any significant upturn for “at least the next 18 months” He added that one must “watch out for 2013”, as this could be a good year for the industry.
It is now important to know what will happen in the interim.
Initially I knew of only one industry executive who was bold enough to say what many people are talking about privately and that is whether all seven OEMs in SA can survive the tumultuous global storm that has engulfed the industry. He was the Metair chief executive, Theo Loock, who has had to slash his workforce by 2 000 people to a total of 6 500.
He said he believed that that seven OEMs currently in SA – Toyota, VW, GMSA, Ford, Nissan/Renault, Daimler and BMW – could be trimmed to three or four in the future. Now that all our OEMs are controlled outside SA this is a decision that will be made in some faraway boardroom. This is a scary thought as the loss of any of the OEM vehicle manufacturers impacts negatively on the component makers in terms of their economies-of-scale, many of whom are already at risk and several have gone out of business already.
Looking at what is happening in other parts of the world, it is possible that some SA manufacturers will become importers and distributors in the future. We have been through this type of thinning out process previously when several makers left the SA shores for political reasons in the 1970s and ‘80s.
There are the usual assurances that “we are here to stay” from many of the marginal operations. We heard that in the ‘70s and ‘80s too, often just before some of their senior execs boarded aircraft to return to their home countries!
At the moment there have not been any announcements of companies preparing to close their SA operations – be they manufacturers or distributors – but studying the latest NAAMSA figures shows woeful sales figures that must be resulting in huge financial losses and it is now a question of how long they – or their mother companies – can withstand the pain.
Recently another voice was added to that of Theo Loock when the president and chairperson of Mercedes-Benz A, Dr. Hansgeorg Niefer, said that the danger of SA losing vehicle and component manufacturing capacity to other destinations in the world had never been so high.
He says he is growing increasingly concerned that doing business in SA “seems to be becoming more and more expensive.” He quotes developments such as the huge electricity cost hike, increasing fees from port and rail authorities, while their productivity remains low.
“We have to face reality. In the international space, in the slow market, there is spare capacity available. This can impact not only on OEMs but also on the component supplier base.”
GMSA Chairman and CEO, Steve Koch, fanned the fire further when he posed the question at a recent media briefing, asking whether SA would ever reach one million units a year production in a year. General consensus was that this aim could now remain a dream as the global industry restructured and the tip of Africa was no longer high on agendas of countries as the place to make vehicles for export.
One of the reasons is the need to bring a large proportion of components all the way from other countries to this destination – far from world markets – and then they have to be shipped back assembled in a car or bakkie.
Job losses in the local automotive industry are estimated at more than 35 000 already and many automotive companies and dealerships have closed too.
The position is more serious than ever before in the history of the local industry and .the companies are very vulnerable as they are geared up for high level production of only a few models and with related component requirements; they can no longer spread production over a variety of models as was the case in the past.
There was a slight improvement in sales in June, but at the halfway mark in 2009 the total number of units sold stands at only 190 245 units, which is a decline of 33,8 per cent compared to the 287 454 units retailed in the corresponding six months of last year.
Lower levels of demand in South Africa’s major export markets had contributed to a huge decline of 52,5 per cent in the number of built-up vehicles shipped in June, which has exacerbated the tight situation for both manufacturers and component suppliers in terms of a lack of demand.
It is not only the difficulty of sourcing customer finance to buy a new vehicle that is slowing the sales temp, but new car price inflation is also playing a role in lessening demand. It remained at 11,3 per cent in the second quarter of 2009, the highest level in six years, according to TransUnion Auto Information.
TOTAL MARKET
As mentioned earlier, the total vehicle market (including non-reporters to NAAMSA) slumped 33,8 per cent year-on-year for the first six months, while the sale of passenger cars was down by 29,9 per cent and LCVs dropped 40 per cent in this six-month period.
The YTD total truck and bus market was down 48,2 per cent, with mediums decreasing by 44,1 per cent, heavies by 43,4 per cent, extra-heavies by an alarming 57 per cent (this segment had remained buoyant longer than any other) and the comparatively small bus market was down 20,7 per cent.
Toyota remains the market leader by a comfortable margin in the total market, with a 25,3 per cent share, which was marginally down on the situation a year previously. The next seven companies retained their rankings as at June last year, namely, Volkswagen, GMSA, Ford, Mercedes-Benz, Nissan, BMW and Honda. Despite all the negative publicity about its parents woes in the US, Chrysler SA moved up to ninth, displacing Tata, with Renault taking over 10th spot from Land Rover/Jaguar.
The biggest loser in total market share was GMSA (down 1,6 per cent to 12,1 per cent) while most of the other companies were fairly stable, all within one percent of their share a year earlier.
PASSENGER CARS
Volkswagen and Toyota are having their usual battle for top place in the prestigious passenger car sales table but this year roles are reversed. VW is now ahead of Toyota with a gap of 2 421 units, compared to a difference of 1 034 units in favour of Toyota at last year’s halfway mark.
There have been changes in most of the other rankings in the top 10 too. Ford has moved up from fourth to third, swopping with Mercedes-Benz, with BMW and GMSA doing the same thing, this time with BMW in fifth and GMSA in sixth. Nissan and Honda have retained their seventh and eighth positions, while Chrysler SA has moved up from 10th at the halfway mark in 2008 to displace Jaguar/Land Rover from ninth spot, pushing the Indian-owned twosome down to 11th. Renault returned to the top 10 in 10th spot.
The VW Polo and Polo Classic continue to retain the position as SA’s favourite car range, but the duo has lost 0,5 per cent in share, going from 9.4 per cent to 8,9 per cent. But that still keeps it well ahead of the second-placed Toyota Yaris (also down 1,5 per cent, slipping to 6,8 per cent). Amazingly, the relatively costly Mercedes-Benz C-Class retains third spot, ahead of the VW CitiGolf. BMW stayed in fifth position, while the new Ford Fiesta jumped up into sixth spot, where it replaced the Opel Corsa.
The Corolla/Auris/Verso trio are now in seventh position after sharing second spot in the popularity stakes with the Yaris in the middle of last year. Fortuner has moved up a position to eighth. Ninth after six months of 2009 is the Golf/Jetta, which has yet to feel the benefit of the new Golf 6 range, with the Audi A4 completing the top 10.
LIGHT COMMERCIAL VEHICLES (Up to 3 500kg GVM)
The light commercial vehicle (LCV) market continues to take strain, but here again it is Toyota that is head and shoulders above the opposition with its top-selling Hilux one-tonner and Quantum mini-bus. Even without the weaponry of a half-ton bakkie the market leader increased its share of the LCV segment by a massive 5,4 per cent on sales of 19 984 units, which equated to a 37,8 per cent market share.
GMSA’s Isuzu KB and Corsa Utility kept GMSA in second spot, despite a fall of 1.6 per cent in share. Ford shed 1.1 per cent in share, but held on to third spot, ahead of Nissan, which improved penetration by 2 per cent. Mercedes-Benz and Volkswagen retained fifth and sixth positions, although both lost share – 1,8 per cent and 0,2 per cent respectively.
Fiat has moved up from ninth to seventh (previously held by Chana), with Tata recovering to eighth from 10th at this stage last year. GoNow was in ninth (eighth last year) and McCarthy in 10th with its Chinese offerings.
An interesting titbit from the LCV sales is how Chana has lost favour, going from selling 1 384 units in the first half of 2008 to retailing only 143 units in the first six months of this year – a fall of almost 90 per cent! Fortunately for the distributor of the first Chinese vehicles to be marketed in SA – exhibited at Auto Africa 2006 in the October of that year – it has now been given a lifeline by Chinese government agencies, with investment of $80m planned for the next five years.
GoNow is another Chinese brand that is feeling the heat, with year-on-year sales for the first half of 2009 71.6 per cent down (383 vs. 1 347) and it also faces substantial costs as it recalls vehicles that do not comply with SABS homologation requirements.
MEDIUM COMMERCIAL VEHCILES (3 501 – 8 500kg GVM)
The major news in the medium truck market, which has fallen 44,1 per cent year-on-year, is the big tumble taken by Tata. During this period it has fallen from third (behind the Toyota Dyna and Mercedes-Benz Sprinter) to eighth, with volume falling from 756 units in the first half of 2008 to only 196 sales for the same period this year. This equated to a loss of 5,8 per cent in market share and almost 75 per cent in volume.
Another big fall was that recorded by Iveco that dropped from sixth to ninth and lost 5,6 per cent in share. On the other side there were significant gains from Isuzu (up 3,6 per cent), Nissan Diesel (up 2,7 per cent), Volkswagen (up 1,4 per cent), Fuso (up 1,9 per cent) and the perennial leader in this segment, Toyota Trucks (now trading as Hino and showing an improvement in penetration of 1,4 per cent).
HEAVY TRUCKS (8 501 – 16 500kg GVM)
Toyota Trucks (now Hino) continued to head up the sales list in the heavy truck market and increased its share by 4,4 per cent to boot, moving up to an even more dominant 30,4 per cent. GMSA’s new Isuzu range is proving popular and it maintained second place, but grew share by 6,1 per cent to 25,6 per cent, with Nissan Diesel improving its share by 2,3 per cent to 22 per cent as it strengthened its hold on third spot.
Both Mitsubishi Fuso and Mercedes-Benz overtook Tata, which had been in fourth position at the end of the first six months in 2008. The penetration of both Fuso and Mercedes-Benz were down (0,6 per cent and 3,2 per cent respectively), but this was nothing to the fall of 7 per cent by Tata, which equated to a drop of almost 75 per cent in volume.
EXTRA-HEAVY TRUCKS (OVER 16 500kg GVM)
The Extra-heavy or premium truck category that had held out resiliently as most other segments fell, has now fallen harder than most sectors with year-on-year sales levels slumping by 57 per cent.
Mercedes-Benz continued its dominance and grew its market share by 3,4 per cent to 23,2 per cent but behind the long time leader is a tough battle for runner-up position between four brands – MAN, Nissan Diesel, Freightliner and Volvo – with only 78 units separating second and fifth! Then come the “also rans” in the order Scania, International, Hino, Isuzu and Tata.
At the middle of last year the picture looked completely different. At that stage Freightliner was in second, followed by MAN, Nissan Diesel and Volvo, with the other five significant players in this segment ranked Tata, Scania, International, Hino and Super Group’s Powerstar.
Scania, Mercedes-Benz and Volvo have been the biggest winners in this period, moving up their share by 3,8 per cent, 3,4 per cent and 2,7 per cent respectively. In contrast the big losers were Tata and Iveco (both down 2,9 per cent). Once again it seems customers are sticking to the proven brands in these tight financial times..
BUSES (Over 16 500kg GVM)
Bus sales continue to remain disappointingly low, as the expected BRT/Confederation’s Cup/World Cup bonanza seems slow in arriving. Sales for the first six months this year are, in fact, below the 2008 figure, even though it is only by a 39 unit margin.
The rankings in this sector are very volatile as one big order can make a big difference to a company’s sales performance. MAN has held onto top slot, but Iveco jumped from fifth to second, with Mercedes-Benz slipping from second to third, ahead of Scania, which had been in third place 12 months earlier. The Volksbus was fifth (down from fourth in 2008) and it will be interesting to see what happens to this brand now that VW heavy commercials has merged with MAN.
LOOKING AHEAD
NAAMSA says that any improvement in the automotive industry’s domestic operating environment will depend on a revival in consumer spending on the back of lower interest rates, as well as on any stimulatory government expenditure.
Most current indicators continue to reflect an economy under pressure, although there were some signs of an improvement in certain sectors of the economy. I t is anticipated that new vehicle sales volumes would start to consolidate at current levels in the coming months, with an improvement in domestic sales materialising towards the end of 2009 and into 2010.
