Motor company CEOs are understandably nervous about the immediate future for their industry. Only a tiny minority believe jobs and investments will improve in the coming months and there is pessimism about general business conditions.
The good news is that they believe vehicle production will grow, driven mainly by increased export demand. In the first quarter of this year, manufacturing capacity utilisation for all vehicle categories — cars and various sizes of commercial vehicles — was higher than in 2022. More importantly, it also outperformed 2019, before Covid.
In its just-published quarterly report for the first three months of 2023, Naamsa says its latest CEOs confidence index — representing the views of car and commercial vehicle manufacturers, as well as importers — “reflects a pessimistic outlook for nearly all the automotive industry’s key performance indicators” over the period to end-September.
It adds: “Business conditions are expected to remain extremely challenging over the short to medium term.” In addition to rising interest rates, “the knock-on effect of electricity supply shortages on the economy and business confidence is of major cost concern”.
Export optimism is reflected in the fact that 54% of CEOs think exports and aggregate industry vehicle production will grow. Fewer than half, however, expect domestic sales or general business conditions to improve. Only 8% expect the creation of new jobs and 7% predict an improvement in investment spending.
Export growth in the first quarter of this year came from unexpected quarters: Asia and South America, by 15.4% and 21.9% respectively. But South America is the smallest regional market for South African-made vehicles. Asia is the second largest but is dwarfed by Europe and the UK, which collectively swallowed more than 75% of South African exports between January and March.
Their demand fell by 1.6% compared to the corresponding period of 2022. Together with a 13.9% decline in sales to Africa, 38.2% to North America, 13% to Australasia and 22% to Central America, the combined effect was a 4% drop in total exports, from 88,363 to 84,811.
Since April, however, exports have rallied strongly and the industry is confident that full-year numbers will exceed those of 2022. Naamsa expects growth from 351,786 to 380,900, rising to 401,000 in 2024.
Agoa is one of the key reasons components exports have found a home there. Without Agoa, large-scale exports will be at risk
— Renai Moothilal
Cynics suggest that the sharp first-quarter drop in North American exports, almost all to the US, may be a blessing in disguise, by reducing South African dependence on the US market at a time of diplomatic tension between the two countries over South Africa’s relations with Russia.
This tension has sharpened recently with accusations that South Africa is strengthening military ties with Russia, including the supply of weapons to Moscow. There are fears that these actions, at a time when many other countries are isolating Russia because of its invasion of Ukraine, could result in South Africa being excluded from the US African Growth & Opportunity Act (Agoa), which currently allows certain South African-made goods, including vehicles, to land duty-free in the US.
Whether the first-quarter export drop to the US reflects a longer-term trend remains to be seen. The Automotive Industry Export Council reports that in 2022, South African exports of cars and bakkies to the US more than doubled, to 20,566. They were also 50% more than the 2019 pre-Covid figure.
The 2022 value of those exports was R15.3bn. Add in vehicle components for US vehicle assembly lines, and the total value of South African automotive exports to the US last year was R24.1bn. In 2021, it was R18.8bn. The US ranks second only to Germany as the South African motor industry’s biggest export market.
Renai Moothilal, director of the National Association of Automotive Component & Allied Manufacturers, says the loss of Agoa access would be a body blow to his members.
“The US is an important destination for us,” he says. “Agoa is one of the key reasons components exports have found a home there. Without Agoa, large-scale exports will be at risk.”
These exports include parts for both internal combustion engines and electric vehicles. “The US has become proportionately more important to us, for both technologies,” says Moothilal.
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