The Automotive Supplier Sector

1. IPAP 2012/20 The Automotive Supplier Sector Presentation to the Portfolio Committee on Trade and Industry Mpueleng Pooe, NAACAM

2. IPAP 2012/20 NAACAM and the Sector • NAACAM is the Association representing the Automotive Suppliers in South Africa, with 180 member companies • Suppliers produce OE Components – those which go into the making of a vehicle - as well as spare parts • 35% of production is sold to local vehicle assemblers (OEMs), 45% is exported, mainly to overseas OEMs, and 20% is for local spare parts

3. IPAP 2012/20 Some Supplier Statistics • Production last year was valued at almost R75 billion, 10% up on 2010, but still well below 2008 levels • The employment of suppliers is just over 69,000, down from a peak of 82,000 at the beginning of 2008 • Despite this decline, supplier employment is more than double that of the OEMs, and it is in our sector where the greatest job opportunities lie. • More than half the locally-owned suppliers and sub-suppliers are SMMEs

4. IPAP 2012/20 Component and Parts Exports - 2011 • Catalytic Converters R19.6 billion • Engines and engine parts R2,9 billion • Leather seat parts R2,2 billion • Exhausts/Silencers R2,1 billion • Tyres R1,17billion • 16 more categories over R100 million each • Total Component/Parts Exports were R38,8 billion Destinations: EU R26 bn Africa R3,9 bn USA R3,4 bn Brazil R930 m Mexico R590 m Japan R440 m S. Korea, China and India each over R260 million.

5. IPAP 2012/20 The Decline of Local Content Local Content in vehicles has declined in recent years: • The MIDP (and APDP) structure allows OEMs to use duty credits to import components duty-free • OEMs are using more multinational suppliers, many of whom assemble components from imported sub-components thus eroding local sub-supplier capabilities • Our cost competitiveness has deteriorated The 2011 industry trade deficit (including vehicles) was R39 billion We need OEMs and suppliers to commit to localisation in return for incentives received

6. IPAP 2012/20 Global Competitiveness • Decisions on vehicle and component production and sourcing are made globally, mainly on price • Local production volumes are very low by global measures (SA less than 1%) limiting economies of scale • Competitiveness is being eroded by cost increases beyond our control: • electricity (including municipal markups and punitive peak charges) now more expensive than Germany • wages above inflation without productivity improvements • logistics • monopolistic material suppliers and exports of scrap • strong and volatile currency

7. IPAP 2012/20 Global Competitiveness (cont.) • Our ports are the most expensive in the world because of low productivity and the cargo dues • Significant artisan shortages force premium pay (for example 7 X Thailand) • Port and rail inefficiencies cause congestions and costly safety stock requirements • Subsidies, low wages and higher productivity in several low-cost countries enables them to actually reduce their costs and these are often the target given to local suppliers to match . These subsidies are recognised by many countries who impose additional duties on subsidised parts.

8. IPAP 2012/20 The Growth of Imports • Imported Cars now make up 70% of the market (from 31% in 2003), the highest in the world (with Australia) of any car-producing country outside of economic blocs • SA import duties of 25% are lower than almost all developing countries, and the same as China, which produces 25 times the vehicles we do, and the same as the USA duty on pickups (they produce 5 million), Furthermore we are the only country where duties can be fully rebated by credits. • Most spare parts for these cars are also imported • Government procurement preference for local buses should be extended to all vehicles

9. IPAP 2012/20 The APDP – 2013 to 2020 • The objectives are to double vehicle production to 1.2 million, and to substantially increase localisation, with associated employment creation, however: • There is no volume incentive in the APDP, with OEMs earning the maximum Vehicle Assembly Allowance (VAA) at 50,000 annual production per company • The Production Incentive (PI), given on local value added in the form of a duty credit, is smaller than the VAA and is also given on vehicles exported on which no component import duty is even paid. Therefore the more vehicles exported, the more duty credits will be available to offset duty on components imported for vehicles produced for the local market. • Clearly the APDP parameters need to be revised urgently

10. IPAP 2012/20 Summary • The automotive suppliers are facing their toughest period because of the global nature of the sector • The anomalies in the APDP from 2013 could prevent the long-term objectives being achieved • We fully endorse the IPAP general support measures • In this regard we emphasise the importance of addressing the barriers to competitiveness, infrastructure investment, monopolistic practices, facilitating improved productivity and skills development • Need to have a more competitive and stable currency • Our sector in turn will focus on improving competitiveness through structured programs Thank You!