The fundamental challenge many vehicle assembly operations in South Africa currently face is that their operations are becoming less vital to the success of their parent companies.

This is linked to competitiveness challenges in South Africa, says African Industrialisation Services director and Gordon Institute of Business Science (GIBS) associate professor Justin Barnes.

“South Africa has a very advanced vehicle production base, but that base is both export-oriented and dependent on the performance of the domestic market. These two aspects are inextricably linked through the workings of government’s Automotive Production and Development Programme (APDP).

“We have a domestic market that is smaller now than it was in 2006, and we have local and national infrastructure which has deteriorated at exactly the same time that we have seen tremendous improvement in other emerging regions of the global automotive industry.”

Barnes was responsible for the creation of the manufacturing-focused MBA stream at GIBS and is also an architect of the APDP.

South Africa has seven light vehicle assemblers – Ford, Mercedes-Benz, Nissan, BMW, Toyota, Volkswagen and Isuzu – which are owned and operated by their respective parent companies in the US, Germany and Japan.

The auto industry is the country’s biggest manufacturing sector.

In South Africa, the Nissan plant is under threat of closure and Mercedes-Benz has suspended production from late June to August 1. (Read article elsewhere on Engineering News Online.)

Globally, traditional vehicle manufacturers (original-equipment manufacturers, or OEMs) are facing increasing pressure from a rapidly rising Chinese auto sector, the change-over to clean energy vehicles and the threat of US tariffs inflating the cost of doing business.

Some OEMs are faring better than their competitors. Nissan is in a fair amount of trouble globally, for example, while others are trimming their operations to align their supply capacity with anticipated demand.

“The South African operations are slipping down their global family ladders,” notes Barnes.

“What that means is that where the South African operations were once firmly among the better performers in their global families – or at least, average in some cases – they are now performing at the lower end of the global operations log.

“This is not due to problems at the plants, but to problems with South Africa’s infrastructure – power, roads, ports, rail and water – that all play a role in getting vehicles to market and components to plants.

“What we essentially have is very advanced vehicle assembly operations with some very advanced component manufacturers operating in a not-so-advanced domestic ecosystem,” explains Barnes.

“Unfortunately, those chickens are now all coming home to roost – which basically means that if there are global volume problems at an OEM, and the OEM needs to correct their global position, the South African operations step into the firing line.

“This is the problem we are likely to experience across the board, and unless we get our act together and position ourselves more effectively in the global value chain, our automotive industry has become quite vulnerable.

“We are competing in a complex value chain in which there are major shifts occurring, and because we are moving to the margins of the global value chain, we are unfortunately vulnerable to how the incumbent players who are based in South Africa respond to these global pressures when looking at their spread of international assets.”

BEE, Local Government Challenges
Barnes says South Africa’s automotive industry could have an important role to play in a rapidly changing global environment. However, this is only possible if the country improves its infrastructure and skills pipeline, and if it stops enforcing empowerment and equity demands on multinational companies.

“Black economic empowerment (BEE) codes in their present form act as a huge constraint on multinational companies.

“Yes, the country desperately needs transformation, but unfortunately the existing BEE framework has an impact on the global competitiveness of firms. They are subjected to pretty onerous requirements, making it difficult to operate in the country.”

The South African automotive industry is “now very exposed”, warns Barnes.

“It is clear we are facing some seriously daunting challenges going forward, all of which we can deal with if we get our act together – but we are not.

“The firms themselves continue to make progress in their own operations, but it’s hard to compete when there are so many failures at provincial, national, and especially local government levels.”