JOHANNESBURG - South Africa faces an uphill battle if it is to achieve its recently restated aim of making the country a base for vehicle manufacturing and significant exporting.
Its Motor Industry Development Program is undergoing a midterm review after three years, but it is already evident that the government is determined to stick to its guns of throwing the industry wide open to the winds of international competition.
The government began its attempt to make the South African automotive industry internationally competitive - after many years of isolation had led to a lazy and inefficient attitude - by slashing import penalties. This has led to a proliferation of new models, enabling South African car buyers for the first time to choose among the latest models available worldwide.
Domestic manufacturers have had to respond to this challenge by improving productivity, quality and the attractiveness of their model ranges. Local industry experts forecast that up to three of the country's seven local assemblers could fall victim to the increased competition.
Although other developing countries have hesitated to implement their own sink-or-swim programs for fear of losing momentum in the struggle against recession, the South African Department of Trade and Industry is determined to proceed.
Change is coming
The South African automotive industry is the fifth-largest employer in a country with around 30 percent unemployment. Despite the risk of triggering more job losses, Trade and Industry official Gerhard Stander stressed that the government is committed to guiding the industry toward a change in production values.
'Companies need stability of policies,' he said. 'Our track record proves we will not simply look to the short term.'
It is a policy with which the country's parts makers agree.
'Over the next five years, we hope to see a move from the sale of a wide range of different model variants, each in limited numbers, toward the manufacture, at world-competitive prices, of a more limited number of models in significant volumes,' said Clive Williams, executive director of the group. 'We expect that a large part of this output would be exported.'
Williams was adamant that change is just around the corner.
'It will happen,' he insisted.
There already are some encouraging signs that South African factories are being viewed as internationally competitive, at least on quality.
The value of component exports rose from the equivalent of $640 million in 1994 to $875 million in 1997, after correcting for the slide of the rand during the period.
Ford Motor Co., which operates in partnership with the SAMCOR Group in South Africa, has been exporting engines back to the United States for more than a year.
BMW plans to increase production of the 3 series in South Africa to supply an estimated 25,000 units per year to other right-hand-drive markets.
Similarly, Volkswagen South Africa will supply 8,000 new Golfs to the British market this year to help ease the capacity crunch at VW's main plant in Wolfsburg, Germany, and will assemble 120,000 over the next two years, mostly for export.
This will do little to benefit local suppliers at first, though, because the cars will be assembled from
complete knockdown kits.
'Subject to feasibility, it is a priority for us to build up local content,' said VW spokesman Matt Gennrich. 'But at first, there are certain problems to overcome.'
Flexibility a plus
At 60,000 units a year, VW is offering suppliers a target with sufficient economies of scale to make investment for modernization and expansion feasible - the basis of Williams' argument. But he admitted the ability to produce small (by world standards) volumes using highly flexible manufacturing methods remains one of the strengths of the South African industry.
A good example is Tiger Wheels, which exports most of its production to Europe for the aftermarket. Wheels are a fashion item, and Tiger, well up on its technology, is able to react fast, producing small numbers and changing rapidly to the latest designs.
Another plus for the South African industry is its proximity to an abundance of raw materials.
By mid-1999, about 10 percent of the world's catalytic converters will be supplied from the country. Around 80 percent of leather seating for German-built BMWs is made there. The vast aluminum complex at Bayside stands to benefit as car designers make increasing use of the material to save weight.
Across the border in Botswana, but within the Southern African Customs Union, the Wheels of Africa factory that produces small volumes of Volvos on the same line as Hyundais is attracting the attention of senior executives in Sweden for potential development. Renault also is known to be prospecting in the area, following the recent success in South Africa of its Megane range.
Market is elsewhere
But South Africa has to be seen in the context of its potential markets and the competitors for those markets.
Excluding light-commercial vehicles, the entire African continent consists of a market of only around 600,000 units a year, of which around 250,000 go to Egypt in the north and another 250,000 go to South Africa in the south. In between lies a market of only 100,000 units, one not forecast to grow in the coming years.
Most other right-drive markets increasingly are supplied from the Far East, notably Thailand as Japan declines in cost-competitiveness. Even in the United Kingdom, the Nissan and Toyota plants have more than enough capacity; only the Germans are hard pressed to meet demand.
So the most realistic opportunity for South Africa appears to be the production and export of high-quality, mid-to-low volumes of components and subassemblies to Europe and North America.
This and the removal of all impediments to foreign investment in local companies, together with the country's world-class financial and banking infrastructure, have prompted a flood of ventures.
This makes it crucial for the automakers to prune their model ranges to gain economies of scale for themselves and their suppliers.