NATIONAL ASSOCIATION OF AUTOMOBILE MANUFACTURERS OF SOUTH AFRICA

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1 NATIONAL ASSOCIATION OF AUTOMOBILE MANUFACTURERS OF SOUTH AFRICA GROUND FLOOR, BUILDING F ALENTI OFFICE PARK 457 WITHERITE ROAD, THE WILLOWS, X82 PRETORIA PO BOX 40611, ARCADIA 0007 TELEPHONE: (012) / FAX: (012) WEB ADDRESS: ADDRESS: naamsa@iafrica.com N8/1 ( ) 19 th May, 2014 REPRESENTATIVES AT GENERAL MEETINGS RECIPIENTS OF NAAMSA MEDIA RELEASES Ladies and Gentlemen QUARTERLY REVIEW OF BUSINESS CONDITIONS: MOTOR VEHICLE MANUFACTURING INDUSTRY / AUTOMOTIVE SECTOR: 1 ST QUARTER 2014 Attached, for information purposes, is a copy of NAAMSA s quarterly review of business conditions for the South African motor vehicle manufacturing Industry, during the first quarter of 2014, as submitted to the Director-General, Department of Trade and Industry. Updated Industry vehicle sales, export and import statistics for 2014 and 2015 are reflected on the attachment to the submission. Key features: First Quarter 2014 Aggregate Industry employment levels increased by 47 jobs to reach positions 2014 Industry capital expenditure projected at a record R million Industry capacity utilisation levels reflect a mixed picture with new car manufacturing under some pressure but strong performances by the commercial vehicle sector Domestic new vehicle sales showed further moderation in growth momentum 2013 SA Automotive exports components and vehicles exceeded R102 billion, accounting for 11.1% of total SA exports for the year 2014 Industry aggregate production figures revised downwards by about units. Industry production expected to rise significantly particularly light commercial vehicles over the next few years on the back of the Automotive Production Development Programme Following four successive years of growth in domestic new vehicles, prospects for 2014 will be affected by subdued economic growth, above average new vehicle price inflation and higher interest rates New vehicle sales projections have been revised downwards NAAMSA OFFICES: PRETORIA 1

2 NATIONAL ASSOCIATION OF AUTOMOBILE MANUFACTURERS OF SOUTH AFRICA GROUND FLOOR, BUILDING F ALENTI OFFICE PARK 457 WITHERITE ROAD, THE WILLOWS, X82 PRETORIA PO BOX 40611, ARCADIA 0007 TELEPHONE: (012) / FAX: (012) WEB ADDRESS: ADDRESS: naamsa@iafrica.com The Director-General: Mr L October Department of Trade and Industry Private Bag X84 PRETORIA th May, 2014 Dear Sir QUARTERLY REVIEW OF BUSINESS CONDITIONS: NEW VEHICLE MANUFACTURING INDUSTRY / AUTOMOTIVE SECTOR: QUARTER ENDED 31 ST MARCH, 2014 NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing Industry and the automotive sector during the first quarter of EMPLOYMENT LEVELS AND TRENDS The number of persons employed by the South African new vehicle manufacturing industry comprising the major new vehicle manufacturers and specialist commercial vehicle and bus manufacturers during the first quarter of 2014 may be set out as follows Industry Total Last pay week January, Last pay week February, Last pay week March, Industry employment levels and trends reflect employees on the payroll of vehicle manufacturers / automotive companies. Aggregate Industry employment as at 31 st March, 2014 totalled positions reflecting an increase of 47 jobs or 0.2% compared to the Industry head count as at the end of Employment levels at the vehicle manufacturing facilities remained stable during the quarter. Employment levels should remain stable at current levels and could increase, over the medium term, as manufacturers ramp up production for export markets. 2

3 The average monthly Industry employment number for 2014 was compared to in 2013, in 2012 and in NUMBER OF SHIFTS An increasing number of manufacturers operate double shifts in selected areas such as machining, press shops, paint shop operations and body shop. One manufacturer operates on a three shift basis. Other manufacturers are considering three shift operations. 3. AVAILABILITY AND PRICE TRENDS OF COMPONENTS AND RAW MATERIALS 3.1 COMPONENTS Imported Components The availability and supply of imported original equipment components, during the first quarter of 2014, generally remained good. Prices of imported components in foreign currency remained relatively stable, however, landed costs of components were affected by exchange rate weakness. Local Components During the first quarter of 2014, the availability and supply of locally produced components, in general terms, was satisfactory. The imported content in locally produced components was negatively affected by exchange rate depreciation resulting in upward price pressure. 3.2 RAW MATERIALS Imported Materials The availability of imported raw materials, where applicable, remained satisfactory. Pricing trends remain a function of exchange rate movements and commodity prices. Increases in prices of natural rubber and steel were reported. Local Materials Local raw material price movements were affected by exchange rate and commodity price movements. Average prices of local steel rose about 7.2% during the quarter. 3

4 4. UTILISATION OF PRODUCTION CAPACITY: Average motor vehicle assembly Industry capacity utilisation levels, by sector and for the years/quarters indicated, may be illustrated as follows st Quarter th Qtr 2013 Range ( High ) (Low) Cars 67.7% 68.3% 59.4% 77.1% 81.6% 86.5% 68.0% 65.0% 100.0% 18.0% Light Commercials Medium Commercials Heavy Commercials 82.7% 73.9% 56.5% 68.4% 73.5% 87.8% 75.3% 87.1% 100.0% 72.0% 91.7% 89.9% 64.6% 77.2% 88.4% 84.3% 59.8% 77.6% 100.0% 66.0% 95.3% 87.6% 66.1% 77.5% 89.9% 86.9% 69.3% 79.3% 100.0% 67.0% 2013 Industry average capacity utilisation levels were affected by the seven week industrial action experienced during the third quarter of last year. With the exception of capacity utilization in the new car manufacturing segment which was dragged down by low capacity utilization by one manufacturer, all other three sectors registered further recovery. Current installed production capacity at the major car and light commercial vehicle producers is about vehicles per annum. 5. NEW INVESTMENT / INVESTMENT APPROVALS: 2014 ACTUAL AND 2015 PROJECTION NAAMSA reports the industry s aggregate capital expenditure on an annual basis. The aggregated data is based on Capital Expenditure details supplied by the seven major vehicle manufacturers and various truck producers. Details of actual Industry capex for 2006 through 2014, in Rand millions, as well as the projection for 2015 are as follows Capital Expenditure Product/Local/Content/ Export Investment/ Production Facilities 2014 Projection Land and Buildings Support Infrastructure (I.T., R&D, Technical, etc.) Total A proportion of capital expenditure originally earmarked for 2013 has been carried forward to 2014 resulting in a record projected Industry Capital Expenditure of R million for Relatively high levels in capital expenditure in recent and particularly future years may be attributed in large part to Investment Projects by manufacturers in terms of the Automotive Production and Development Programme (APDP). 4

5 6. BUSINESS CONDITIONS AND PERFORMANCE INDICATORS Business Conditions: First quarter, First quarter aggregate Industry new car sales at units recorded a decline of units or a fall of 5.5% compared to the new cars sold during the corresponding quarter of Aggregate Industry commercial vehicle sales during the first quarter of 2014 at units recorded an increase of 400 units or a gain of 0.7% compared to the units sold during the first quarter of Industry Domestic Sales Growth: Direction and Extent of Change (previous quarter s percentage changes are reflected in brackets) Qtr ended 31 March 2014 compared with previous Qtr ended 31 December 2013 Qtr ended 31 March 2014 compared with corresponding Qtr ended 31 March 2013 Passenger Cars +2.5% (-10.4%) -5.5% (+10.8%) Light Commercial vehicles % (-8.7%) -0.1% (+5.0%) Medium Commercial vehicles -7.5% (-0.3%) 0.0% (+21.9%) Heavy Commercial vehicles -7.2% (-5.9%) +10.2% (+12.9%) On a year on year comparative basis, the consumer driven new car market registered weakness whilst the investment led vehicle sectors held up relatively well with the heavy truck segment showing good growth. Highlights of the Auto Industry 2013 export / trade performance During 2013, total automotive Industry exports increased by R7.8 billion or 8.2% to R102.7 billion from R94.9 billion in This is the first time that the Industry exceeded the R100 billion export level. Right as well as left hand drive vehicles and automotive components were exported to 152 countries in The Industry s top markets in value terms were Germany with R19.1 billion followed by the USA with R18.7 billion. The import value of vehicle and automotive component imports under the Automotive Production Development Programme (APDP) in 2013 amounted to R126.7 billion. The import value of vehicles amounted to R63.6 billion compared to the export value of vehicles of R60.5 billion. In 2013, 51 brands and passenger car model derivatives were available in the domestic market. India with units was the main country of origin for imported passenger cars and light commercial vehicles in Imports from India mainly consisted of small cars including the Toyota Etios, Ford Figo, Nissan Micra and Hyundai i10. Imports of original equipment components used to manufacture the vehicles amounted to R59 billion and originated mainly from Germany, Japan and Thailand. Capital intensive components such as engines, gear boxes and electronic components are mainly imported automotive exports components and vehicles accounted for 11.1% of SA total exports. The automotive Industry accounts for about 30% of South Africa s manufacturing output. Although South Africa produced 72% of Africa's vehicle production in 2013, the Industry remains relatively small in global context and was ranked 24 th in respect of global vehicle manufacturing with a global market share of 0.63%. The South African automotive Industry s significance is premised on its overall contribution to the economy, export earnings, investments, employment, GDP contribution and multiplier effect in the economy. Further information and data on Industry exports and trade is available from the NAAMSA Office. 5

6 Outlook In the case of domestic sales, prospects for the balance of the year will be affected by subdued economic growth, exchange rate induced above inflation new vehicle price increases and further upward pressure on interest rates. Consumer sentiment remains under pressure due to high levels of indebtedness, escalating energy and transport costs and in Gauteng, e-tolling. These factors would influence consumer demand, principally in the case of the new car market. Domestic trading conditions were anticipated to remain difficult with pressure on margins, particularly in the new car and light commercial vehicle sectors. As a result of the challenging macro-economic environment, NAAMSA now anticipated that the domestic market in 2014 was likely to register a decline, in aggregate terms, of around 3.5% compared to Pressure on disposable income was likely to cause consumers to delay replacement and opt for used vehicles. Incentives and discounting by dealers, prevalent over the past few years, was likely to be scaled back as the weaker Rand exerted pressure on margins. Moreover, local energy supply concerns will also impact on the economy. Vehicle exports were expected to benefit from improving global economic conditions and from the middle of 2014, with the added contribution of Mercedes-Benz C-Class exports, were expected to resume upward momentum particularly in respect of exports to Asia, Europe and Africa. In view of the above, Industry sales and production projections had been revised downwards. The standard attached schedule reflects latest projections of Industry sales, production, exports and imports. Projections include forecasts for the years 2014 and N.M.W. VERMEULEN DIRECTOR 6