NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the third quarter of 2004.

1.   EMPLOYMENT LEVELS AND TRENDS

The number of persons employed by the South African new vehicle manufacturing industry – comprising seven major new vehicle manufacturers and eight specialist commercial vehicle manufacturers – during the third quarter of 2004 may be set out as follows –                                                                                                      

Compared to the 31 708 positions at the end of June, 2004, aggregate industry employment levels increased by 705 jobs during the third quarter of 2004 to reach a total of 32 413 jobs. The monthly average industry employment complement during calendar 2003 was 31 599.

During the third quarter of 2004, headcount at four of the industry's major manufactures increased. Since the beginning of the year, 1 519 new positions were created in the industry - an improvement of 4,9%.

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2.   NUMBER OF SHIFTS

Various manufacturers operate on a multi-shift basis in the production of vehicles and components for domestic and export markets. 

The balance of the industry operates on a single production shift basis, however, a number of these manufacturers operate double shifts in selected areas. (Machining areas, press shops, paint shop operations and body shop).                     

3.   AVAILABILITY AND PRICE TRENDS OF COMPONENTS AND RAW MATERIALS

3.1     COMPONENTS

(i)       Imported Components

Overall, the availability and supply of imported original equipment components, during the quarter, remained satisfactory. Instances of supply problems ex Brazil continued to be reported due to logistics and related problems. 

Prices from source remained stable and landed costs of imported components continued to benefit from the Rand’s strength. Increases in international freight rates remain a source of concern.

(ii)     Local Components

During the third quarter of 2004, the overall supply of local components remained satisfactory. Supply problems in respect of rubber parts and instances of steel availability problems were reported. 

On pricing, suppliers experienced difficulty in competing with imported products benefiting from the strong Rand. Rising abour, steel and fuel costs were cited as the biggest impact on local costs.

3.2     RAW MATERIALS

(i)     Imported Materials

Generally, the availability of imported raw materials, where applicable, remained good. The strength of the Rand continues to have a positive effect on costs, however, global commodity and oil price increases are impacting on costs.

 (ii)    Local Materials

Local raw material price movements continue to mirror international pricing trends. Generally, availability remains stable, however, instances of shortages of local steel were reported.

Ispat Iscor Limited has announced massive planned price increases effective December, 2004 of 25% in respect of hot rolled product, 24% in the case of cold rolled product and 12% in the case of electro galvanised steel. These increases, if implemented, will have a significant negative impact on local component (steel based) pricing and OEM production costs. The raw material price increases will also impact negatively on the industry's export competitiveness.

4 .   UTILISATION OF PRODUCTION CAPACITY

Average motor vehicle assembly industry capacity utilisation levels, for the periods indicated, may be illustrated as follows –

	Year 2000	Year 2001	Year 2002	Year 2003	1st Qtr 2004	2nd Qtr 2004	3rd Qtr 2004
Cars	66,1%	72,2%	73,2%	77,2%	72,3%	81,4%	78,9%
Light Commercials	60,2%	62,6%	70,6%	69,6%	68,1%	68,5%	79,4%
Medium Commercials	64.,2%	69,8%	67,8%	60,7%	60,3%	56,0%	60,5%
Heavy Commercials	74.8%	78,1%	85,7%	85,6%	85,0%	84,9%	83,7%

		R Millions
	Capital Expenditure	2000	2001	2002	2003	2004 Projection
	Product/Local Content/Export/Production Facilities	1 311,2	1 800,1	2 311,4	1 989,4	3 109,1
	Land and Buildings	109,7	33,3	152,0	141,5	106,6
	Support Infrastructure (I.T., R&D, Technical, etc.)	140,6	244,9	262,4	193,9	361,0
	Total	1 561,5	2 078,3	2 725,8	2 324,8	3 576,7

The decline in the Industry’s 2003 capital expenditure, in Rand terms, may be attributed to the strong Rand which resulted in lower costs of imported capital equipment (machinery/production technology).

6.    BUSINESS CONDITIONS, PERFORMANCE INDICATORS

Business Conditions : Third Quarter, 2004

 New vehicle sales during the third quarter of 2004 reached record levels. 

2004 third quarter passenger car sales at 83 657 units recorded a substantial improvement of 13 683 units or 19,6% compared to the 69 974 new cars sold during the corresponding quarter for 2003. Combined commercial vehicle sales during the third quarter of 2004 at 39 834 units reflected a gain of 5 897 units or an improvement of 17,3% compared to 33 937 units sold during the corresponding quarter of 2003.

New vehicle sales during the third quarter were characterised by further strong upward momentum with sales in all four sectors registering strong, double digit gains compared to the corresponding quarter in 2003. Sales also recorded strong gains compared to the second quarter 2004. The continued strength in the market remains a function of interest rate deductions, vehicle price stability, attractive incentives offered by manufacturers and a positive economic environment.

Export Performance : Year to Date, 2004

The influence of the strong Rand and highly competitive global market conditions contributed to the lower momentum of vehicle exports during the first nine months of 2004. The following new vehicle export performance statistics are relevant –

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In aggregate terms, January to September, 2004 exports registered a decline of 11 288 vehicles or 13,3% compared to the industry’s export performance during the first nine months of 2003. Vehicle exports should receive a boost in 2005 on the back of new export programmes.

Prospects for the balance of 2004 and 2005/2006

Including the contribution of various importers currently reporting sales through NAAMSA on an aggregate basis - the industry is on track to achieve all time record sales during 2004. The projected total 2004 aggregate market of about 458 000 should surpass the 1981 total reported sales of 453 541 units.

A positive macro economic environment, strong business and consumer confidence, improved overall affordability as a result of declining new vehicle prices, in real terms, and relatively low interesst rates - represent factors that should continue to support new vehicle sales during the balance of 2004 and well into 2005.

These considerations have been factored into the Industry’s 2004 through 2006 projections reflected in the attached schedule.

Yours sincerely,  

N.M.W. VERMEULEN

DIRECTOR

sdb

15^th November, 2004

Attachment 1  -  Industry Vehicle Sales, Export and Import Data :  1995 - 2006
(click to view)

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