QUARTERLY REVIEW OF BUSINESS CONDITIONS : NEW VEHICLE

MANUFACTURING INDUSTRY : QUARTER ENDED 31^ST DECEMBER, 2004

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

1.   EMPLOYMENT LEVELS AND TRENDS 

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

Compared to the 32 413 positions at the end of September, 2004, aggregate industry employment levels increased by 135 jobs during the final quarter of 2004 to reach a total of 32 548 jobs. 

 For calendar 2004, the industry added 1 185 new jobs.  Four large companies recruited new personnel particularly during the second half of 2004.  The monthly average industry employment complement during 2004 was 31 790 compared to a monthly average of 31 599 in 2003.

2.   NUMBER OF SHIFTS

An increasing number of 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 such as machining, press shops, paint shop operations and body shop.

3.   AVAILABILITY AND PRICE TRENDS OF COMPONENTS AND RAW MATERIALS

3.1     COMPONENTS

          Imported Components

Overall, the availability and supply of imported original equipment components, during the quarter, remained satisfactory. 

Shipping capacity availability was cited as a problem.

Prices from source remained stable and landed costs of imported components continue to benefit from the Rand’s strength.  However, escalating shipping and freight costs are increasingly impacting negatively on imported component pricing.

          Local Components

 During the fourth 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, local suppliers continue to experience challenges in competing with imported products which benefit from the strong Rand.  Rising domestic labour and fuel costs, as well as increases in global material costs, continue to be cited as the biggest impact on local costs.

3.2     RAW MATERIALS

          Imported Materials

Generally, the availability of imported raw materials, where applicable, remained good.  The strength of the Rand continued to have a positive effect on costs, however, sharply higher global commodity, material and oil prices are impacting on costs.

          Local Materials

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

The rising prices of automotive steel will have a knock on effect on vehicle prices, despite cost cutting efforts by manufacturers in other areas.

4.   UTILISATION OF PRODUCTION CAPACITY

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

During the fourth quarter, industry capacity utilisation levels in the car and heavy truck manufacturing sector rose sharply.  On an annual basis, the car and light commercial vehicle manufacturing sectors showed significant increases in capacity utilisation trends.

5.   NEW INVESTMENT/INVESTMENT APPROVALS : 2004 ACTUAL AND 2005 PROJECTION

 NAAMSA reports the industry’s aggregate capital expenditure on an annual basis.   Details of actual industry capex for 2000 through 2004, in Rand millions, as well as the projection for 2005 – are as follows –

During 2004, the strong Rand would have translated into lower costs of imported capital equipment (machinery/production technology).  Also, some capital expenditure originally earmarked for 2004 may have been deferred to 2005.

All the major OEM’s and three truck manufacturers participated in the survey.  Six manufacturers project increased capex for 2005, with one major OEM accounting for over half the industry’s projected investments.

6.    BUSINESS CONDITIONS AND PERFORMANCE INDICATORS 

Business Conditions : Fourth Quarter, 2004  

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

2004 fourth quarter passenger car sales at 80 705 units recorded a huge improvement of 17 292 units or 27,2% compared to the 63 413 new cars sold during the corresponding quarter for 2003.  Combined commercial vehicle sales during the fourth quarter of 2004 at 39 354 units reflected a substantial gain of 10 427 units or an improvement of 36,0% compared to 28 927 units sold during the corresponding quarter of 2003.

New vehicle sales during the fourth 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.   

The strength in the market remains a function of interest rate reductions, vehicle price stability, attractive incentives offered by manufacturers and a positive economic environment. 

Export Performance :  2004

 On the back of the strong Rand and highly competitive global market conditions, the momentum of vehicle exports continued to soften throughout most of 2004.  Aggregate industry vehicle exports during 2004 declined by 15 408 units or 12,2% to 111 253 units compared to the 126 661 vehicle exports in 2003.  In revenue terms, vehicle exports during 2004 would have approximated R18,0 billion.  The following annual vehicle export statistics are relevant –

Vehicle exports should receive a substantial boost in 2005 on the back of various new export programmes.    

Industry Prospects For 2005 : Further Improvement In New Vehicle Sales Expected  

The exceptionally positive growth trend in South African new vehicle sales is expected to continue into 2005 with the market potentially expanding, for the second successive year, by double-digit numbers. 

Domestically, a combination of unprecedented favourable economic fundamentals should serve to support the positive momentum in the South African economy and demand for new motor vehicles during 2005.  Factors relevant in this context include – 

•     Low inflation, accommodative monetary policy.

•     Strong consumer sentiment and business confidence.

•     Stable and disciplined macro-economic policies coupled with significantly higher government spending on infrastructural projects as well as rising private sector investment.

•     Improving foreign reserves and progressively positive country investment ratings.

•     Buoyant prices of South Africa’s main commodity exports.

•     Prospects of sustained real gross domestic product growth in excess of 4% per annum.

The established growth trend is therefore expected to continue through 2005 with domestic new vehicle sales improving by around 15% for the year.

The industry, at this juncture, remains decidedly bullish about prospects for 2005 and this optimism has been factored into the latest projections reflected in the attached schedule.

Yours sincerely,  

N.M.W. VERMEULEN

DIRECTOR

sdb

16^th March, 2005

Attachment 1  -  Industry Vehicle Sales, Export and Import Data :  1995 - 2007
(click to view)

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