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N8/1 (e-mail)
15^th February, 2007

To: REPRESENTATIVES AT GENERAL MEETINGS
RECIPIENTS OF NAAMSA MEDIA RELEASES

Ladies and Gentlemen,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : MOTOR VEHICLE MANUFACTURING INDUSTRY : 4^TH QUARTER, 2006

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 fourth quarter of 2006, as submitted to the Director-General, Department of Trade and Industry.

Latest revised industry vehicle sales, export and import statistics for 1995 through 2010 are reflected on the attachments to the submission.

Key features

• Record industry capital expenditure during 2006, projections for 2007 show planned investments to continue at near record levels.

• Steady growth in production set to continue during 2007 with exports to accelerate substantially.

• Aggregate industry employment close to record levels.

• Industry capacity utilisation above international norms.

• Domestic sales expected to grow more modestly in 2007, growth likely to be constrained as a result of tighter monetary conditions and vehicle price inflation.

NAAMSA OFFICES: PRETORIA

 N8/1
15^th February, 2007

The Director-General
Department of Trade and Industry
Private Bag X84
PRETORIA
0001

Dear Sir,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : NEW VEHICLE
MANUFACTURING INDUSTRY : QUARTER ENDED 31^ST DECEMBER, 2006

NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the fourth quarter of 2006.

1.   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 fourth quarter of 2006 may be set out as follows –                                                                                                                             

Compared to the 38 903 positions at the end of September 2006, aggregate industry employment increased by 176 jobs during the fourth quarter of 2006 to reach a total of 39 079 jobs.  During the month of October, 2006, industry employment peaked at 39 412 jobs.

Employment throughout the industry remained relatively stable during the quarter.

During calendar 2006 – 3 942 new jobs were created, an improvement of 11,2% on the 35 137 industry positions at the end of 2005.

Industry employment growth has been as a result of higher levels of production, principally associated with the ramping up of major vehicle export programmes. 

2.   NUMBER OF SHIFTS

Most vehicle manufacturers operate on a multi-shift basis in the production of vehicles and components for domestic and export markets.  Various manufacturers operate on a single production shift basis, whilst the majority operate double shifts in selected areas such as machining, press shops, paint shop operations and body shop.  In some instances, three shift operations take place.

3.   AVAILABILITY AND PRICE TRENDS OF COMPONENTS AND RAW MATERIAL 

3.1     COMPONENTS

          Imported Components

Overall, the availability and supply of imported original equipment components, during the fourth quarter of 2006, remained satisfactory. 

During the quarter, the landed cost of imported components escalated sharply as a result of the weaker Rand exchange rate.  Oil based products - rubber, plastics, lubricants - and aluminium continued to be affected by fluctuations on international markets and exchange rate movements. 

          Local Components

During the fourth quarter of 2006, the availability of locally produced components was good.

Local component prices increased marginally during the quarter as a result of material cost increases and forex adjustments.  Labour, steel and fuel cost increases continue to impact on prices of local components.

3.2     RAW MATERIALS

          Imported Materials

Generally, the availability of imported raw materials, where applicable, remained good.  Rising global commodity prices, compounded by a weaker Rand, continued to exert upward pressure on costs.

Prices of Imported steel stabilized, during the quarter, at a high level.

          Local Materials

Local raw material price movements continue to mirror international pricing trends. Availability remains good.  Some constraints in respect of local steel availability, particularly electrogalvanised products, were reported.

Prices of some local automotive steel grades were increased during the quarter.  Further price increases are expected in 2007.

4.   UTILISATION OF PRODUCTION CAPACITY

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

With the exception of the car production sector during the fourth quarter, industry average capacity utilisation levels continued at historically high levels.

The industry’s average capacity utilization levels remain well above international performance benchmarks.

5.   NEW INVESTMENT/INVESTMENT APPROVALS : 2006 ACTUAL AND 2007 PROJECTION

NAAMSA reports the industry’s aggregate capital expenditure on an annual basis.   Details of actual industry capex for 2000 through 2006, in Rand millions, as well as the projection for 2007 – are as follows –

During 2006, the industry’s capital expenditure reached a record R6,2 billion and planned investments for 2007 remain at near record levels.

The 2006 and 2007 figures may increase further since capital expenditure data from a number of specialist truck manufacturers is still awaited.

6.    BUSINESS CONDITIONS AND PERFORMANCE INDICATORS

Business Conditions : Fourth Quarter, 2006

2006 fourth quarter passenger car sales at 104 307 units recorded an improvement of 5 801 units or 5,9% compared to the 98 506 new cars sold during the corresponding quarter for 2005.  Combined commercial vehicle sales during the fourth quarter of 2006 at 58 115 units reflected a gain of 9 667 units or an improvement of 20,0% compared to 48 448 units sold during the corresponding quarter of 2005.

New vehicle sales during the fourth quarter of 2006 recorded further growth with sales in all four sectors registering an improvement compared to the corresponding quarter in 2005.  However, the growth rate in the case of the new car segment and the medium commercial segment slowed significantly.  Moreover, sales in every segment during the fourth quarter declined compared with the sales levels of the third quarter.

New Vehicle Export Performance :  2006

2006 export sales of South African produced motor vehicles rose to 179 859 units compared to 139 912 new vehicles exported during 2005 – an improvement of 39 947 units or 28,6%.

Higher projected volumes of exports of cars and light commercial vehicles should translate into record export sales during 2007.  Overall exports are projected to improve by about 22% year on year. 

The following annual vehicle export statistics summarize the industry’s past and projected export sales performance -

Prospects for 2007

Looking ahead, the key determinants of the industry’s 2007 performance, in terms of domestic new vehicle sales, include the overall performance of the South African economy, the direction of interest rates and new vehicle pricing.  The latter is a function predominantly of the Rand/Euro and Rand/Yen exchange rates, as well as domestic producer price inflation.  NAAMSA anticipates that the new car market for 2007 will record modest growth with new car sales improving by about 6% in volume terms.  Supported by infrastructural development spending and construction activity and further growth in domestic fixed investment, new commercial vehicle sales are expected to outperform the car market with an improvement in domestic sales of about 11%.  Coming off the record base established in 2006, the more modest anticipated growth during 2007 will still represent a remarkable achievement.

N.M.W. VERMEULEN
DIRECTOR

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

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