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N8/1 (e-mail)
6^th August, 2007

To: REPRESENTATIVES AT GENERAL MEETINGS
RECIPIENTS OF NAAMSA MEDIA RELEASES

Ladies and Gentlemen,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : MOTOR VEHICLE MANUFACTURING INDUSTRY : 2^ND QUARTER, 2007

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 second quarter of 2007, as submitted to the Director-General, Department of Trade and Industry.

Industry vehicle sales, export and import statistics for 1995 through 2010 are reflected on the attachments to the submission. Latest projections for 2007 and 2008 have been revised downwards.

Key features

• Industry capital expenditure for 2007 remains at near record levels.
• Automotive sector contribution to South Africa’s Gross Domestic Product during 2006 calculated at 7,53%. During 2006, South Africa accounted for 78,7% of total vehicle production on the African continent.
• Modest pressure on industry employment apparent during the second quarter.
• Industry capacity utilisation levels remain high and above international norms. Somewhat lower capacity utilization in the new car production sector apparent during the first and second quarters of 2007.
• Domestic sales expected to grow more modestly in 2007, growth likely to be constrained as a result of tighter monetary conditions, vehicle price inflation and various other unfavourable factors.
• 2007 industry production levels have been revised downwards to take account of lower domestic sales and vehicle exports.

NAAMSA OFFICES: PRETORIA

 N8/1
6^th August, 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 30^TH JUNE, 2007

NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the second quarter of 2007.

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 second quarter of 2007 may be set out as follows –                                                                                                                               

Compared to the 39 269 positions at the end of March 2007, aggregate industry employment declined by 1 096 jobs during the second quarter of 2007 to 38 173 jobs. 

NAAMSA is aware that an industry employer will retrench a number of full-time and temporary staff during the third quarter of 2007 as a result of the termination of a vehicle assembly contract and the phasing out, due to emissions related compliance issues, of a light commercial model.  Some of the headcount reductions took place during the second quarter and contributed to the decline in overall employment levels.

2.   NUMBER OF SHIFTS

The majority of 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 MATERIALS

3.1     COMPONENTS

          Imported Components

Overall, the availability and supply of imported original equipment components, during the second quarter of 2007, remained good. 

During the quarter, the landed cost of imported components continued to be affected by exchange rate volatility and modest exchange rate depreciation.  Oil based products - rubber, plastics, lubricants - and aluminium in particular continued to be affected by fluctuations on international markets and exchange rate movements. 

          Local Components

During the second quarter of 2007, the availability of locally produced components remained satisfactory.  Instances of tyre shortages were however reported.

Domestic and imported cost pressures 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 continued to exert upward pressure on costs.

Prices of imported steel and aluminium showed upward momentum during the quarter.

          Local Materials

Local raw material price movements continue to mirror international pricing trends. Availability remains good.  Local steel availability showed further improvement during the quarter.

4.   UTILISATION OF PRODUCTION CAPACITY

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

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.

6.    BUSINESS CONDITIONS AND PERFORMANCE INDICATORS

Business Conditions : Second Quarter, 2007

2007 second quarter passenger car sales at 88 235 units recorded a substantial decline of 15 752 units or 15,1% compared to the 103 987new cars sold during the corresponding quarter for 2006.  Combined commercial vehicle sales during the second quarter of 2007 at 56 976 units reflected a gain of 5 872 units or an improvement of 11,5% compared to 51 104 units sold during the corresponding quarter of 2006.

New vehicle sales during the second quarter of 2007 reflected a mixed picture with significantly negative new car sales and continued relative strength in new commercial vehicle sales compared to the corresponding quarter in 2006. 

A combination of negative events, during the second quarter, placed pressure on the South African new car market.  The further half percent increase in interest rates and the introduction of the National Credit Legislation during June, 2007, the e-NaTIS registration difficulties during the second quarter of the year, upward pressure on new vehicle prices at a time of record household debt in South Africa – had all combined to reinforce the softer trend in new car sales.  In contrast, demand for new commercial vehicles remained fundamentally strong as economic activity levels continued to benefit from infrastructural led growth and strong investment sentiment.

New Vehicle Export Performance:  2006 and 2007 Revised Projection

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%.  For 2007, however, the growth rate in vehicle exports is expected to moderate temporarily.

The industry’s 2007 export figures have been revised downwards to take account of the fact that the DaimlerChrysler factory in East London has been refurbished in preparation for the production of the new Mercedes Benz C Class.   As a result, virtually no vehicles have been produced at the plant for export over the past five months.  This contributed to the lower industry car export performance figures.

Looking ahead, vehicle exports are expected to improve as a result of various new export programmes and the resumption of Mercedes Benz exports.  For 2008, projected export sales are in excess of 210 600 compared to the estimates for 2007 of 185 650 export units.

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

South Africa’s Vehicle Production in Relation to Africa’s Production

World new motor vehicle production in 2006 reached 69,2 million units of which 761 357 were produced on the African continent.  South Africa’s share of Africa’s total vehicle production in 2006 was 78,7%.  The following production data provides more information.

Source:  Automotive News Data Centre, Automotive News Europe.

N.M.W. VERMEULEN
DIRECTORR

Attachment 1 - Industry Vehicle Sales, Export and Import Data :  1995 - 2010
(click to view)

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