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N8/1 (e-mail)
30^th October, 2007

To: REPRESENTATIVES AT GENERAL MEETINGS
RECIPIENTS OF NAAMSA MEDIA RELEASES

Ladies and Gentlemen,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : MOTOR VEHICLE MANUFACTURING INDUSTRY : 3^RD 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 third 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 further revised downwards.

Key features

• Overall industry employment levels were stable during the third quarter.
• Industry capacity utilisation levels remain high and above international norms. Continued lower capacity utilization in the new car production sector apparent during the first nine months of the year.
• Industry sales and production levels revised downwards.
• New car market expected to remain under pressure as a result of tighter monetary conditions, domestic cost pressures and various other unfavourable factors.

NAAMSA OFFICES: PRETORIA

 N8/1
30^th October, 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 SEPTEMBER, 2007

NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the third 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 third quarter of 2007 may be set out as follows –

Compared to the 38 173 positions at the end of June 2007, aggregate industry employment declined by 199 jobs during the third quarter of 2007 to 37 974 jobs. 

Overall, employment at the industry’s major employers remained stable during the quarter.

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 MATERIALS

3.1     COMPONENTS

          Imported Components

The availability and supply of imported original equipment components, during the third 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 third quarter of 2007, the availability of locally produced components was adversely affected by industrial disruption in sections of the component supplier industry.  This in turn impacted on vehicle production during the quarter.

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 and oil 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 –

With the exception of the car manufacturing sector, industry average capacity utilisation levels remained at relatively high levels.

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 : Third Quarter, 2007

2007 third quarter passenger car sales at 102 145 units recorded a decline of 12 199 units or 10,7% compared to the 114 344 new cars sold during the corresponding quarter of 2006.  Combined commercial vehicle sales during the third quarter of 2007 at 58 677 units reflected a fall of 858 units or a decline of 1,4% compared to 59 535 units sold during the corresponding quarter of 2006.

New vehicle sales during the third quarter of 2007 reflected a mixed picture with significantly negative new car sales and continued relative strength in new commercial vehicle sales, particularly heavy commercial vehicles, compared to the corresponding quarter in 2006.  Interestingly, sales in all four sectors registered an improvement on sales achieved during the second quarter.  

Various negative factors continued to exert pressure on the South African new car market.  Progressive increases in interest rates and the introduction of the National Credit Legislation during June, 2007, the e-NaTIS registration difficulties earlier in the year, upward pressure on new vehicle prices at a time of record, rising household debt in South Africa – all combined to reinforce the softer trend in new car sales.  In contrast, demand for new commercial vehicles held up relatively well as economic activity levels, generally, 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 vehicle exports will be lower due to various reasons.  Firstly the industry’s 2007 export figures were 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 for about five months during 2007.  This contributed to the lower industry car export performance figures.  Furthermore, the industrial disruption experienced in the component supplier industry during September/October 2007 had a major impact on vehicle production levels and exports which, in the event, showed a decline of 43,4% September, 2007 compared with the corresponding month in 2006

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 250 000 compared to the revised projection for 2007 of 170 500 export units.

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

PROSPECTS FOR THE BALANCE OF 2007 AND 2008

Trading conditions in the new car market have deteriorated substantially in recent months as a result of the 3,5% increase in interest rates over the past 15 months.  New and used car sales are expected to remain under pressure as a result of tight monetary conditions and the modest slow down in the economy.  Commercial vehicle sales, however, should continue to benefit from strong capital investment and infrastructural development spending by government. Moreover, expectations of a relatively strong exchange rate will impact negatively on export business.

These considerations have been factored into the latest industry sales, production, export and import projections which reflect fairly substantial downward revisions, particularly in respect of 2007 new car sales and vehicle exports.  At this stage, for 2008 – the new car market is expected to move sideways at best, whilst new commercial vehicle sales could show some, albeit modest growth.  Vehicle exports in 2008 should record strong upward momentum as various new export programmes are implemented.

N.M.W. VERMEULEN
DIRECTORR

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

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