N8/1 (e-mail)
6^th March, 2009

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, 2008

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 2008, as submitted to the Director-General, Department of Trade and Industry.

Industry vehicle sales, export and import statistics for 1995 through 2011 are reflected on the attachments to the submission.

Key features

• Industry employment levels remained under pressure during the quarter, largely due to further operational adjustments at two of the industry’s assembly operations.
• With the exception of the new car manufacturing sector, industry capacity utilisation levels continued to hold up relatively well as a result of export business.
• Industry capital expenditure remains relatively stable.
• Industry domestic sales projections continue to reflect difficult trading conditions and have been revised downwards substantially.
• The global economic slowdown will impact negatively on automotive industry exports in 2009. Current projections suggest that vehicle and component exports could fall by as much as 35% in volume and value terms.
• New car and light commercial vehicle sales expected to remain under pressure through the middle of 2009. Lower interest rates on the back of declining inflationary pressures and an improvement in the financial position of consumers should contribute to a modest improvement during the second half of 2009.
• Export sales expected to remain under pressure through 2011.

NAAMSA OFFICES: PRETORIA

 N8/1
6^th March, 2009

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, 2008

NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the fourth quarter of 2008.

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 2008 may be set out as follows –

Compared to the 35 686 positions at the end of the third quarter of 2008, aggregate industry employment declined by 723 jobs during the fourth quarter of 2008 to 34 963 jobs. 

During the quarter, one company increased headcount, two major employers reduced the number of employees – whilst employment at the industry’s other major employers remained stable.

For the year 2008 as a whole, industry employment registered a net loss of 2 566 jobs.

2.   NUMBER OF SHIFTS

A number 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. 

As a result of expected lower demand for export vehicles, it is anticipated that shift operations will be reviewed.  The introduction of a shortened production week at various plants is expected.

3.   AVAILABILITY AND PRICE TRENDS OF COMPONENTS AND RAW MATERIALS

3.1     COMPONENTS

          Imported Components

Availability and supply of imported original equipment components, during the fourth quarter of 2008, generally remained satisfactory. 

During the quarter, the landed cost of imported components continued to escalate principally due to further exchange rate depreciation.  The benefits of lower commodity and oil prices should start to filter through from the 1^st quarter of 2009 onwards.

          Local Components

During the fourth quarter of 2008, the availability and supply of locally produced components generally remained satisfactory. 

Domestic inflation and exchange rate induced imported cost pressures continued to impact on prices of local components.  The increasing need for global cost competitiveness and vehicle manufacturer’s cost reduction targets remain the focus of price review negotiations. 

3.2     RAW MATERIALS

          Imported Materials

The availability of imported raw materials, where applicable, remained good.  Lower global commodity and oil prices were observed but these were offset by a weaker exchange rate during the quarter.

          Local Materials

Local raw material price movements continue to mirror international pricing trends. Availability remained good. 

4.       UTILISATION OF PRODUCTION CAPACITY

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

Industry average capacity utilisation levels, during the fourth quarter, were lower in the car and medium commercial vehicle production sectors, showed some improvement in the light commercial vehicle production sector and registered further strength in heavy commercial vehicle and bus manufacturing.

5.   NEW INVESTMENT/INVESTMENT APPROVALS : 2008 ACTUAL AND 2009 PROJECTION

NAAMSA reports the industry’s aggregate capital expenditure on an annual basis.   The aggregated data is based on Capital Expenditure details supplied by the seven major vehicle manufacturers.  Details of actual industry capex for 2000 through 2008, in Rand millions, as well as the projection for 2009 – are as follows –

Capital expenditure by vehicle manufacturers has remained relatively stable in recent years.  The 2006 peak was due to production capacity expansion at one major OEM.

6.    BUSINESS CONDITIONS AND PERFORMANCE INDICATORS

Business Conditions : Fourth Quarter, 2008

2008 fourth quarter passenger car sales at 62 835 units recorded a decline of 27 141 units or 30,2% compared to the 89 976 new cars sold during the corresponding quarter of 2007.  Combined commercial vehicle sales during the fourth quarter of 2008 at 40 358 units reflected a fall of 13 640 units or a decline of 25,3% compared to 53 998 units sold during the corresponding quarter of 2007.

On a quarterly basis, sales of new cars, light, medium and heavy commercial vehicles recorded sharp declines compared to the corresponding three months of 2007 with the negative momentum, in terms of sales, accelerating in all sectors.

Automotive Industry Exports : Following record export sales in 2008, exports set to decline in calendar 2009

New vehicle exports during the fourth quarter and calendar 2008 continued to exceed expectations and overall industry vehicle exports reached record levels in 2008 , as illustrated by the following figures -

At this stage, the projected decline in exports of South African produced cars and light commercial vehicles for 2009 compared to 2008 is of the order of 102 000 units or a fall of nearly 36% in volume terms.  Exports of medium and heavy commercial vehicles and buses, mainly into Africa, is projected to increase.

Preliminary trade data shows that combined 2008 component and vehicle export revenue reached R93,0 billion contributing to a much better performance in the industry’s overall trade balance for the year which, in the event, declined to a deficit of R4,5 billion from a deficit of R36,4 billion in 2007.

Brief Comment on the Outlook for 2009

2009 is expected to be an extremely difficult year for the entire South African automotive industry.  All sectors of the South African automotive industry – retail, auto parts manufacturing and vehicle production – are experiencing severe and unprecedented viability challenges.  The operating environment in all three sectors of the industry, during the first few months of 2009, has continued to deteriorate substantially and is only expected to show modest improvement, domestically, during the second half of the current year and, internationally, once the severe global financial and economic crisis dissipates.  Improvement in the domestic environment is dependent on a revival in consumer expenditure, lower inflation, aggressive interest rate reduction and fiscal stimulation.  Internationally, given the magnitude and severity of the financial/economic crisis, any improvement is dependent on a return of confidence and the stabilisation of financial institutions and markets.  This is only likely to occur in 2010. 

The unfavourable outlook for the South African automotive industry is reflected in the attached schedule of projected industry sales, production, export and import data.  At this stage, the aggregate domestic new vehicle market is anticipated to decline during 2009 to under 450 000 units from the 533 387 new vehicles sold in 2008 – a fall of 16%.   Production for the domestic market is anticipated to fall by 16,5%, whilst production for export markets is projected to decline by about 35% in volume terms.  The projected net effect is a loss of production of about 147 500 vehicles or a fall of 26% to 415 500 units from the 562 965 vehicles produced in 2008.

N.M.W. VERMEULEN
DIRECTOR
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Attachment 1 - Industry Vehicle Sales, Export and Import Data :  1995 - 2011
(click to view)

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