N8/1 (e-mail)
15^th May, 2009

To: REPRESENTATIVES AT GENERAL MEETINGS
RECIPIENTS OF NAAMSA MEDIA RELEASES

Ladies and Gentlemen,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : MOTOR VEHICLE MANUFACTURING INDUSTRY : 1^ST QUARTER, 2009

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 first quarter of 2009, 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 first quarter of 2009. Net industry employment fell by 2 571 jobs as a result of downsizing and operational adjustments at most of the industry’s assembly operations.
• Lower industry capacity utilisation levels reflect cut backs in production.
• Industry capital expenditure going forward remains relatively stable.
• Industry domestic sales projections continue to reflect difficult trading conditions whilst the global economic slowdown will impact negatively on automotive industry exports in 2009.
• New car and light commercial vehicle sales expected to remain under pressure through the third quarter of 2009. Lower interest rates on the back of declining inflationary pressures and an improvement in the financial position of consumers is expected to contribute to a modest improvement in new vehicle sales towards the end of the year.
• The industry’s contribution to South Africa’s GDP during 2008 increased to 7,29% from 6,79% in 2007. During 2008, South Africa’s share of global production increased to 0,80% up from 0,73% in 2007.

NAAMSA OFFICES: PRETORIA

 N8/1
15^th May, 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 MARCH, 2009

NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the first quarter of 2009.

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 first quarter of 2009 may be set out as follows –

Compared to the 34 963 positions at the end of 2008, aggregate industry employment declined by 2 571 jobs during the first quarter of 2009 to 32 392 jobs. 

During the quarter, only one company slightly increased headcount with the balance of the industry’s employers reducing headcount.

The magnitude of the extremely difficult operating environment, both characterised by sharply lower domestic new vehicle sales and lower export sales, is illustrated by the decline in headcount of 2 571 jobs during the first quarter of 2009, compared to a decline for 2008 as a whole of 2 566 jobs.

2.   NUMBER OF SHIFTS

Most manufacturers currently operate on a single production shift basis, whilst some operate double shifts in selected areas such as machining, press shops, paint shop operations and body shop. 

During the quarter, most vehicle assembly plants operated on the basis of a shortened production week.

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 first quarter of 2009, generally remained satisfactory. 

During the quarter, the landed cost of imported components continued to be affected by exchange rate volatility.  The benefits of lower commodity and oil prices should start to filter through in future quarters.

          Local Components

During the first quarter of 2009, 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 manufacturers’ 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 continued to be observed but these were partly offset by a weaker exchange rate during the first half of 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 first quarter of 2009, declined substantially in all sectors.

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 : First Quarter, 2009

2009 first quarter passenger car sales at 60 043 units recorded a decline of 25 726 units or 30,0% compared to the 85 769 new cars sold during the corresponding quarter of 2008.  Combined commercial vehicle sales during the first quarter of 2009 at 33 242 units reflected a fall of 22 173 units or a decline of 40,0% compared to 55 415 units sold during the corresponding quarter of 2008.

On a quarterly basis, sales of new cars, light, medium and heavy commercial vehicles continued to show sharp declines compared to the corresponding three months of 2008.  The current year on year quarterly falls in domestic new vehicle sales are without precedent in the history of the SA auto industry.

2008 Automotive Sector Contribution to GDP

Based on research by Econometrix (Pty) Ltd, the automotive industry’s contribution to South Africa’s Gross Domestic Product during 2008 has been calculated at 7,29% versus the figure for 2007 of 6,79%.

The automotive industry’s contribution to GDP takes account of the value addition in the broadly defined automotive sector and covers vehicle retail, distribution and servicing, auto parts production and vehicle production.

Despite sharply negative growth in new vehicle demand in South Africa, particularly during the last four months of 2008 – the performance of automotive exports, components and particularly exports of vehicles, during the year, contributed to pushing the motor sector’s contribution to GDP to levels close to the all time high of 7,4% recorded in 2006. 

South Africa’s Automotive Industry’s Performance in a Global Context

World new motor vehicle production in 2008 reached 70 192 549 million units (2007 : 73 189 954 million). This represents a decline 2.99 million vehicles produced or 4,1% compared to the 73 189 953 million new vehicles produced globally during 2007.  The South African vehicle manufacturing industry’s share of world production – as indicated by the following figures – improved by 9,6% during 2008.

The global vehicle population exceeds One Billion vehicles. 

Brief Comment on the Outlook for 2009

2009 will 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 – continue to experience 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, 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.