N8/1 (e-mail)
11^th August, 2009

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, 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 second 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

• During the second quarter of 2009, industry employment fell by 1 925 jobs as a result of further downsizing and operational adjustments at industry’s assembly operations. The decline in the number of jobs in the industry for the first half of 2009 totalled 4 496 or 12,9% of the workforce.
• Industry capacity utilisation levels reflect cut backs in production and are currently at historically low levels.
• Industry capital expenditure going forward remains stable.
• Industry domestic sales projections reflect expectations of continued difficult trading conditions and the severe impact of the global economic slowdown on industry vehicle exports.
• New car and light commercial vehicle sales expected to remain under pressure through the end 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 in new vehicle sales in 2010.
• All sectors of the South African Automotive Industry retail, component production and vehicle assembly continue to experience severe sustainability challenges. All performance indicators confirm that the South African automotive industry is in the middle of a severe recession.

NAAMSA OFFICES: PRETORIA

 N8/1
11^th August, 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 30^TH JUNE, 2009

NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the second 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 second quarter of 2009 may be set out as follows –

Compared to the 32 392 positions at the end of the first quarter 2009, aggregate industry employment declined by 1 925 jobs during the second quarter of 2009 to 30 467 jobs. 

During the quarter, one company marginally increased headcount with other industry employers either reducing headcount or reporting stable employment complements.

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 4 496 jobs during the first half of 2009, compared to a decline for 2008 as a whole of 2 566 jobs.

Currently, total industry employment is at levels last witnessed twenty-two years ago.

2.   NUMBER OF SHIFTS

Manufacturers currently operate predominantly 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 operations were characterised by a shortened production week.

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 second quarter of 2009, remained satisfactory. 

During the quarter, the landed cost of Dollar and Euro denominated imported components declined due to the exchange rate appreciation.  The benefits of lower commodity and oil prices should start to filter through in future quarters.  Companied sourcing from Japan, however, continued to be affected by Rand weakness again the exceptionally strong Japanese Yen.

          Local Components

During the second quarter of 2009, the availability and supply of locally produced components generally remained satisfactory.  However, as a result of low industry volumes and ongoing financial stress experienced by suppliers, availability and security of supply is increasingly at risk in certain instances. 

The ever present need for global cost competitiveness and vehicle manufacturers’ cost reduction targets continued to pressurise suppliers.  The strengthening of the Rand also caused domestic components to become less competitive. 

3.2     RAW MATERIALS

          Imported Materials

The availability of imported raw materials, where applicable, remained good.  Pricing trends remain a function of exchange rate movements and commodity price trends.

          Local Materials

Local raw material price movements continue to mirror international pricing trends. Availability risk has increased as a result of the failure of several raw material suppliers due to low industry volumes.  

4.       UTILISATION OF PRODUCTION CAPACITY

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

Industry average capacity utilisation levels, during the second quarter of 2009, declined substantially in all sectors and are currently at record lows.

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.  The capital expenditure projection for 2009 will be revised upwards in light of higher investment expenditure by one major OEM.

6.    BUSINESS CONDITIONS AND PERFORMANCE INDICATORS

Business Conditions : Second Quarter, 2009

2009 second quarter NAAMSA reported passenger car sales at 50 600 units recorded a decline of 23 969 units or 32,1% compared to the 74 569 new cars sold during the corresponding quarter of 2008.  Combined commercial vehicle sales during the second quarter of 2009 at 29 290 units reflected a fall of 25 666 units or a decline of 46,7% compared to 54 956 units sold during the corresponding quarter of 2008.

On a quarterly basis, sales of new cars, light, medium and heavy commercial vehicles registered further sharp declines compared to the corresponding three months of 2008.  The depth and severity of the year on year quarterly falls in domestic new vehicle sales remain without precedent in the history of the SA automotive industry and underline the extent of the crisis facing the entire value chain.

Industry New Vehicle Exports:  1^st Half 2009

The impact of the global financial and economic crisis and the resulting reduced demand in South Africa’s major export markets is reflected in the sharply lower industry new vehicle export sales which, during the first half of 2009, declined by 36,0% in aggregate volume terms.

The following table showing new vehicle export for the first half of 2009 compared to the corresponding six months last year, is relevant.

Brief Comment On The Outlook For The Remainder 2009

2009 is turning out 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 – continue to experience severe and unprecedented viability challenges.  The operating environment in all three sectors of the industry, during the first half of 2009, deteriorated 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 reductions 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. 

The negative outlook for the South African automotive industry is reflected in the attached schedule of projected industry sales, production, export and import data.