N8/1 (e-mail)
9^th November, 2009

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, 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 third 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 third quarter of 2009, industry employment levels stabilized.
• Fairly good recovery in industry capacity utilisation levels from the historically low levels recorded during the second quarter.
• Industry capital expenditure going forward remains fairly stable.
• Industry domestic sales projections reflect expectations of continued difficult trading conditions and the severe impact of the global economic slowdown on the industry, particularly in respect of exports.
• New car and commercial vehicle sales starting to show signs of bottoming out. 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.
• Most sectors of the South African Automotive Industry retail, component production and vehicle assembly continue to experience sustainability challenges. Performance indicators confirm that the South African automotive industry remains in recession, however, there are indications that the bottom has been reached.

NAAMSA OFFICES: PRETORIA

 N8/1
9^th November, 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 SEPTEMBER, 2009

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

Compared to the 30 467 positions at the end of the second quarter 2009, aggregate industry employment declined by 142 jobs during the third quarter of 2009 to 30 325 jobs. 

Employment levels at the industry’s employers during the quarter remained stable.  However, the decline in the number of jobs in the industry during the preceding year and a half amounted to 7 062 positions underlining the extremely difficult operating environment characterised by sharply lower domestic new vehicle sales and lower export sales.

Currently, total industry employment remains at levels last recorded some 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, at various times, a number of vehicle manufacturers continued to operate on the basis of 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 third quarter of 2009, remained good.  However, in one instance, port congestion was reported as a constraint.

During the quarter, the landed cost of imported components benefitted due to the substantial appreciation of the Rand against major currencies.

          Local Components

During the third quarter of 2009, the availability and supply of locally produced components also 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 relentless focus on global cost competitiveness and vehicle manufacturers’ cost reduction targets continued to pressurise suppliers.  The strengthening of the Rand causes domestic components to become less competitive.  Availability risk due to financial stress on suppliers was also noted.

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 continues to be reported as a result of the failure of several raw material suppliers due to low industry volumes.  Increases in steel prices on hot rolled, cold rolled and electro-galvanised automotive coil product were reported.  

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 third quarter of 2009, improved considerably in all sectors following the historically low sectoral utilization levels recorded during the second quarter.

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 : Third Quarter, 2009

2009 third quarter NAAMSA reported passenger car sales at 57 855 units recorded a decline of 18 776 units or 24,5% compared to the 76 631 new cars sold during the corresponding quarter of 2008.  Combined commercial vehicle sales during the third quarter of 2009 at 34 230 units reflected a fall of 12 520 units or a decline of 26,8% compared to 46 750 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.  However, 2009 third quarter sales of cars, light commercial, heavy commercial vehicles and buses registered double-digit gains compared to the previous quarter’s sales – suggesting that the market’s low point occurred during the second quarter of 2009.  However, year on year comparisons continue to reflect an industry in recession.

The general consensus is that the industry is in the process of emerging from the extremely severe recession in the domestic automotive market which started mid 2006.  However, any expected improvement over the short to medium term is likely to be slow and gradual off an historically low base.

Industry New Vehicle Exports:  January – September 2009

The severe impact of the global financial and economic crisis and the resultant sharply lower demand in South Africa’s major export markets is reflected in the substantial decline in industry new vehicle export sales which, during the first nine months of 2009, fell by 45,0% in aggregate volume terms compared to the corresponding period last year.

The performance of new vehicle exports is summarised in the following table - 

Recent projections by major new vehicle exporters indicate expectations of higher export sales, over the medium term, on the back of a recovery in demand in a number of export markets. 

Brief Comment On The Outlook For The Remainder 2009 and 2010

There was an improvement in new car sales growth during the months of September and October of 2009, largely driven by improved demand on the part of car rental companies.  A revival in exports was also apparent during the past two months.  Whilst consumer fundamentals remain under pressure, there are signs of an improvement in certain areas, including, substantial increases in the purchasing manager’s index – a key indicator of sentiment in the domestic manufacturing sector - depleted inventories in the used vehicle market, more accommodative lending criteria by financial institutions and the impact of the substantial interest rate reductions in 2009 which should start to filter through the economy. 

In light of these developments, NAAMSA expects a modest recovery in new car sales into 2010, with commercial vehicle sales following suit.  Following an expected decline in new vehicle sales of around 25% in 2009 compared to 2008, an improvement in sales volumes of between 8% and 10% in 2010 is anticipated.  The improvement will however be in relation to a very low base.

Export sales are also expected to show modest upward momentum during the months ahead, although doubts persist about the sustainability of a recovery in global markets.