It seems likely the road ahead in the coming year will be very rocky for both the global and local motor industry. There is so much up in the air in terms of direction with the rapid advances of technology and then there are the ongoing trade disputes, job cuts, factory closures and company restructuring.
A big challenge certainly lies ahead for industry leaders to try and navigate through safely!
Here in South Africa we are coming off a disappointing year in retail sales, albeit with a dip of only 1% compared to 2017, but a decrease, nevertheless.
Sales in 2018 of 552 190 units came in just over 1% below NAAMSA’s most recent forecast for the year, while the future does not look very bright either, with a prediction of 572 500 unit sales in 2019 and 594 000 in 2020. There is certainly no real growth or a sales boom on the horizon.
The poor sales in 2018 should be viewed in context: 12 years ago (in 2006) the domestic market recorded an all-time high sales figure of 714 315 vehicles, of which the car market alone accounted for 481 558 units. In 2006 SA’s economic growth rate had been 5.6%, compared to a rate of less than 1% in 2018.
After the wonder year of 2006 came the global economic downturn and the local motor industry has not been able to recover. During this time the SA population has grown significantly, which should be translating into a bigger vehicle market, but unfortunately this is not the case.
This is certainly not a fertile market in which vehicle and component manufacturers in South Africa are being told to invest heavily in almost doubling the amount of local content in their product under the extended Automotive Production and Development Programme. Current average local content is about 37% and this must be lifted to 60% to obtain maximum benefits from the government support programme that starts in 2021 and is planned to run until 2035.
A vibrant and growing domestic market is vital for manufacturers expected to make huge investments in localisation. Even Australia, with a domestic market of more than a million sales annually could not continue to be a viable and sustainable vehicle producer in the high tech – and high investment – environment of the 21st century.
The Department of Trade and Industry has also set ambitious objectives for the industry to double in size – producing more than a million vehicles a year – and double employment in the total automotive sector. Increased exports of built-up vehicles and components are seen as a major key to reaching these targets, but one must remember that export volumes are dictated by parent companies, not by their local subsidiaries. If the same quality product is available from a reliable supplier at a lower cost elsewhere in the world then that is where the orders will go.
There is another challenge awaiting the industry in 2019 and that will be the negotiations between employers in both the vehicle-making and component sectors with their respective trade unions to try and reach a three-year agreement. This could be a big obstacle with trade unions under pressure as membership falls and NUMSA becoming a political entity as well as a union.
Internationally there is the huge push towards electrification, with vast investments in new tech and new or revised factories. Yet nobody knows if the buyers are going to swarm to this new technology and take up all the production being planned.
The horrendous costs of developing these new technologies, which include buzz words like “autonomous driving vehicles”, “connectivity” and “artificial intelligence” are putting manufacturers under huge strain. This is seen with Ford and Jaguar Land Rover among those companies cutting their workforce, while the high costs are also forcing alliances such as that developing between Ford and Volkswagen.
The internal combustion engine (ICE) is certainly far from dead and will be the major means of vehicle propulsion in many countries – such as those in Africa – for years to come. Major advances are coming in terms of cutting emissions and fuel consumption while improving performance and efficiency for both petrol and diesel power units.
These technologies include downsizing engine sizes and fitting turbochargers (already popular), variable compression (Nissan), compression ignition petrol engines (Mazda). Of course, there are many variations on the hybrid theme, with Toyota quietly beavering away and increasing its market share and sales volume in many European markets by concentrating on its wide range of advanced hybrids.
The much-maligned diesel engine is undergoing accelerated development to make it cleaner and even more efficient so as to make it more acceptable to the public and law enforcers.
The ongoing mess that is Brexit, as well as the ongoing trade dispute between the United States and China are serving to further muddy the water for global automakers.
Then, of course, we have the future of the alliance of Renault, Nissan, and Mitsubishi under threat as its founder and driver, Carlos Ghosn, languishes in solitary confinement in a Japanese jail.