Johannesburg — DAIMLERCHRYSLER has warned that it will be "very difficult" to continue making cars in SA in the absence of the Motor Industry Development Programme (MIDP), whose future hangs in the balance.

Hansgeorg Niefer, DaimlerChrysler SA chairman, warned in a recent interview that, while DaimlerChrysler had a long history in SA, "it should not be taken for granted that we will stay here forever".

The controversial government support programme, which contravenes World Trade Organisation (WTO) rules, is undergoing a major review, including consideration of new support when the MIDP comes to an end in 2012.

Other car makers, such as BMW, have also expressed concern about the future of the 11-year-old programme, which has been reported to have yielded benefits worth more than R55bn to car makers to date.

Not only must the major benefits of the MIDP remain intact until its end date in 2012, said Niefer, but the industry needed another support programme that was WTO- compliant to compensate for the geographic disadvantage exporters here faced. The operating environment in SA had become tougher, with requirements such as black economic empowerment being added.

Tax and interest rates in SA also remained "too high".

While things had become tougher in SA, several new competitors, such as some from Eastern Europe, China, Brazil and Mexico, had emerged as attractive destinations for vehicle manufacturing, he said.

Niefer said the MIDP, which discounts the cost of vehicle and component imports, was so important that DaimlerChrysler probably would not have made the C-Class Mercedes-Benz in SA, had the programme not been extended to 2012.

DaimlerChrysler makes about 45000 C-Class cars and about 15000 bakkies in SA each year.

Niefer said uncertainty on the future of the MIDP may have been responsible for an apparent overhang in capital investment by the industry.

Car makers were expected to invest close to R6bn in new plants and equipment last year but only R3bn materialised.

The balance appears to have been carried over to this year, with automotive industry body National Association of Automobile Manufacturers of SA forecasting capital expenditure of R8bn.

The sector and the national trade and industry department put the automotive sector's contribution to gross domestic product at about 7%.

Government, which is reviewing the MIDP together with industry and labour, is expected to complete the review around mid-year.

A recent report by economist Frank Flatters says that the cost of the MIDP may have outweighed the benefit to the country. His report calls for a thorough cost-benefit analysis into the programme, which had not been undertaken before.

The support programme had yielded benefits worth more than R55bn to vehicle manufacturers, according to Flatters' report.