Johannesburg — THE Automotive Production and Development Programme encourages car makers to increase their use of local parts and accessories in vehicle production, but original equipment manufacturers have questioned the competitiveness of the local supply industry.

"We spend about R4,4bn on car parts a year, with 25% of that sourced locally and the rest imported from countries such as Brazil, Thailand and China," says Evan Dold, purchasing and supply chain director at General Motors SA (GMSA).

"For us to source more local parts, suppliers need to become more cost-competitive."

The company has two car assembly lines at its factory in Port Elizabeth, with plans to introduce a third platform before the end of the year.

For each assembly line on any given day, GMSA requires 8000 car parts . About 1500 of those come from about 110 South African suppliers.

"The main issue is economies of scale. Thailand can sell us the same basket of parts as our local suppliers for 30% less. Say we need 20000 windscreens for our Isuzu bakkie, we will compare prices with a Chinese manufacturer and a South African supplier. The Chinese producer is making 1-million windscreens and the South African supplier is making only 20000, so of course it makes sense cost-wise to purchase from the Chinese supplier," says Mr Dold.

There are seven original equipment manufacturers in SA, with most of them investing heavily in local capacity and supplier bases.

Toyota SA plans to increase its local content from 45% to 70% as part of a localisation programme to strengthen its market position, CEO Johan van Zyl said at the company's midyear review. "The automotive industry needs to be supported by a strong local component industry and local manufacturing base."

Under the Automotive Production and Development Programme, which will come into effect from 2013, car makers will have incentives to produce 50000 cars a year and increase the local content in their cars.

Volkswagen SA hopes to increase its local content from 40% to 70% with the production of its Polo and Polo Vivo cars.

Mr Dold says: "There are a number of challenges in our way that make it difficult to support the local supply base - and they are costs, volume and security of supply. Labour unrest means that there is not a reliable influx of parts. Everything relies on logistics and perfect timing in this industry."

Tony Twine, chief economist at Econometrix, says that if local content is increased, supplies could possibly be integrated into the global supply chain.

He also notes that SA's catalytic converter manufacturing industry is extremely competitive on the global stage. These convertors are used in cars' exhaust systems to prevent the escape of harmful emissions.

In 2006, catalytic converters were the only mass-produced car part in SA.

"But without government intervention, the local car industry would probably not exist. Some form of protection is very necessary for the parts industry," Mr Twine says.

However, Mr Dold says that there are ways to increase the competitiveness of the local supply industry , mainly through the original equipment manufacturers purchasing council.

The council is made up of all of the local manufacturers with the shared goal of sourcing car part volumes at a cheaper rate. Essentially, the council will have "linked sourcing" in which a manufacturer will be supported by others in its efforts to localise a component or its supplier.

Mr Dold says that it is favourable in many respects to source parts locally, as sourcing parts from overseas presents logistical challenges .

"We have to pay for about eight weeks of shipping costs and then have to contend with the low productivity and efficiency of our own ports."

Meanwhile, with GMSA's third platform, 20000 further units will be produced, presenting many opportunities for growing the supplier base, the company says.