Biz-Community (Cape Town)

8 August 2012

South Africa: Motor Industry Shelters From the Europe Storm

Recent news from Rosslyn-based BMW SA that it is going to start exporting cars to China has shown the local motor industry's ability to diversify its customer base and shield itself from the crisis in Europe.

As SA's third-biggest industry this bodes well for local job creation and the knock-on effect this has on local suppliers and component manufacturers.

National Association of Automobile Manufacturers of SA (Naamsa) director Nico Vermuelen said on Thursday that the industry "exports to more than 100 countries" and that as a result it was to some extent protected.

On Friday BMW SA announced that it had received official approval from Chinese authorities to export the 3-Series to China. BMW SA builds the 3-Series at its plant in Rosslyn outside Pretoria.

Known as a china quality permit BMW SA can now step in to help meet burgeoning demand in China for its 3-Series models. BMW sales grew 40% in China during 2011.

BMW SA's Guy Kilfoil said on Monday that while the company did have two factories in China they built cars that made up the volume in that countryâ-š namely the firm's SUVs and extended-wheelbase versions of its 5-Series mid-range luxury sedan. Industry chatter also has it that the company will soon be constructing an extended-wheelbase version of the 3-series at its new Tiexi plant something on which Kilfoil would not be drawn.

However the Chinese plants' focus on the company's volume sellers has left a gap for the standard-wheelbase 3-Series which comparatively does not sell in big volumes in China.

While conceding that the volumes were not huge Kilfoil said that 3-series exports to China would eventually make up about 10% of the firm's exports and would reach about 7500 cars a year next year when the firm intends to export 77000 cars.

The firm eventually aims to produce more than 90â-š000 cars a year with its biggest market the US making up about 50% of the plant's volume. This would require an additional 600 jobs and a 24-hour operation.

Kilfoil agreed on Friday that the company felt "protected from Europe". "We're happy not to be exposed to the EU" he said. "Our cars go east and west not north" he added.

In a press release on Friday Kilfoil wrote that other than the US BMW SA exported to "local and African markets Canada Japan Korea Taiwan Hong Kong Singapore and Australia".

SA's other luxury car maker Mercedes-Benz SA (MBSA) builds the C-Class for the local market and for export. However what is not bought here goes to the US as opposed to Europe.

"We're less exposed to some extent than some of our other factories around the world" MBSA spokeswoman Lynette Skriker said on Monday. "The bulk of our output goes to the US" she said.

Toyota SAâ-š which builds cars and light commercial vehicles in its Prospecton Durban plant also has a diverse range of customers that ensures exposure to any serious downturn in Europe would not be too severe.

According to the company's website Toyota SA exports cars to 57 countries specialising in African eastern and Asia-Pacific markets. The majority of the company's export business is the Hilux pick-up but the firm also exports its Corolla sedan and Fortuna SUV.

Ford which builds the Ranger pick-up in Rosslyn does significant business to Europe. But Dean Stoneley head of sales and marketing at Ford Motor Company of SA said the Ranger was a "niche product" in Europe and that it hadn't felt any ill effect from the eurozone crisis.

Of all the local manufacturers VWSA is most exposed to Europe with VW spokesman Matt Gennrich telling Business Day that the situation was "very concerning".

The firm recently lost a contract to supply cars to Spain but was able to offset this to some extent with an order for an additional 12â-š000 units from China.

However Gennrich noted that while the company built the world's supply of the Cross Polo a small Polo-based crossover car in terms of its manufacture of right-hand-drive Polos it was only exposed to the UK in Europe where he said the car was "very popular".

Gennrich said the firm would meet its target of building 108000 cars this year and that a great many of them would go to Japan and Australia. "Our volumes are holding" he said.

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