Peter van Binsbergen, CEO of BMW South Africa, has revealed that a cohort of local Original Equipment Manufacturers (OEM) will implore government to allow them to convert billions of rands in unused import duty credits into the cash equivalent.
This, he said, will assist in reducing production costs and, in turn, slashing the window stickers of its vehicles.
Another benefit is that it will stem the inflow of more affordable new vehicles coming into the country, a pressing issue that has also been highlighted by Toyota.
The credits are awarded to OEMs who manufacture a certain number of vehicles within South Africa every year, and allow these automakers to reduce import duties on vehicles and components that are not locally made.
In an exclusive interview with TimesLive, Van Binsbergen said the proposals will be put forth to the Department of Trade, Industry, and Competition during discussions surrounding South Africa’s Automotive Masterplan (SAAM) 2035.
Announced in 2018, the SAAM’s initial main goals were to double vehicle production and employment, increase localisation by 50%, and expand industry participation by historically disadvantaged individuals in South Africa by 2035.
However, as things currently stand, the SAAM is far behind schedule primarily due to the Covid-19 pandemic and the challenges that came along with it. Government and industry stakeholders have thus agreed to revise the roadmap this year and set more attainable targets.
Alongside the credit conversion proposal, the nation’s OEMs will implore authorities to integrate plans for the manufacturing of electric vehicles (EVs) into the SAAM and its accompanying component, the Automotive Production and Development Programme (APDP).
Additionally, they will be seeking clarity on President Cyril Ramaphosa’s newly introduced EV production incentives, which were signed into law at the tail end of 2024.
These incentives enable a 150% tax deduction on investment in electric- and hydrogen-powered vehicle production within South Africa’s borders, however, it does not apply to hybrid autos which is a rapidly growing market segment.
Ramaphosa said there was an argument for adding hybrids to the incentive programme as well as introducing consumer incentives that would make the purchasing of EVs more affordable.
“We are waiting for details of exactly what he meant in October,” said Van Binsbergen.
A game changer
BMW and VW have echoed Toyota’s warning to South Africa, stating that more must be done to protect the domestic manufacturing industry from cheaper imported vehicles, particularly those hailing from China.
The Chinese government provides many subsidies to its automakers which assist them in undercutting the prices of established brands in many global markets, not just South Africa.
Toyota said that hiking import duties on Chinese vehicles similar to Europe and the USA may not be the answer for South Africa, however, urgent government intervention is still required to “create a balanced environment where we all thrive and there is more competition.”
Additionally, certain Asian brands are exploiting legal loopholes that allow them to reduce import duties from 25% to as low as 5%.
These companies import semi-knockdown (SKD) vehicle kits into the country that require minimal assembly and zero local components, and consequently enjoy the same benefits as automakers who produce complete-knockdown vehicles at a much higher cost and contribute far more to the economy.
“The purpose of the APDP is to incentivise high-volume production. There is no reason the [SKD] companies should be treated favourably,” said Van Binsbergen.
Premium brands such as Audi, BMW, and Mercedes-Benz have been hit particularly hard by the shift to cheaper imported cars, as have more everyday nameplates like Toyota and VW.
BMW’s Van Binsbergen has thus labelled the proposal to use duty credits to reduce car prices as a game-changer for domestic OEMs.
“Price plays a major [role] in consumer decisions. President Ramaphosa said last week we have to address affordability. This proposal would do that,” he said.
“APDP credits are intended to incentivise domestic production, but what is their point if you can’t use them? If we don’t find a way to monetise them, some companies may question the need for second or third daily production shifts, and the extra jobs that go with them.”
According to Martina Biene, head of VW Group Africa, several OEMs in South Africa have a surplus of duty credits as their value surpasses vehicle import requirements. VW’s surplus alone runs into “many billions,” she said.
Under the APDP these credits may only be used for duty reductions, however, Biene said she’d like to see these credits being used to slash the prices of vehicles standing in showrooms.
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