Good news for BMW, Toyota, and VW buyers in South Africa

Several Original Equipment Manufacturers (OEMs) in South Africa will implore government to allow them to convert billions of rands in unused import duty credits into cash during the upcoming review of the country’s Automotive Masterplan 2035.

Import duty credits are awarded to OEMs who produce a minimum threshold of vehicles within our borders every year, and allow these automakers to reduce import taxes on vehicles and components that are not locally made.

At present, many of the country’s OEMs are stuck with a surplus of credits as their value surpasses import requirements. VW’s surplus alone runs into “many billions,” said Martina Biene, head of VW Group Africa.

According to Peter van Binsbergen, CEO of BMW South Africa, converting the credits into cash will slash production costs and, in turn, the asking prices of locally produced vehicles.

“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.

Should government give the green light, the credit conversion stands to benefit at least seven OEMs who assemble vehicles in South Africa.

The manufacturers, and the models they produce, are as follows:

The silver bullet

Apart from being able to lower prices, another benefit of duty credit conversions is that it will stem the inflow of more affordable new vehicles coming into the country, particularly from China.

Just in the past two years, South Africa welcomed no fewer than nine new Chinese brands with more set to land in the near future.

These automakers are heavily subsidised by the Chinese government which allows them to undercut legacy nameplates in new markets.

As a result, they have been rapidly eating away at the market share of long-established brands, a phenomenon that in addition South Africa can be seen in regions such as the United States, Europe, and even Japan.

While these other economies have generally gone the route of hiking taxes on China-sourced vehicles, this may not be the answer for South Africa, warned Toyota South Africa CEO Andrew Kirby.

However, he emphasised that urgent government intervention is required to “create a balanced environment where we all thrive and there is more competition.”

He indicated that the ability to convert import duty credits into cash could be the silver bullet to local OEMs’ competitiveness woes.