Not just VW – Ford warns of “slow death of South Africa”

Ford is the latest car company in South Africa to sound the alarm over the dire economic circumstances faced by the country’s auto manufacturers, describing it as a “slow death” for the industry.

These comments were made by Ford South Africa CEO Neale Hill during the media launch of the Ford Puma crossover this week, shortly after the head of Volkswagen’s global passenger car brand, Thomas Schaefer, declared that the German company was “very worried” about the fate of South Africa’s VW Kariega production facility in the Eastern Cape.

Mounting difficulties

Hill explained that South Africa’s failing infrastructure, persistent load-shedding, and rising operating costs have already had an impact on local auto manufacturing operations, as investments are actively being channeled toward other countries with fewer socioeconomic difficulties.

He noted that Ford’s Silverton Plant in Gauteng, which produces the Ranger and VW Amarok bakkies, is now more expensive to operate than its sister facility in Thailand, as it has lost its competitive edge in terms of labour costs and ease of business.

Furthermore, South Africa’s geographical advantage for global shipping has eroded due to the country’s dysfunctional railways and ports which have led to huge delays for incoming parts and outgoing shipments.

To get around this issue, Ford and VW have both had to resort to air freighting new parts to keep production on schedule because their larger shipments get stuck in the ports, racking up massive operating costs in the process.

“We are a volatile, high-risk country where government is not enabling business. That is the reality of what we are dealing with and it is gravely, gravely concerning,” said Hill.

Ford Silverton Assembly Plant

Huge losses on the horizon

Ford and VW are two of the seven, soon to be eight, car companies that have assembly plants here in South Africa, alongside BMW, Isuzu, Mercedes-Benz, Nissan, and Toyota.

According to the National Association of Automobile Manufacturers of South Africa (Naamsa), the vehicle production sector is responsible for roughly 20% of all the manufacturing done in South Africa, contributing about 6% to the country’s GDP in the process.

It also employs about 110,000 people directly, which forms part of an estimated 457,000 jobs formed across various levels of the local supply chain.

Earlier this week, VW South Africa’s (VWSA) chairperson and managing director, Martina Biene, elaborated on the German company’s stance on South Africa, saying that it was no longer a good candidate for investment due to the logistical issues with the country’s rail and ports, and because of the high cost of running generators to mitigate the effects of load-shedding.

She said VW has already spent R130 million on diesel generators to keep Kariega running, and that this is money that could have been used to invest in the production of a third vehicle here alongside the Polo and Polo Vivo, an endeavour that has now been delayed.

At the same time, the national government’s sluggish response to producing legislation for electric vehicles (EVs) has made other African countries like Egypt and Ethiopia, which have EV production incentives, a much more appealing candidate for investment, she said.

Things are a bit more positive for Ford, as it recently announced it would be investing R5.2 billion at Silverton in preparation for the production of a plug-in hybrid Ranger starting in late 2024.

However, Hill warned that these financial commitments from the Blue Oval’s parent company are not guaranteed, and that if economic conditions do not improve, there is a very real chance that more carmakers may decide to cut their losses in South Africa and head elsewhere.

“It’s getting harder and harder to convince our principles that South Africa is a place worth doing business with,” he said.