Big transformation proposed for car factories in South Africa

Isuzu South Africa CEO Billy Tom has put forth the idea of vehicle factories shared by several Original Equipment Manufacturers (OEMs) to help safeguard the longevity and boost the growth of the local auto industry.

Tom said an opportunity exists for OEMs who import cars to South Africa but don’t have the sales volume required to justify the investment into a South African plant

These companies could share the cost of establishing such a facility, and to further reduce the financial burden, they could start with semi knocked-down (SKD) production before taking on complete knocked-down (CKD) assembly.

SKD refers to vehicles that are partially built in one region and exported in boxes to another to be fully assembled, while CKD is when a vehicle is built from scratch in one factory.

“Capital-intensive manufacturing makes it difficult for a single manufacturer to go it alone but a combined facility could create scale to make local production viable,” said Tom at a media briefing last week, as quoted by BusinessDay.

“You could also build a local components supply chain.

There are currently seven OEMs with CKD operations in South Africa, comprising:

Stellantis, one of the world’s top OEMs with 14 brands to its name, is set to join the local CKD sector next year.

Those with domestic SKD facilities are comparatively fewer, such as BAIC with its Beijing X55 being built in the Coega Special Economic Zone in the Eastern Cape.

Mahindra also has SKD operations for the popular Pik Up located in Durban, KwaZulu-Natal, though it is actively exploring the viability of breaking ground on its own CKD factory.

The silver bullet?

The amalgamation of brands under a single factory roof could help the local automotive industry fend off the onslaught from the East.

Toyota South Africa CEO Andrew Kirby recently warned that urgent action is required to ensure the continued operation of and investment into South Africa’s automotive manufacturing sector in the face of increasingly stiff competition from Chinese and Indian OEMs.

While being able to convert import duty credits into cash is one solution, this requires government to play ball, which could take a while.

Isuzu’s Tom’s suggestion may thus be a more immediate solution to bolstering the industry that doesn’t require as much state intervention. It would bring more investment to the country as well as increase its export base, both key to supporting longevity.

It would also make the domestic new-vehicle market more competitive as import duties contribute significantly to car prices, which could reduce the attractiveness of Chinese offerings.

The vehicle and auto component manufacturing industry contributes roughly 5% to South Africa’s annual GDP and is at risk of losing global competitiveness due to unnecessary red tape and the potential loss of key export markets such as the European Union as electric and hydrogen vehicles become more commonplace.

“We’ve created scale and skills. This is an area of opportunity for the South African auto industry so we’re not a nation of consumers, but producers,” said Tom.

However, the scale of the local market wouldn’t be sufficient to keep all incoming OEMs afloat, he indicated.

He thus advised these companies to look for more opportunities on the continent to spread their wings.

“Only 15% of what we export is to Africa. We need more bilaterals on the continent, for instance with Egypt, which has become an important hub,” he said.