Big VW problem in South Africa

Volkswagen says local car makers are undervalued in South Africa. They have little protection from cheaper imports and must pay the cost of government failures to remain operational.

This, in turn, hurts investment in South Africa’s motor manufacturing industry and ultimately costs consumers more.

Speaking at a National Automobile Dealers’ Association (Nada) event this past week, Volkswagen Group Africa chair and MD Martina Biene outlined the company’s significant challenges in South Africa. 

This includes the additional costs imposed on manufacturers due to unreliable electricity supply, inefficient transport and logistics, and operational difficulties at the country’s ports.

Biene highlighted Volkswagen’s recent investment in generators at its Kariega facility to mitigate the impact of an inconsistent power supply. 

These are additional costs that manufacturers shouldn’t bear, which invariably detriment consumers.

“We now have two generators that cost R130 million because we need quite a bit of power, but every day I run those generators, it costs R1.6 million,” Biene explained. 

She noted that this was a direct cost of doing business in Nelson Mandela Bay, and the company would not recover these costs.

“That is added to the pricing of cars because that money must come from somewhere,” she said.

Compounding the issue is that these additional expenses are not just an issue for Volkswagen but extend to other manufacturers and sectors on which local car production relies. 

Earlier this year, automotive component makers and vehicle manufacturers, including Volkswagen and Toyota, called on the government to intervene in steel giant ArcelorMittal South Africa’s (AMSA) planned shutdown. 

The concern was that AMSA’s closure would disrupt supply chains, threaten localisation efforts, and potentially lead to de-industrialisation. 

Despite these warnings, AMSA moved ahead with its decision to shut mills, citing similar challenges such as electricity shortages, transport inefficiencies, and regulatory red tape.

Volkswagen and other local manufacturers contribute significantly to South Africa’s economy through job creation, skills development, and transformation. 

The company employs 4,000 people, yet it faces intense competition from imported vehicles from brands that contribute very little to the country’s economy. 

Biene pointed out that Volkswagen is the only local manufacturer producing a model in the small car segment, yet imported vehicles—often significantly cheaper—dominate the market.

“That is not correct, and we don’t price because of our margin,” she said, explaining that South Africa’s relatively low production volumes put local manufacturers at a disadvantage. 

“Volkswagen only manufactures 27,000 Vivos a year in South Africa, whereas other cars in the segment are produced in countries where 300,000 to 400,000 vehicles are manufactured annually, benefiting from economies of scale.” 

These mass-produced vehicles enter the small South African domestic market at highly competitive prices, making it difficult for Volkswagen and others to compete. “That is not right,” Biene said.

Biene first raised concerns about these systemic disadvantages at the South African Auto Week in Cape Town last year, warning that the high cost of production in South Africa threatens the long-term sustainability of local manufacturers. 

She reiterated that Volkswagen’s substantial investment in generators at its Kariega plant highlights the cost burden local manufacturers face.

“Volkswagen globally will not understand a situation where we don’t have power, which hinders me from putting forward a strong business case,” Biene said. 

“There are 117 Volkswagen plants in the world, and that is my biggest competition in the market.”

Beyond electricity constraints, Biene pointed to the additional costs associated with transport, logistics, and port inefficiencies as further deterrents to new investment.

These infrastructural issues make it difficult for local manufacturers to remain competitive in the global market, which makes it even harder to approve additional investments into South Africa.

Biene stressed that local manufacturers will struggle to thrive without strategic government interventions.

“I don’t want protection because I’m not a protectionist advocate … but we need to incentivise local business, local manufacturing, and local trading,” she said.

“Sometimes, as local manufacturers, we don’t feel as valued as we should be, and that is true also for legacy importers with a long-standing history in South Africa.”

Biene said the government should recognise the automotive sector’s importance and implement policies supporting its growth. 

South Africa risks losing its local manufacturing base without such measures, which would have severe economic consequences.

“We’ve invested in skills development, job creation, and infrastructure in South Africa,” she said. “Yet, we find ourselves unable to compete fairly due to structural inefficiencies and a lack of support.”