VW joins the chorus of warnings for South Africa

Volkswagen Group Africa has joined the growing chorus of voices calling for urgent government intervention to safeguard South Africa’s automotive manufacturing industry.

Speaking at the South African Auto Week 2024 in Cape Town, Volkswagen’s Chairperson and Managing Director, Martina Biene, highlighted the challenges local manufacturers face as the market experiences an influx of Chinese automotive brands.

Biene expressed concern over the ability of local manufacturers to compete with the aggressive pricing strategies of imported vehicles.

While welcoming competition as a catalyst for innovation, she noted that systemic disadvantages, such as the high cost of production in South Africa, threaten the sustainability of local manufacturers.

A key example, she pointed out, is Volkswagen’s recent R130 million investment in generators at its Kariega facility to mitigate load-shedding disruptions.

This expenditure, she said, underscores the burden on local manufacturers forced to operate in a constrained environment with inconsistent power supply.

Biene further explained that South Africa’s low manufacturing volumes hinder the economies of scale required to lower production costs.

This makes it challenging for local producers to match the prices of imported vehicles.

“We’ve invested in skills development, job creation, and infrastructure in South Africa.

“Yet, we find ourselves unable to compete fairly due to structural inefficiencies and a lack of support,” she said.

Volkswagen’s R4 billion investment in its Kariega facility for the production of a new small SUV, set to launch in 2027, exemplifies its commitment to local manufacturing.

However, Biene emphasised the need for the government to not only protect but also grow the local automotive sector.

She called for strategic interventions to ensure local manufacturers can thrive amid rising competition.

“We need to have a serious conversation with the government about how to protect and support local manufacturing instead of allowing the market to be flooded,” she added.

Volkswagen’s concerns echo warnings from Toyota South Africa, whose CEO, Andrew Kirby, has repeatedly cautioned against the risks of deindustrialisation in the country.

Speaking at a seminar organised by the National Association of Automotive Component and Allied Manufacturers (NAACAM), Kirby pointed to the growing disparity between vehicle imports and locally manufactured cars.

He stressed that South Africa’s automotive sector is at a critical juncture, with declining component localisation and an increasing reliance on imported vehicles signalling an urgent need for policy intervention.

Comparisons with Thailand’s automotive sector illustrate the consequences of inadequate industrial policy.

In the late 1990s, South Africa’s and Thailand’s automotive industries were comparable in size.

Today, Thailand produces three times more vehicles and employs over 400,000 people, thanks to government policies that have fostered growth and supported a transition to neighbourhood electric vehicles (NEVs).

These policies include consumer demand-linked production, localisation incentives, and tax subsidies that have made locally produced vehicles more attractive.

Kirby underscored the importance of a similar approach in South Africa.

He noted that local vehicles are 6% to 12% more expensive than those manufactured in Thailand, primarily due to production inefficiencies and high input costs.

By implementing targeted tax incentives and subsidies, South Africa could stimulate domestic demand for locally produced cars and encourage manufacturers to localise more components, he argued.

Experts like Professor Justin Barnes from the Toyota Wessels Institute of Manufacturing Studies agree.

Barnes emphasised that successful industrial policies require collaboration between public and private stakeholders and flexible frameworks that adapt to market needs.

He highlighted that consistent and inclusive policy implementation is key to creating a competitive and sustainable automotive sector.

To remain competitive, stakeholders argue, South Africa must prioritise industrial policies that support local production, address systemic challenges, and foster an environment where manufacturers can compete on a level playing field.

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