Although world-class cars such as BMWs, Mercedes-Benzes, Toyotas and ÂVolkswagens are manufactured in South Africa, local consumers are paying much more for these cars than buyers in other countries. But industry players say it is almost impossible to Âcompare “similar models” sold in different markets. They say market differences are “vast”.
The BMW 3-series is made locally and exported for sale abroad, just like the Mercedes C-Class, Toyota Hilux, Fortuna and Corolla, and Volkswagen Polo hatchbacks. The BMW 335i sedan sells for about R293 891 in the United States, whereas the local price is R525 866 – R230 000 more expensive at current exchange rates.
A Mercedes-Benz C180 CGI Blue efficiency sedan is R350 190 in South Africa, whereas in the United Kingdom it retails for about R274 320. The difference is almost R76 000.
In an email to the Mail & Guardian, an anonymous reader highlighted this discrepancy after pricing a new car online: “I frankly can’t understand why South African cars of the same model and year are half the price overseas in countries like the UK, Germany, US and Japan,” he said. “While some … officials may argue they are protecting the after-market vehicle industries, knowledgeable industrialists like myself would argue it’s not a sensible reason …” Foreign investment, he said, should not mean exploitation of South African buyers.
Nico Vermeulen, director of the National Association of Automobile Manufacturers of South Africa, said a car made and sold in South Africa could be taxed up to 40% of its price. “It’s a progressive income-tax system in which the wealthier are taxed disproportionately to others and buying cheaper vehicles is encouraged.”
The vehicle tax regime consists of ad valorem customs and excise duty, value-added tax (VAT) and vehicle CO² emissions tax. On exported vehicles none of these apply.
Ad valorem tax ranges from a half percent on the cheapest cars to 25% on the more expensive models. “We are getting to the point where we are asking if the consumer is not being overburdened,” Vermeulen said. “But the government wants people to buy cheaper vehicles.”
To be objective, Vermeulen said, one had to strip out the differences: specifications, tax, import duties and the exchange rate. “Consumers must remember that the industry has no control over the exchange rate. Three years ago, when it was R11 to the dollar, we had the cheapest vehicles.”
GuyKilfoil, general manager of communications and public affairs at BMW South Africa, said the relative strength or weakness of the rand played a significant role in price differences. This alone, he said, accounted for a massive R158 000 difference in the current pricing of the BMW 335i.
The pricing structure in the US, Kilfoil said, is also vastly different. The US price is quoted excluding sales tax and delivery to dealer ($700), whereas the South African pricing includes both these factors.
Kilfoil insisted there was no way to compare vehicle prices in different global markets as the same model vehicles from the same manufacturer can differ dramatically from country to country.
The local BMW 335i sedan features, among other things, leather seats, a hi-fi loudspeaker system, car telephone preparation, USB audio interface and a sports leather steering wheel. These add up to more than R20 000-worth of additional standard options, Kilfoil said. All BMWs sold here also feature a five-year or 100 000km motor plan; on the 335i, it is valued at R51 000.
“South Africans have certain expectations of standard specification in a premium car,” Kilfoil said.
Volkswagen spokesperson Matt Grennich said vehicles in South Africa were specified at a much higher level. “It is what customers expect and what they are used to. ABS and airbags are just accepted standards in South Africa.”
Grennich said the Citi Golf was eventually taken off the market for this reason. “Consumers were not prepared to put their children in a car with no safety features”, and to manufacture what he termed “a shell with an engine” for the masses was not a viable option. “The reality is, these so-called masses would rather buy a better-equipped car second-hand.”
Shirle Greig, media product specialist at Mercedes-Benz South Africa, said many variables were taken into account when vehicles were priced, such as taxes, duties and maintenance contracts. “We cannot compare a vehicle sold in the US or UK as specification levels vary from country to country,” she said.
The department of trade and industry told the M&G the pricing of vehicles was a matter left to the individual firms to decide. And although there may be varying differences in dealer prices of vehicles in different countries, all the factors must be scrutinised.
Sidwell Medupe, director of communications and public relations in the department, said imported components for the manufacture of vehicles had an import duty of 21% this year. “With average local content of about 50%, it therefore means that locally assembled and sold vehicles have relatively more expensive components compared to those exported, because such duties are rebated.”
The government’s motor industry development programme has included a phased reduction of automotive import duties from 65% for vehicles in 1995 to 25% in 2012. In 2008, the government took a decision to replace the programme with the automotive production and development programme from 2010, which means import duties would be kept stable at the 2012 levels until 2020 in an effort to provide some justification for local manufacturing in the context of constantly increasing global competition.
Real vehicle prices have generally declined since the introduction of the programme, Medupe said, but a number of factors do influence prices. “Although there is a cost to supporting the industry, the benefits outweigh such costs, especially when you consider the unemployment situation in South Africa against the ever-increasing competition for such automotive investments globally.”