The motor industry strike has highlighted the big weaknesses in the local industry. Reg Rumney reports
HALF a percentage point here or there may not seem a great deal over which to wage a prolonged strike. And while a host of political factors has probably had something to do with the stance of the National Union of Metalworkers of South Africa, the specific bone of contention has been wages.
At the time of writing the union wanted 11 percent against management’s offer of 10,5 percent.
Even more strange is the dispute when it is realised that labour costs comprise a small part of the motor industry’s total costs. For instance, 80 percent of the costs of motor manufacturer Mercedes Benz SA are the materials that go into the car or truck, the tyres, window glass, pressed metal and electronic components that make up a modern vehicle.
At Mercedes Benz SA, a company with an annual turnover of around R3-billion, labour costs comprise only two percent of MBSA’s total costs. Naturally enough, though, blue-collar wage increases ripple through a company, raising general personnel costs. Those make up around 10 percent of MBSA’s costs.
These figures were revealed this week in a refreshing exercise in transparency by Mercedes Benz SA, which as a wholly owned subsidiary of its German parent need not reveal much.
The wage component in the industry in general, according to Brand Pretorius, managing director of the marketing arm of Toyota, is around four to six percent.
On the other hand, it is hard to explain to foreign investors used to an inflation rate of next to nothing and the harsh monetary policy regime that keeps inflation there, in this case the German owners of MBSA, why workers should get pay increases above the inflation rate of 8,2 percent.
MBSA can only do this by pointing to a brighter future for the South African subsidiary. And despite the strike August looks as though it will mark one of the company’s best retail sales ever, according to management board head Christoph Kokpe, while the company believes it could far exceed 1993’s pre-tax profit of R28-million this year.
For the motor manufacturers as a whole the wage rise issue is broader than the amounts they pay their own workers. Pretorius points out that the wage increases by car and truck makers filter through to the component makers, where the labour content of the parts produced is much higher.
So the automotive industry will then be hammered both by higher prices for local components and by higher personnel costs. At the same time the price of imported components has been rising steadily because of the seemingly endless deterioration of the rand against the yen and D-mark.
It is arguable whether, when taking into account the exchange rate, cars are more expensive in South Africa than overseas.
MBSA points out its C-Class model is 5,6 percent cheaper than in Britain and 6,8 percent than in Germany.
The number of cars, bakkies and trucks sold each year has still not reattained the 1984 peak, and a constant buying-down trend is testimony to the pressure on prices. MBSA only benefited from that trend by assembling the cheaper Honda Ballade range at its plant. Honda vehicles make up a much greater proportion of sales than Mercedes Benz cars now. This is the only Mercedes Benz operation in the world that makes the vehicles of another manufacturer at its factory.
From an affordability point of view, few would disagree with Pretorius’ statement that South African cars are overpriced in terms of what ordinary South Africans earn. This is understandable in the light of a lack of foreign competition that keeps demand for cars chasing after supply. The taxes payable on importing a car fully assembled overseas is 115 percent.
The affordability crisis has come despite a local content programme now in its sixth phase. That programme is about to enter a seventh phase that will mean that protection figure of 115 percent falling to 45 or even 30 percent.
Competition will make vehicles more affordable, but it will inevitably put pressure on the industry to cut costs and raise productivity.
At the end of July the motor industry forecast vehicle sales slightly up on last year.
That such industrial action puts the local motor industry at a disadvantage as competition increases is clear. Botswana-based Hyundai, an operation the South African motor industry claims takes advantage of a technical loophole to import cars in an almost built-up state, is smiling. Orders for its cars have reportedly soared. Pretorius notes the agents have said they have increased shipments to 500 vehicles a month, and have asked this to be increased to 900.