Although South Africa currently has one of the fastest growing new vehicle markets in the world, the local motor industry still has a number of significant challenges to address, according to McCarthy CEO Brand Pretorius.
Pretorius was speaking at the opening of the Durban Motor Show on Friday.
South Africa’s motor industry posted record 2005 sales of 618 157 units, 28,5% higher than 2004, making it one of the fastest growing in the world. So far in 2006, sales growth has been 18,7% up on 2005 levels, and unit sales could reach 700 000 units for the year.
Notwithstanding all this good news, Pretorius pointed out that such issues as better customer service, the regulatory environment, infrastructure bottlenecks, export growth, and transformation needed to be addressed by all the role-players in the market.
“Despite an enormous amount of effort by motor manufacturers and retailers, the industry is not renowned for world-class service,” he said. “Should customer fulfillment be our first priority, the industry will have to work a lot harder to provide our very demanding new millennium customers with the level of service they expect.”
Current constraints on the delivery of world-class service included: significant model proliferation; parts supply challenges; high activity levels; and the lack of physical and human capacity.
“In order to deliver outstanding customer service, the industry would have to continue to make a disproportionate investment in systems, processes, logistics and facilities, as well as in the recruitment of new talent, staff development and training.”
Pretorius also believed that the industry needs a favourable regulatory environment.
“Despite possible pressure from the World Trade Organisation, the mid-term review of the Motor Industry Development Programme (MIDP) should try and preserve the existing import/export complementation element. South African vehicle manufacturers are at a disadvantage in terms of geographical location as they are massive distances from major markets, as well as being faced with high tax levels, a relatively high interest rate, skills shortages and a low level of automation at plants. Regulations regarding vehicle licensing also shouldn’t be too restrictive, and similarly fringe benefit tax levels not too punitive.”
Infrastructure bottlenecks were also causing substantial inefficiencies in the motor industry pipeline and needed to be addressed.
“Congested ports and terminals — particularly in Durban — insufficient ‘car train’ capacity especially between Durban and Gauteng, and severe traffic congestion on major routes, are causing lengthy delays and adding cost.”
Pretorius also believed that in order to protect the future viability of the industry, exports needed to grow significantly. High exports gave the local manufacturers economies of scale, while export credits provided some insurance against possible exchange rate depreciation, he observed. Export credits also enhanced affordability of vehicles locally through import duty off-sets.”
The industry should also accelerate transformation in line with the government’s code of good practice, he noted.
Another major issue was that of vehicle affordability, which was key to further growth in the domestic market.
“The reality is that new vehicles in South Africa are still expensive in relative terms if compared to other world markets,” said Pretorius.
“The McCarthy affordability index shows that the average South African household would need 164 weeks of earnings to buy an averagely-priced new car, compared to just 26 weeks in the United States.
“One solution is to search world markets for cheaper entry-level vehicles, with China an obvious possibility. The industry should also continue to explore innovative vehicle finance packages to allow more people to enter the market.”
According to Pretorius, vehicle manufacturers, importers, financial institutions and dealers had joined hands to address vehicle affordability in earnest. Substantial progress had already been made in terms of reducing the cost of vehicle ownership, following the widespread introduction of service plans and extended warranties at no extra cost.
“The medium to long-term view of new vehicle market in South Africa is still very promising, as a number of infrastructure development projects get under way in preparation of the Soccer World Cup,” said Pretorius. “Meaningful macroeconomic growth is projected, and it is also expected that enhanced vehicle affordability will unlock further market growth.
“McCarthy Limited has confidence in the future of the South African vehicle industry, and we expect meaningful growth through to 2010,” said Pretorius. – I-Net Bridge