Online used-car dealer Japan-partner.com offers to ship vehicles from Nagoyao to Durban for $70 per cubic metre. “This means that car shipping cost of a Nissan Primera is 10,48 x 70 = $734,” is the example in its FAQ. A Nissan Primera in stock costs $1 700, bringing the total cost to R15 251 at the current exchange rate.
The cheapest Nissan Primera listed in McCarthy’s Call-a-car costs R54 990. It is a 200 GSI with 121 000km on the clock. Three others range from R64 995 to R109 995. The Japanese site’s $1 700 Primera 1.8CI has 95 000km on the clock, and is described as having a dented left fender, which doesn’t look too serious in the website’s picture. So Japanese used cars seem to cost between a quarter and a fifth of their South African counterparts.
An inviting offer, considering the Japanese drive on the same side of the road as us. But there is a problem: importing used cars into South Africa is virtually illegal, with good reason, the National Association of Automobile Manufacturers of South Africa (Naamsa) claims.
“Those are called ‘discards’,” says Naamsa director Nico Vermeulen. “Do we want to become a dumping ground for cars Europe and Japan don’t want? Go to Durban harbour and look at the wrecks en route to African countries. They have to be pushed because they can’t be driven.”
The Nissan Primera used as an example is being sold as drivable.
Vermeulen argues outlawing used Japanese cars protects local consumers. If you bought an attractively described vehicle from Kinki-company.co.jp — “We NEVER tamper with odometer readings! We NEVER sell stolen cars!” — only to find some not-rolling rust bucket dumped at Durban harbour, what recourse would you have?
McCarthy chief executive Brand Pretorius isn’t as dismissive about Japanese used cars. Cars older than three or four years are nearly worthless in Japan, and get sold to developing countries. Japan discourages its citizens from driving old cars by making vehicle depreciation steep and through roadworthy checks.
Sites like Japanesevehicles.com list local representatives in countries such as Angola and Tanzania. New Zealand stands out as an odd member in these lists.
Allowing imported used cars into New Zealand wiped out its vehicle-assembling industry, Pretorius says.
South Africa’s government intervention initiative, called the Motor Industry Development Programme (MIDP), has over the past 11 years developed its industry to the point where vehicle exports overtook gold exports last year.
“Consumers would score if we allowed Japanese imports. But it would kill about 40 000 jobs in local vehicle manufacturing, and another 70 000 in component manufacturing,” Pretorius says. “As a retailer, I feel the more affordable cars are, the better.” But Pretorius, the former head of Toyota South Africa, nevertheless backs the MIDP.
Australia — the country South Africa cribbed the MIDP from — claims it gouges local consumers to subsidise cheap exports. This is against World Trade Organisation (WTO) rules.
The government is doing a review of the MIDP. Pretorius has called on the government to try and preserve the existing import/export complement element of the MIDP, the part which Australia complains breaches WTO agreements.
Car manufacturers are in the process of completing their case in favour of not only keeping the MIDP as it stands, but extending it beyond 2012.
Naamsa president Johan van Zyl said at the Durban Motor Show: “Capital investment in the vehicle manufacturing industry is expected to increase by a massive 135% this year to a record R8,4-billion, compared to R3,6-billion last year, with most of this investment earmarked to be spent on new product, local content, export investment or production facilities.”
The current phase of MIDP started in September last year with import duties of 65% — high, but much lower than the 105% protection in the apartheid era. Duties on imported new cars have dropped to 32%, and are scheduled to narrow to 18% in 2012.
Van Zyl called on the government to start planning for an additional period after that to 2020, given the investments the industry is making.
Car makers are very happy with the MIDP and keep lobbying for it to be extended. But is it good for local consumers? Probably not, a paper titled The Economics of MIDP and the South African Motor Industry by Frank Flatters of Queen’s University in Canada argued.
Flatters’s research was done for the Trade and Industrial Policy Strategies (www.tips.org.za). He argued that “the main effect of the MIDP is to transfer income from South African consumers to shareholders of the company making the investment”.
His paper called for a more detailed analysis of the MIDP since it is a policy based “on faith and on claims made by those with a vested interest”.
He questioned two of the main selling points of the MIDP: that it creates jobs and that it transfers technology to South Africa.
“Investments in excess of R12-billion since 2000 have resulted in virtually no job growth in vehicle assembly. Employment in components production (including tyres) has grown by a modest 6%, or barely over 1% per year, over the same five-year period,” Flatters wrote.
Of far greater importance in terms of employment is the “motor trade”, which is the service industry involved in sales, distribution, maintenance and operation of motor vehicles. Engine repair and maintenance, panel beating, petrol pumping and vehicle sales are all much more labour intensive than vehicle and component assembly, and as a result, this sector accounts for twice as many jobs as in vehicle and components production together.
Cheap used Japanese cars, especially if they truly are in as bad a condition as Naamsa’s Vermeulen claims, could see the motor trade mushroom.
Pretorius, however, argues the proliferation of makes and models would make maintaining imported used cars unaffordable.
Pretorius said in a recent opening address at the Durban Motor Show: “The reality is that new vehicles in South Africa are still expensive in relative terms if compared to other world markets. 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.”
Vermeulen says: “You can’t hang the problem that South Africans are not as rich as Americans on the door of the motor industry.”
While local car manufacturers could cut costs by “despec-ing” — rationalising into fewer production lines to achieve real economies of scale, Pretorius blames high prices on car ownership costs outside of manufacturing.
“Taxes and financing costs are very high in this country. So is insurance because of the high crime rate. Private leasing (as opposed to company leasing) — where consumers pay no initial deposit and hand the car back after a period — could be one way of addressing the high finance costs. But it is not allowed here. It is popular in South America,” Pretorius says.
An investigation by the competition authorities found the price gap between South African cars and their equivalent models in the European Union (EU) averaged 14% — a difference that could be done away with by making cars VAT exempt.
Vermeulen says comparisons of local car prices to their EU or United States equivalents are unfair because they are so dependent on how strong the rand happens to be at the time. “If the study was done a few years ago, when the rand was weaker, we would have had cheaper prices.”
The MIDP’s decreasing import protection has forced local car manufacturers to gradually become more efficient, and their price increases have been bellow inflation for seven out of the MIDP’s 11 years.
“If South African cars are so expensive, why are people buying them in record numbers?” Vermeulen asks.