Capex in auto industry expected to decline

Almost half of South Africa’s seven automotive original equipment manufacturers (OEMs) believe capital investment expenditure by the industry will decline in the next six months compared to the prior period.

Michael M MABASA Naamsa

A new National Association of Automobile Manufacturers of South Africa (Naamsa) confidence index, which anonymously canvassed the opinions of each of the CEOs, revealed that 47% of them believed that planned capital investment will decline in this period.

Naamsa CEO Mike Mabasa said the sentiment expressed by the Naamsa CEOs relating to automotive business conditions over the next six months, by and large, remains pessimistic. He said a few CEOs representing specific brands or specific vehicle categories expected an improved performance over the short term.

“The uncertainty of the impact and extent of COVID-19 persists as an ongoing concern and it remains imperative for automotive companies to adapt to the new operating and trading environment going forward,” he said.

The new index is contained in Naamsa’s latest quarterly review of business conditions for the new vehicle manufacturing and automotive sector for the third quarter of 2020, which was released this week.

Mike Mabasa is the CEO of Naamsa.

The review said the continued high levels of capital expenditure are owing to investment projects by manufacturers in terms of the Automotive Production and Development Programme (APDP), which are normally spread over multiple years, and the higher levels of production for export markets.

Mabasa said the automotive industry is not only the largest manufacturing sector in South Africa’s economy, comprising nearly one third of manufacturing output, it also invests billions of rand every year and provides nearly 500 000 direct jobs.

He added that even with an anticipated rebound of the economy and new vehicle sales in 2021, the growth outlook remains weak and the next six to 12 months “will be a defining time for many automotive businesses in the country”.

Naamsa stressed that South Africa’s automotive industry is an export-orientated industry, with three out of every four domestically manufactured vehicles exported in 2019. This means that vehicle exports will depend largely on the recovery of the domestic automotive industry’s main export regions, particularly Europe.

He said vehicle exports to Europe, the domestic automotive industry’s main export region, have declined by 39.2% for the year to date.

Mabasa added that vehicle exports into all major regions declined by 37.6% or 112 011 units during the first nine months of 2020 compared to the same period in 2019.

“Considering the significance of exports for the South African automotive industry, a second wave of COVID-19 in Europe, in particular, poses significant downside risks on the pace of recovery in domestic vehicle exports over the short to medium term,” he said.

South Africa’s automotive industry in 2019 achieved a new vehicle export record for the second consecutive year, growing exports by 10.3% to 387 125 vehicles from the 351 139 vehicles exported in 2018.

Naamsa has forecast that vehicle exports will decline by about 30% to 265 000 units in 2020 compared to 2019.

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