Latest / Drive with John Perlman / New rules for car manufacturers in SA

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New rules for car manufacturers in SA · Drive with John Perlman

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  Speaker 1: Drive home with John Perlman on 702. Let's walk the talk.
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  Speaker 2: But first, let's stay with vehicles, but in an entirely
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  Speaker 2: different matter altogether, actually. Minister of Trade and Industry, Parks Tao,
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  Speaker 2: has been speaking about the plan that the country has
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  Speaker 2: to tighten up on vehicle manufacturing rules. They want to
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  Speaker 2: phase out the practice of importing cars into And particularly
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  Speaker 2: in the target zone for the minister and for the
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  Speaker 2: government is what is known as semi-knockdown operations. What they're
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  Speaker 2: saying this would change if indeed this policy worked. intention
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  Speaker 2: becomes policy practice is that there will be more jobs created,
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  Speaker 2: a much more sustainable local manufacturing industry. I wonder though
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  Speaker 2: if this might have price implications for some models that
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  Speaker 2: are becoming increasingly popular and starting to take up fairly
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  Speaker 2: dominant positions in our car sales sector. Let's bring in
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  Speaker 2: then Warren Tucker, motoring enthusiast and analyst to give us
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  Speaker 2: a sense of what's going on. Warren, welcome and thanks
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  Speaker 2: very much for giving us your time. Semi-knockdown, what exactly
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  Speaker 2: does that refer to? Good afternoon.
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  Speaker 1: Good afternoon, John. Well, look, with your semi-knockdown kit, it's
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  Speaker 1: basically a vehicle that comes in a container, partially assembled,
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  Speaker 1: and the vehicle is completed within the borders of the country.
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  Speaker 1: There's tax implications and obviously there are import discounts that
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  Speaker 1: apply to you having a semi-knockdown vehicle and then assembling
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  Speaker 1: it here. Government obviously at the time was giving incentives
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  Speaker 1: for this to happen. That's why the practice continued. It
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  Speaker 1: also happens with certain models, normally your performance cars. They
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  Speaker 1: are either imported completely or come as a semi-knockdown kit
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  Speaker 1: and then assembled at the plant. BMW used to do
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  Speaker 1: that with their M cars in the early 90s and 2000s.
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  Speaker 1: They'd come from Germany, partially assembled, and they'd be completed
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  Speaker 1: in the borders of South Africa in an effort to
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  Speaker 1: keep costs down.
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  Speaker 2: So tell us about the tax implications. I mean, for example,
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  Speaker 2: do you get a more favorable tax benefit if it's
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  Speaker 2: semi-knockdown as opposed to completely assembled, or would it be
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  Speaker 2: the other way around?
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  Speaker 1: Yeah, you get a more favorable tariff when you bring
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  Speaker 1: the vehicle in because, look, the vehicle's assembled within the
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  Speaker 1: borders of South Africa, there's job creation that happens, there's
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  Speaker 1: employment that takes place, and then there's sort of a...
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  Speaker 1: an ecosystem that is funded around that because that vehicle
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  Speaker 1: is partially assembled within the borders of your country. That
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  Speaker 1: issue with us now saying, look, we want you to
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  Speaker 1: build the whole vehicle in South Africa is a double-edged sword.
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  Speaker 1: Because the problem in South Africa is the cost of
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  Speaker 1: production because of what we charge for electricity. it becomes
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  Speaker 1: unattractive for a company to come in here and build
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  Speaker 1: a vehicle if the cost is higher than what they
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  Speaker 1: can build it for and import it from their country
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  Speaker 1: into our country. Then you need to then come up
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  Speaker 1: with tax incentives. You need to also try to bring
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  Speaker 1: down the costs of production. It's basic economics. And the
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  Speaker 1: thing is, I feel like every time South Africa comes
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  Speaker 1: with these Good ideas, it's a good idea in practice,
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  Speaker 1: but they don't look at all the other input costs
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  Speaker 1: that go into that. It's easy to say, okay, don't
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  Speaker 1: bring in your knockdown kit, you need to assemble the
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  Speaker 1: car here, but at what cost?
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  Speaker 2: Why are they doing this?
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  Speaker 1: It's about job creation. They want the factories here. So remember,
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  Speaker 1: in the early 90s and 2000s, we assembled quite a
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  Speaker 1: few vehicles within the borders of South Africa. We assembled
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  Speaker 1: a lot of Mercedes brands, VWs for local and export.
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  Speaker 1: We did Hondas that were assembled under the Mercurius brand
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  Speaker 1: at the time for Mercedes. So we assembled quite a
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  Speaker 1: few cars within the borders of South Africa. The reason
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  Speaker 1: being is our labor and our input costs were cheap.
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  Speaker 1: Manufacturers could manufacture a vehicle here and export it at
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  Speaker 1: a profit. Also, apart from that, is our boat quality
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  Speaker 1: was good. Lots of companies came to South Africa because
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  Speaker 1: of the kind of quality they were getting out of
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  Speaker 1: the vehicles that were being produced here. Okay, so.
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  Speaker 2: The vehicles were being assembled here. What proportion of content
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  Speaker 2: was local? In other words, if I just think of
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  Speaker 2: a car, and I'm going to put this very crudely,
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  Speaker 2: maybe the doors and the chassis was made in Germany
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  Speaker 2: for the sake of argument. But my understanding was that
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  Speaker 2: South African manufacturers were making rear view mirrors and were
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  Speaker 2: making car seats and were making some of the fabric
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  Speaker 2: used on the floor and in the car in other
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  Speaker 2: parts as well. I mean, is that what they're trying
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  Speaker 2: to get? More local content? Or is government pushing to say,
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  Speaker 2: if you're going to sell that car in South Africa,
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  Speaker 2: you have to make the whole thing here?
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  Speaker 1: Yeah, so that is more what they're going for, which
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  Speaker 1: is what we used to have. So there were whole
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  Speaker 1: centers devoted to manufacturing a vehicle. If you think about it,
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  Speaker 1: you need steel. So the steel gets pressed into doors, bonnets, fenders,
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  Speaker 1: and the rest of it gets made and welded into
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  Speaker 1: a metal frame. Then the frame or the chassis is
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  Speaker 1: sent to the factory. And then all the stuff that
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  Speaker 1: become inputs into that vehicle, the steering wheel, the dash,
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  Speaker 1: the radio, all of that, if it was not assembled locally,
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  Speaker 1: some of it was imported, right? But a lot of
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  Speaker 1: the content, the guys that made the seats, the guys
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  Speaker 1: that did the leather, the door panels, that kind of
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  Speaker 1: thing was sourced locally, right? And things started changing when
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  Speaker 1: load shedding obviously hit, right? Manufacturers, obviously, that factory needs
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  Speaker 1: to turn out vehicles. Every minute there needs to be
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  Speaker 1: a vehicle coming off the assembly line, right? Now, if
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  Speaker 1: you think about the way the ecosystem works, somebody in
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  Speaker 1: a small factory is making a mirror. That mirror is
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  Speaker 1: then put into a box, which is delivered to the factory.
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  Speaker 1: There's somebody making the seats. There's somebody doing the steering wheel.
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  Speaker 1: There's somebody doing components that all come together.
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  Speaker 2: Right.
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  Speaker 1: And that has a knock-on effect for job creation because
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  Speaker 1: you've got all these factories that employ people, and that's downstream.
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  Speaker 1: And then upstream, it's assembled at the factory and then
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  Speaker 1: sold into the economy. South Africans are very passionate about
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  Speaker 1: their VWs because of the factory that's in Utena. But
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  Speaker 1: that factory at the moment is just making for local consumption.
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  Speaker 1: And I think the Polo GTI, they export, but the
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  Speaker 1: rest of it is just for local consumption.
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  Speaker 2: So some people listening will be saying, look, you know,
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  Speaker 2: it would be great if we could have more jobs.
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  Speaker 2: It would be great if we could have small businesses
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  Speaker 2: up and downstream that in turn also create more jobs
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  Speaker 2: and prosperity in general. But actually what I really want
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  Speaker 2: is a well-priced, good quality car. Now, we've seen the
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  Speaker 2: massive inroads made into our vehicle sales sector, Warren, by
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  Speaker 2: Indian and in particular Chinese cars. If they were to
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  Speaker 2: go hard and effectively on the semi-knockdown policy shift, would
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  Speaker 2: that mean those cars are not going to be as
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  Speaker 2: available as they were or are they going to be
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  Speaker 2: available but they're going to cost more? Will there be
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  Speaker 2: a consequence there?
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  Speaker 1: Well, you see, that's the thing. So if you look
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  Speaker 1: at what the Chinese would do, right, they must probably say, well,
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  Speaker 1: we've got a big market there at the moment and
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  Speaker 1: we're selling quite a few units into the market. is
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  Speaker 1: it feasible for us to set up a factory where
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  Speaker 1: we manufacture this vehicle start to finish? And then if
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  Speaker 1: that answer to that is yes, then you now need
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  Speaker 1: to look at the input costs of that. And if
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  Speaker 1: the electricity cost, the cost of steel, the cost of
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  Speaker 1: labor in South Africa is more than what those costs
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  Speaker 1: are in China where the vehicle is manufactured, then yes,
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  Speaker 1: the cost of the vehicle going forward will go up.
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  Speaker 1: That's why I say It's in practice what government is
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  Speaker 1: saying is good, but you are pushing for something, but
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  Speaker 1: you're not sorting out the inputs on the other side.
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  Speaker 1: So it doesn't become feasible for somebody to say, okay,
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  Speaker 1: you know what, rather instead of me sending that semi-knockdown unit,
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  Speaker 1: I can't anymore. It's cost me too much to assemble
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  Speaker 1: that vehicle anymore. I just won't import that model into
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  Speaker 1: the country anymore. And that's the double-edged sword with that.
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  Speaker 2: Is part of the complexity of this, Warren, and you
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  Speaker 2: keep making the point that the consequence, some of the
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  Speaker 2: consequences may be unintended and could be negative with that.
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  Speaker 2: Is it because we're trying to come up with a
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  Speaker 2: single policy for an incredibly diverse industry?
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  Speaker 1: Yes. The thing is, you've got this industry, which is essentially....
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  Speaker 2: Okay, we just lost Warren for a moment. Warren, I
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  Speaker 2: wonder if you could just move around. Maybe your connection stepped.
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  Speaker 1: Oh, we've got you back. Can you hear me now? Yes, please.
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  Speaker 2: If you wouldn't mind going back to the beginning of
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  Speaker 2: that answer.
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  Speaker 1: Yes, I was saying that as we've discussed, it's a
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  Speaker 1: very complex ecosystem that goes into manufacturing the end product,
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  Speaker 1: a vehicle, right? Right. And the thing is, you've got
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  Speaker 1: to look at it holistically. You can't just look at
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  Speaker 1: it from one end, right? Case in point, we used
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  Speaker 1: to have Philips in South Africa. Philips used to manufacture TVs, right?
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  Speaker 1: If you're going to go this route, then what you
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  Speaker 1: should be saying is, okay, We will then give companies
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  Speaker 1: like Samsung, LG, whoever, for example, sell TVs into our market.
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  Speaker 1: If you manufacture the TVs into our market, we are
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  Speaker 1: willing to give you these tax breaks, these incentives, land, X, Y,
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  Speaker 1: and Z, right, to entice the company to build a
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  Speaker 1: factory here. And then you have skills development, there's upskilling
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  Speaker 1: down the line. And that's how you're going to grow
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  Speaker 1: the economy. But you're looking at it holistically. You're not
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  Speaker 1: looking at one portion of it.
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  Speaker 2: Thank you so much, Warren Tucker, motoring enthusiast. It's fascinating,
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  Speaker 2: I find, because you get a broad statement of intention
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  Speaker 2: from government. And when I say it's broad, I'm not
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  Speaker 2: suggesting there isn't a detailed plan. There is, but we
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  Speaker 2: haven't seen the exact details of the plan. And then
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  Speaker 2: you start breaking it down. and looking at the implications.
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  Speaker 2: We'll keep on that story. 702 Drive, two minutes to four.