Overview Of The Automotive Industry
The automotive industry is a dominant manufacturing sector in the South African economy. It is the 18th largest in the world, contributing 7% of the world’s vehicle production and supplying 80 per cent of Africa’s vehicle output. There are approximately 4 million registered passenger cars and 2 million commercial vehicles in the country, averaging around 8 people per vehicle.
The automotive and associate industry represents the largest manufacturing sector and accounts for about 28 per cent of South Africa’s manufacturing output. The industry contributed around 6.4 per cent of the country’s GDP in 2003. Total industry revenue (including VAT) for 2003 stood at USD 24.4 billion as compared to USD 21.3 billon in 2002.
The motor assembly industry’s average monthly employment during 2003 was 33,000 while the employment level in the components industry is estimated at 60,000. The employment in retail, distribution and servicing component of the motor trade, including petrol stations, is estimated at 190,000.
The SA Motor Industry incorporates the manufacture, distribution, servicing and maintenance of motor vehicles and plays a vital role in the country’s economy, contributing about USD 0.7 billion to the country’s GDP in 2003. It comprises 7 passenger vehicle manufacturers/assemblers and 9 commercial vehicle manufacturers/assemblers. The major car manufacturers in SA are:
1.BMW SA (Pty) Ltd
2.Daimler Chrysler (Pt) Ltd
3.Ford Motor Company
4.General Motors SA (Pty) Ltd
5.Nissan SA Ltd
6.Toyota SA Motors (Pty) Ltd
7.Volkswagen Of SA (Pty) Ltd
The Automotive Parts And Components Industry
The auto parts and components sector contributes more than 50 per cent in terms of output of the motor industry. The growth in number of vehicles has had a positive impact on the component industry. The National Association of Automotive Components & Allied Manufacturers (NAACAM) has estimated a potential growth of 10% in 2005.
There are more than 220 automotive component manufacturers in South Africa, and another 150 which supply the industry on a non-exclusive basis.
Characteristics Of Market
Import Market
Auto parts and components are SA’s second largest import product representing approximately 19% of total imports in 2004. Original Equipment Manufacturing for motor vehicles presents the biggest market for components, making up 46.7 % of total imports of components and accessories.
Germany is the largest source for South Africa component import, with the European Union (EU) accounting for 50 per cent of component imports valued of USD3.45 in 2004 compared USD in 2003. Imports from the US also rose substantially between 2003 and 2004, due the implementation of the African Growth and Opportunity Act (AGOA).
Malaysia’s contribution in terms of exports in this sector comes mainly from Original Equipment Manufacturing of Components valued at USD18.2 million in 2003. It ranks as Malaysia’s 11th largest export to South Africa comprising 1.6% of its total exports. The prospects for this sector looks good as the export of automotive components from Malaysia registered a healthy growth of 54.2% in 2004.
Thailand is currently the biggest exporter of automotive components to South Africa among the Asean countries, exceeding even the value of exports of these products from China and India. OE Components is also the number one export from Thailand (27% of total export from the country) and valued at USD 157 million up to October 2004, registering a growth of 35.4% over 2003. The other main components exported from Thailand are spark plugs and ignition equipment.
A statistical overview of South Africa’s automotive component market is as follows:
i. Total Import of Motor Vehicle Parts & Components as a % of Total Imports into South Africa.
Year
To October 2004
2003
2002
2001
Total Imports (USD’000)
42,019,629
43,123,068
45,745,436
34,585,865
Import of Vehicle parts & components
(USD ‘000)
7,966,150
8,364.279
8,393,265
6,345,383
% of total imports
18.9
19.4
18.3
18.3
ii. Major Exporters of Automotive Components and Parts to South Africa
Rank
Country
Value (USD’000)
Market Share
(%)
% Growth (‘03-‘04)
1
Germany
2,924,808
36.8
2
Japan
1,706,745
21.5
3
United States
403,606
5.1
4
UK
327,121
4.1
5
Brazil
302,012
3.8
9
Thailand
195,422
2.5
39.1
12
China
115,922
1.5
50.0
25
Malaysia
26,031
0.3
54.2
Product Type
iii. SA Import by Product: Automotive Components & Parts)
No.
Product Type
%
1
OEM for Motor Vehicles
46.70
2
Other Components
37.35
3
Automotive tooling
2.81
4
Engine parts
2.43
5
Tyres
1.67
6
Seat part / leather
1.12
7
Gauges / Inst. Parts
0.93
8
Brake parts
0.87
9
Catalytic Converters
0.63
10
Car radios
0.55
11
Transmission shaft
0.50
12
Lighting equipment
0.46
13
Axles
0.35
14
Clutches / shaft
0.34
15
Steering wheels / Box
0.33
16
Ignition / Starting Equipment
0.31
17
Road wheels
0.31
18
Engines
0.31
19
Body parts / panels
0.30
20
Filters
0.30
21
Gaskets
0.30
22
Batteries
0.26
23
Alarm system
0.23
24
Silencers / exhaust
0.17
25
Glass
0.17
26
Air-conditioning
0.16
27
Wire Harnesses
0.14
Market Characteristics And Consumer Preferences
The current average lifespan for a car in the SA has increased from ten to nearly fifteen years. The increase in lifespan significantly contributes to the growth in the market for auto spare parts. The harsh weather conditions in the SA also take their toll, requiring automobiles to be serviced more frequently.
The market for auto parts in SA is quite open. Market breakup for spares is estimated to be 49% original, 19% after-market and 32% counterfeit. The potential for after-market sales has increased as customers are becoming aware of high quality brands which cost 25-30 percent less than the OE parts but are of similar quality. The current local production of auto parts is still insufficient and depends on imports to meet the local demand. Competition for sales of spare parts depends on factors such as price, availability and quality.
The market for spare parts is also extremely price-sensitive due to competition from counterfeit and re-conditioned parts. Quality is not a deciding factor when purchasing parts. At this point in time, price is far more important than quality in most purchasing decisions. On the other hand, the increase in technological development of vehicles, reflected in the adoption of the front wheel drive, fully independent suspensions, multi-valve overhead camshaft engines and electronic controls have increased the unit prices of after market parts.
Some of the retailers and wholesalers offer both genuine and counterfeit parts, sometimes breaching their contractual obligations as there are no import controls. Counterfeit parts come mainly from Taiwan and Korea and are a competitive factor. The market is already very competitive and becoming increasingly so with a growing demand for original and more quality spare parts as opposed to counterfeit. Counterfeit trade in auto spare parts has not been totally wiped out in the SA but the authorities are working hard along with local dealers and international companies to remove the grey market element from the SA.
Frequency of repair due to worn out parts has declined in recent years as components are designed for greater durability affecting unit sales of many types of components. The vehicle parts with immediate development prospects in the region would be the ones which are standardized and frequently replaced - spark plugs, exhaust pipes, shock absorbers, leaf springs, air filters, oil filters, fuel filters etc.
Recent Developments
A recent development in the industry is the review this year of the Motor Industry Development Programme (MIDP) which will effectively lower the tariff for automotive components. The MIDP has been a protective measure by the SA government to provide the avenue for expansion of local vehicle producers and further growth in automotive component exports by means of sustaining import tariffs over a period of time.
It is in effect a prohibitive subsidy which gave, until recently, manufacturers of vehicles and components in SA an unfair advantage over rivals in other countries. To encourage a higher volume of domestic production, exporting automotive companies are allowed rebates that can be used to offset automotive import duties.
Under the mid-term review in 2002, import duties will be phased down gradually. For completely knocked down (CKD) components, maximum duties will decline to 25% in 2007 and to 20% in 2012. Current maximum duty on automotive components and parts is 30%. This will mean that the domestic market is increasingly opening up to imports of automotive components and accessories.
The Motor Parts and Equipment Industry of South Africa have also launched its “Genuine Replacement Parts Campaign” with the emphasis on awareness in the use of genuine replacement parts. This is in the light of counterfeit components flooding the market. In introducing this campaign, the MPEA has also introduced the new terms “Original Spare Parts” and “Matching Quality Spare Parts”. This will lead to a more open market in terms of quality alternative parts where dealers are forced to sell or fit OE parts.
Future Trends
The market for OEM and other auto components is growing. Automotive manufacturers in SA have also expressed their optimism for the SA import market. Industry players expect the next five years to be an extensive growth period to the local automotive industry, with opportunities across the automotive value chain, including manufacturers and distributors, and dealers of parts and accessories. With the drop in import duties, and the increased strength of the Rand, sales of imported components and accessories have risen sharply and this trend is expected to continue.
As an indication of the growth prospects in this sector, six global automotive component suppliers have made commitments to establish their presence in SA to supply components to major car manufacturers. The global suppliers who had committed to come to SA were:
1.Takata Petri of Europe, a supplier of safety systems such as seat belts, steering wheels and airbags;
2.Benteler, an engine parts supplier;
3.Magda Donnely of Europe, a side mirror supplier;
4.Denso of Japan, an air-systems supplier; Yazaki of Japan, a wiring harness supplier;
5.Sumitomo of Japan, another air-system supplier.
(Some of these are joint ventures which have been established with local suppliers and distributors).
Challenges In The Automotive Aftermarket
The main challenge facing the automotive aftermarket in general is the progress that has taken place in the technology front. There are consistent improvements in the manufacture of components to make them perform better and lasts longer. As a result, cars spend less time in workshops and the use of service parts is reduced. Replacement parts suppliers will also face difficulties as new materials reduce the rate of wear and tear and warranty periods are being constantly extended by car manufacturers.
Owners of older cars, who are mainly the middle income earners, are also more likely to buy parts on the basis of price rather than quality. This will allow suppliers of counterfeit products to take a slice of the market.
Malaysian suppliers therefore need to approach the market with higher productivity, better innovation and a commitment to excellent service in order to compete effectively.
Distribution Channel
In order to enter the SA market, Malaysian firms must go through local agents or distributors. Local representation is a legal condition for doing business in the market and local firms generally prefer exclusive agency/distribution rights for all of South Africa. They will supply direct from their base, appoint their own distributors in other parts of Southern Africa, or have a network of offices. There is a very well developed distribution system in this market.
Other marketing channels that should be explored are Joint Ventures/Licensing agreements with local companies who would then sell through their own distribution network.
Distributors, as opposed to local sales representatives, are the norm in the automotive parts and accessories sector because a good inventory is fundamental to success in this market. The potential agent should have a distribution network and warehouse facilities in his areas of operations, or countrywide.
Malaysian suppliers should ensure that their local distributor is well known in the market and enjoys close relationships with the customers.
Advertising and technical seminars are the most important tools to promote and market automotive spare parts in the SA. This is also an effective tool in helping local agents expose counterfeit spare parts. Most dealers advertise though local newspapers, specialty magazines and journals. Television and billboards are rarely used to promote various automotive spare parts.
It is important that Malaysian suppliers identify and make contact with members of the Motor Parts and Equipment ASSOCIATION (MPEA) of South Africa. Members of MPEA are reputable dealers and distributors and have the advantage of being accredited spares outlets by the association and are barred from dealing in counterfeit products.
Import Tariffs
Import duties on parts and accessories to South Africa and SADC countries range from a minimum of 10% to a maximum of 30%.
The import duty on original equipment components will be phased down by further 1% per annum from 2008 to 20% in 2012 but this is subject to review this year.
The DTI will continue to monitor industry development in particularly the local content level in domestic assembled vehicles. These developments will influence future changes to automotive policy.
Other Import Regulations
1.Taxes - A value-added tax (VAT) system replacing the former general sales tax has been in effect since September 30, 1991. The standard VAT rate is 14 percent, which is levied on almost all imports.
2.Exchange Regulations - SA exchange control regulations stipulate that payment of imports can only be effected by authorized banks against submission by their customers of documentary proof that the goods were imported into SA as evidenced by invoices and shipping documents stamped by South African customs. If a licensing agreement involves manufacturing a product in South Africa, an application must also be made to the Department of Trade and Industry.
3.Import Licensing - Import permits are not required for auto parts and components.
Pricing
Although price is determined by market forces, competitive pricing is the most important feature of SA market. Therefore, companies who wish to market their products in SA should consider pricing them very competitively.
In South Africa there is a growing number of factory-backed maintenance plans. These are given to new car purchasers where the vehicle will be maintained free over a period of 3 to 5 years or based on maximum mileage. This would mean that parts pricing becomes important to the manufacturer because he is his own largest customer and carrying the costs for 3 to 5 years of maintenance work on the vehicle he sells.
The stronger Rand has had not much effect on the reduction of OEM parts prices, since most car manufacturers have huge export contracts and money earned on exports is used to pay for imported parts and components. The fluctuation of the Rand has therefore no significant effect on OEM parts. This will provide the competitive edge for the aftermarket components and parts.
Packaging and Labeling
Though not mandatory, generally most of the spare parts/accessories that enter this market have the following information on the packing:
NAME OF THE PRODUCT
TRADE NAME
COUNTRY OF ORIGIN
NET CONTENT (if applicable)
SERIAL NUMBER OF PART (if applicable)
DATE OF MANUFACTURE (if applicable)
ELECTRICAL SPECIFICATION (if applicable)
PRECAUTIONARY INFORMATION ON DANGEROUS PRODUCTS (if applicable)
INSTRUCTIONS FOR USE (if applicable)
HANDLING AND/OR PRODUCT CONSERVATION (if applicable)
Product Standards & Certification
The automotive industry’s quality standards are certified by way of the South African Bureau of Standards Organisation (SABS ISO) 9000 Registration Scheme which correlates national standards from other countries. The SA automotive industry embraces several quality codes including the SABS ISO 9000 series which consists of the following standards:
1.SABS ISO 9000 – Quality management and quality assurance standards;
2.SABS ISO 9001 – Quality assurance in design, development, production, installation and servicing;
3.SABS ISO 9002 – Quality assurance in production, installation and servicing
4.SABS ISO 14001 – Environmental management;
5.QS 9000 – Quality management applicable to the motor industry
6.VDA 6.1 - Quality management applicable to the motor industry;
7.NOSA – National occupation and safety award
Opportunities For Malaysian Manufacturers
The outlook for the automotive component market is very positive. Over the next five years, the National Association of Automotive Components & Allied Manufacturers (NAACAM) has estimated that the number of cars manufactured locally will increase two to four folds. With the increase in the volume of cars, it becomes feasible to manufacture a whole new range of components and sub-components. With the major changes taking place in the industry, (less protection, cheaper imports) there are some local component manufacturing companies that feel threatened and need to establish international contacts to survive.
A large part of the local component industry in SA is tied up by international parents. A majority of these international connections have decided to outsource certain products. SA is currently involved in several international sourcing agreements ranging from engines, seat covers, pistons, spark plugs, clutches and brakes, batteries, glass etc.
SA is a right hand drive country, and this would provide an added advantage in terms of familiarity and competency for Malaysian manufacturers. Distributors and car manufacturers are also looking at new and unique technologies. For example, design of components such as air cleaners and air-conditioners that can cope with temperatures and dust found in SA.
Malaysian manufacturers should explore the possibilities in this sector of the market. One way is to establish contact with the local manufacturers and distributors through the two main governing bodies. The economic and exchange rate conditions favour imports to sustain the industry. In terms of opportunities for our exports, there are various sectors where Malaysia have the competitive edge and this include chemicals for paint, rubber based components and accessories, plastics, petro-chemicals and component fabrication.
Trade Exhibitions
The following are exhibitions related to automotive components and parts:
1. DURBAN MOTOR SHOW
Products General Automobile
Frequency Every year
Next edition 24 -28 March 2005 Location Durban Exhibition Centre, Durban Organizer Kagiso Exhibitions (Pty) Ltd Website www.kagisoexpo.co.za
2. AUTO AFRICA 2006 - Africa International Automotive Trade Exhibition & Conference
Products General automobile, automotive engineering, workshop & service equipment and automotive parts & components.
Website www.autoafrica.com Frequency Every 2 year
Next edition October 2006 (date will be confirm) Location Expo Centre, NASREC, Johannesburg Organizer Kagiso Exhibitions (Pty) Ltd
Useful Links
1.Department Of Trade and Industry and Trade & Investment South Africa - http://www.thedti.go.za
2.Automobile Association (AA) - http://www.aasa.co.za
3.National Association of Automobile Manufacturers of South Africa (NAACAM) - http://www.naacam.co.za
4.National Association of Automobile Manufacturer South Africa (NAAMSA) - http://www.naamsa.co.za
5.Retail Motor Industries Organization (RMI) - http://www.rmionline.co.za
6.Automotive Industry Export Council (AIEC) - http://www.aiec.co.za
7.National Union of Metalworkers of South Africa - Tel:+27 11 8322031 Fax: +27 11 8336330
8.South Africa Bureau Of Standard - http://www.sabs.co.za/
9.SA Insurance Association - http://www.saia.co.za
10.SA Tyre Manufacturers Conference (SATMC) - http://www.rubbersa.co.za
11.SA Revenues Services - http://www.sars.co.za
The automotive industry is a dominant manufacturing sector in the South African economy. It is the 18th largest in the world, contributing 7% of the world’s vehicle production and supplying 80 per cent of Africa’s vehicle output. There are approximately 4 million registered passenger cars and 2 million commercial vehicles in the country, averaging around 8 people per vehicle.
The automotive and associate industry represents the largest manufacturing sector and accounts for about 28 per cent of South Africa’s manufacturing output. The industry contributed around 6.4 per cent of the country’s GDP in 2003. Total industry revenue (including VAT) for 2003 stood at USD 24.4 billion as compared to USD 21.3 billon in 2002.
The motor assembly industry’s average monthly employment during 2003 was 33,000 while the employment level in the components industry is estimated at 60,000. The employment in retail, distribution and servicing component of the motor trade, including petrol stations, is estimated at 190,000.
The SA Motor Industry incorporates the manufacture, distribution, servicing and maintenance of motor vehicles and plays a vital role in the country’s economy, contributing about USD 0.7 billion to the country’s GDP in 2003. It comprises 7 passenger vehicle manufacturers/assemblers and 9 commercial vehicle manufacturers/assemblers. The major car manufacturers in SA are:
1.BMW SA (Pty) Ltd
2.Daimler Chrysler (Pt) Ltd
3.Ford Motor Company
4.General Motors SA (Pty) Ltd
5.Nissan SA Ltd
6.Toyota SA Motors (Pty) Ltd
7.Volkswagen Of SA (Pty) Ltd
The Automotive Parts And Components Industry
The auto parts and components sector contributes more than 50 per cent in terms of output of the motor industry. The growth in number of vehicles has had a positive impact on the component industry. The National Association of Automotive Components & Allied Manufacturers (NAACAM) has estimated a potential growth of 10% in 2005.
There are more than 220 automotive component manufacturers in South Africa, and another 150 which supply the industry on a non-exclusive basis.
Characteristics Of Market
Import Market
Auto parts and components are SA’s second largest import product representing approximately 19% of total imports in 2004. Original Equipment Manufacturing for motor vehicles presents the biggest market for components, making up 46.7 % of total imports of components and accessories.
Germany is the largest source for South Africa component import, with the European Union (EU) accounting for 50 per cent of component imports valued of USD3.45 in 2004 compared USD in 2003. Imports from the US also rose substantially between 2003 and 2004, due the implementation of the African Growth and Opportunity Act (AGOA).
Malaysia’s contribution in terms of exports in this sector comes mainly from Original Equipment Manufacturing of Components valued at USD18.2 million in 2003. It ranks as Malaysia’s 11th largest export to South Africa comprising 1.6% of its total exports. The prospects for this sector looks good as the export of automotive components from Malaysia registered a healthy growth of 54.2% in 2004.
Thailand is currently the biggest exporter of automotive components to South Africa among the Asean countries, exceeding even the value of exports of these products from China and India. OE Components is also the number one export from Thailand (27% of total export from the country) and valued at USD 157 million up to October 2004, registering a growth of 35.4% over 2003. The other main components exported from Thailand are spark plugs and ignition equipment.
A statistical overview of South Africa’s automotive component market is as follows:
i. Total Import of Motor Vehicle Parts & Components as a % of Total Imports into South Africa.
Year
To October 2004
2003
2002
2001
Total Imports (USD’000)
42,019,629
43,123,068
45,745,436
34,585,865
Import of Vehicle parts & components
(USD ‘000)
7,966,150
8,364.279
8,393,265
6,345,383
% of total imports
18.9
19.4
18.3
18.3
ii. Major Exporters of Automotive Components and Parts to South Africa
Rank
Country
Value (USD’000)
Market Share
(%)
% Growth (‘03-‘04)
1
Germany
2,924,808
36.8
2
Japan
1,706,745
21.5
3
United States
403,606
5.1
4
UK
327,121
4.1
5
Brazil
302,012
3.8
9
Thailand
195,422
2.5
39.1
12
China
115,922
1.5
50.0
25
Malaysia
26,031
0.3
54.2
Product Type
iii. SA Import by Product: Automotive Components & Parts)
No.
Product Type
%
1
OEM for Motor Vehicles
46.70
2
Other Components
37.35
3
Automotive tooling
2.81
4
Engine parts
2.43
5
Tyres
1.67
6
Seat part / leather
1.12
7
Gauges / Inst. Parts
0.93
8
Brake parts
0.87
9
Catalytic Converters
0.63
10
Car radios
0.55
11
Transmission shaft
0.50
12
Lighting equipment
0.46
13
Axles
0.35
14
Clutches / shaft
0.34
15
Steering wheels / Box
0.33
16
Ignition / Starting Equipment
0.31
17
Road wheels
0.31
18
Engines
0.31
19
Body parts / panels
0.30
20
Filters
0.30
21
Gaskets
0.30
22
Batteries
0.26
23
Alarm system
0.23
24
Silencers / exhaust
0.17
25
Glass
0.17
26
Air-conditioning
0.16
27
Wire Harnesses
0.14
Market Characteristics And Consumer Preferences
The current average lifespan for a car in the SA has increased from ten to nearly fifteen years. The increase in lifespan significantly contributes to the growth in the market for auto spare parts. The harsh weather conditions in the SA also take their toll, requiring automobiles to be serviced more frequently.
The market for auto parts in SA is quite open. Market breakup for spares is estimated to be 49% original, 19% after-market and 32% counterfeit. The potential for after-market sales has increased as customers are becoming aware of high quality brands which cost 25-30 percent less than the OE parts but are of similar quality. The current local production of auto parts is still insufficient and depends on imports to meet the local demand. Competition for sales of spare parts depends on factors such as price, availability and quality.
The market for spare parts is also extremely price-sensitive due to competition from counterfeit and re-conditioned parts. Quality is not a deciding factor when purchasing parts. At this point in time, price is far more important than quality in most purchasing decisions. On the other hand, the increase in technological development of vehicles, reflected in the adoption of the front wheel drive, fully independent suspensions, multi-valve overhead camshaft engines and electronic controls have increased the unit prices of after market parts.
Some of the retailers and wholesalers offer both genuine and counterfeit parts, sometimes breaching their contractual obligations as there are no import controls. Counterfeit parts come mainly from Taiwan and Korea and are a competitive factor. The market is already very competitive and becoming increasingly so with a growing demand for original and more quality spare parts as opposed to counterfeit. Counterfeit trade in auto spare parts has not been totally wiped out in the SA but the authorities are working hard along with local dealers and international companies to remove the grey market element from the SA.
Frequency of repair due to worn out parts has declined in recent years as components are designed for greater durability affecting unit sales of many types of components. The vehicle parts with immediate development prospects in the region would be the ones which are standardized and frequently replaced - spark plugs, exhaust pipes, shock absorbers, leaf springs, air filters, oil filters, fuel filters etc.
Recent Developments
A recent development in the industry is the review this year of the Motor Industry Development Programme (MIDP) which will effectively lower the tariff for automotive components. The MIDP has been a protective measure by the SA government to provide the avenue for expansion of local vehicle producers and further growth in automotive component exports by means of sustaining import tariffs over a period of time.
It is in effect a prohibitive subsidy which gave, until recently, manufacturers of vehicles and components in SA an unfair advantage over rivals in other countries. To encourage a higher volume of domestic production, exporting automotive companies are allowed rebates that can be used to offset automotive import duties.
Under the mid-term review in 2002, import duties will be phased down gradually. For completely knocked down (CKD) components, maximum duties will decline to 25% in 2007 and to 20% in 2012. Current maximum duty on automotive components and parts is 30%. This will mean that the domestic market is increasingly opening up to imports of automotive components and accessories.
The Motor Parts and Equipment Industry of South Africa have also launched its “Genuine Replacement Parts Campaign” with the emphasis on awareness in the use of genuine replacement parts. This is in the light of counterfeit components flooding the market. In introducing this campaign, the MPEA has also introduced the new terms “Original Spare Parts” and “Matching Quality Spare Parts”. This will lead to a more open market in terms of quality alternative parts where dealers are forced to sell or fit OE parts.
Future Trends
The market for OEM and other auto components is growing. Automotive manufacturers in SA have also expressed their optimism for the SA import market. Industry players expect the next five years to be an extensive growth period to the local automotive industry, with opportunities across the automotive value chain, including manufacturers and distributors, and dealers of parts and accessories. With the drop in import duties, and the increased strength of the Rand, sales of imported components and accessories have risen sharply and this trend is expected to continue.
As an indication of the growth prospects in this sector, six global automotive component suppliers have made commitments to establish their presence in SA to supply components to major car manufacturers. The global suppliers who had committed to come to SA were:
1.Takata Petri of Europe, a supplier of safety systems such as seat belts, steering wheels and airbags;
2.Benteler, an engine parts supplier;
3.Magda Donnely of Europe, a side mirror supplier;
4.Denso of Japan, an air-systems supplier; Yazaki of Japan, a wiring harness supplier;
5.Sumitomo of Japan, another air-system supplier.
(Some of these are joint ventures which have been established with local suppliers and distributors).
Challenges In The Automotive Aftermarket
The main challenge facing the automotive aftermarket in general is the progress that has taken place in the technology front. There are consistent improvements in the manufacture of components to make them perform better and lasts longer. As a result, cars spend less time in workshops and the use of service parts is reduced. Replacement parts suppliers will also face difficulties as new materials reduce the rate of wear and tear and warranty periods are being constantly extended by car manufacturers.
Owners of older cars, who are mainly the middle income earners, are also more likely to buy parts on the basis of price rather than quality. This will allow suppliers of counterfeit products to take a slice of the market.
Malaysian suppliers therefore need to approach the market with higher productivity, better innovation and a commitment to excellent service in order to compete effectively.
Distribution Channel
In order to enter the SA market, Malaysian firms must go through local agents or distributors. Local representation is a legal condition for doing business in the market and local firms generally prefer exclusive agency/distribution rights for all of South Africa. They will supply direct from their base, appoint their own distributors in other parts of Southern Africa, or have a network of offices. There is a very well developed distribution system in this market.
Other marketing channels that should be explored are Joint Ventures/Licensing agreements with local companies who would then sell through their own distribution network.
Distributors, as opposed to local sales representatives, are the norm in the automotive parts and accessories sector because a good inventory is fundamental to success in this market. The potential agent should have a distribution network and warehouse facilities in his areas of operations, or countrywide.
Malaysian suppliers should ensure that their local distributor is well known in the market and enjoys close relationships with the customers.
Advertising and technical seminars are the most important tools to promote and market automotive spare parts in the SA. This is also an effective tool in helping local agents expose counterfeit spare parts. Most dealers advertise though local newspapers, specialty magazines and journals. Television and billboards are rarely used to promote various automotive spare parts.
It is important that Malaysian suppliers identify and make contact with members of the Motor Parts and Equipment ASSOCIATION (MPEA) of South Africa. Members of MPEA are reputable dealers and distributors and have the advantage of being accredited spares outlets by the association and are barred from dealing in counterfeit products.
Import Tariffs
Import duties on parts and accessories to South Africa and SADC countries range from a minimum of 10% to a maximum of 30%.
The import duty on original equipment components will be phased down by further 1% per annum from 2008 to 20% in 2012 but this is subject to review this year.
The DTI will continue to monitor industry development in particularly the local content level in domestic assembled vehicles. These developments will influence future changes to automotive policy.
Other Import Regulations
1.Taxes - A value-added tax (VAT) system replacing the former general sales tax has been in effect since September 30, 1991. The standard VAT rate is 14 percent, which is levied on almost all imports.
2.Exchange Regulations - SA exchange control regulations stipulate that payment of imports can only be effected by authorized banks against submission by their customers of documentary proof that the goods were imported into SA as evidenced by invoices and shipping documents stamped by South African customs. If a licensing agreement involves manufacturing a product in South Africa, an application must also be made to the Department of Trade and Industry.
3.Import Licensing - Import permits are not required for auto parts and components.
Pricing
Although price is determined by market forces, competitive pricing is the most important feature of SA market. Therefore, companies who wish to market their products in SA should consider pricing them very competitively.
In South Africa there is a growing number of factory-backed maintenance plans. These are given to new car purchasers where the vehicle will be maintained free over a period of 3 to 5 years or based on maximum mileage. This would mean that parts pricing becomes important to the manufacturer because he is his own largest customer and carrying the costs for 3 to 5 years of maintenance work on the vehicle he sells.
The stronger Rand has had not much effect on the reduction of OEM parts prices, since most car manufacturers have huge export contracts and money earned on exports is used to pay for imported parts and components. The fluctuation of the Rand has therefore no significant effect on OEM parts. This will provide the competitive edge for the aftermarket components and parts.
Packaging and Labeling
Though not mandatory, generally most of the spare parts/accessories that enter this market have the following information on the packing:
NAME OF THE PRODUCT
TRADE NAME
COUNTRY OF ORIGIN
NET CONTENT (if applicable)
SERIAL NUMBER OF PART (if applicable)
DATE OF MANUFACTURE (if applicable)
ELECTRICAL SPECIFICATION (if applicable)
PRECAUTIONARY INFORMATION ON DANGEROUS PRODUCTS (if applicable)
INSTRUCTIONS FOR USE (if applicable)
HANDLING AND/OR PRODUCT CONSERVATION (if applicable)
Product Standards & Certification
The automotive industry’s quality standards are certified by way of the South African Bureau of Standards Organisation (SABS ISO) 9000 Registration Scheme which correlates national standards from other countries. The SA automotive industry embraces several quality codes including the SABS ISO 9000 series which consists of the following standards:
1.SABS ISO 9000 – Quality management and quality assurance standards;
2.SABS ISO 9001 – Quality assurance in design, development, production, installation and servicing;
3.SABS ISO 9002 – Quality assurance in production, installation and servicing
4.SABS ISO 14001 – Environmental management;
5.QS 9000 – Quality management applicable to the motor industry
6.VDA 6.1 - Quality management applicable to the motor industry;
7.NOSA – National occupation and safety award
Opportunities For Malaysian Manufacturers
The outlook for the automotive component market is very positive. Over the next five years, the National Association of Automotive Components & Allied Manufacturers (NAACAM) has estimated that the number of cars manufactured locally will increase two to four folds. With the increase in the volume of cars, it becomes feasible to manufacture a whole new range of components and sub-components. With the major changes taking place in the industry, (less protection, cheaper imports) there are some local component manufacturing companies that feel threatened and need to establish international contacts to survive.
A large part of the local component industry in SA is tied up by international parents. A majority of these international connections have decided to outsource certain products. SA is currently involved in several international sourcing agreements ranging from engines, seat covers, pistons, spark plugs, clutches and brakes, batteries, glass etc.
SA is a right hand drive country, and this would provide an added advantage in terms of familiarity and competency for Malaysian manufacturers. Distributors and car manufacturers are also looking at new and unique technologies. For example, design of components such as air cleaners and air-conditioners that can cope with temperatures and dust found in SA.
Malaysian manufacturers should explore the possibilities in this sector of the market. One way is to establish contact with the local manufacturers and distributors through the two main governing bodies. The economic and exchange rate conditions favour imports to sustain the industry. In terms of opportunities for our exports, there are various sectors where Malaysia have the competitive edge and this include chemicals for paint, rubber based components and accessories, plastics, petro-chemicals and component fabrication.
Trade Exhibitions
The following are exhibitions related to automotive components and parts:
1. DURBAN MOTOR SHOW
Products General Automobile
Frequency Every year
Next edition 24 -28 March 2005 Location Durban Exhibition Centre, Durban Organizer Kagiso Exhibitions (Pty) Ltd Website www.kagisoexpo.co.za
2. AUTO AFRICA 2006 - Africa International Automotive Trade Exhibition & Conference
Products General automobile, automotive engineering, workshop & service equipment and automotive parts & components.
Website www.autoafrica.com Frequency Every 2 year
Next edition October 2006 (date will be confirm) Location Expo Centre, NASREC, Johannesburg Organizer Kagiso Exhibitions (Pty) Ltd
Useful Links
1.Department Of Trade and Industry and Trade & Investment South Africa - http://www.thedti.go.za
2.Automobile Association (AA) - http://www.aasa.co.za
3.National Association of Automobile Manufacturers of South Africa (NAACAM) - http://www.naacam.co.za
4.National Association of Automobile Manufacturer South Africa (NAAMSA) - http://www.naamsa.co.za
5.Retail Motor Industries Organization (RMI) - http://www.rmionline.co.za
6.Automotive Industry Export Council (AIEC) - http://www.aiec.co.za
7.National Union of Metalworkers of South Africa - Tel:+27 11 8322031 Fax: +27 11 8336330
8.South Africa Bureau Of Standard - http://www.sabs.co.za/
9.SA Insurance Association - http://www.saia.co.za
10.SA Tyre Manufacturers Conference (SATMC) - http://www.rubbersa.co.za
11.SA Revenues Services - http://www.sars.co.za
Labels: Auto Part
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