Production cuts to add pressure to local automotive sector
March 30, 2009
By Roy Cokayne
A bleak picture painted by the projected 26 percent decline in domestic motor production, announced by the industry last week, was set to worsen after Mercedes-Benz South Africa (MBSA) published its planned production cuts.
The revised quarterly review for the fourth quarter of last year published by the National Association of Automobile Manufacturers of SA (Naamsa) showed that planned production in the industry has been slashed by 147 500 vehicles to 415 500 units this year.
However, the review does not include the latest production cutbacks planned by MBSA.
MBSA anticipates closing its production plant in East London for four weeks next month and a further four weeks from the last week in May until the middle of June.
In addition, it anticipates operating its plant for only four days a week in May, according to a production status note sent to all its suppliers last week.
MBSA already had two non-production days this month - last Monday and last Friday - and plans to have another non-production day this Friday.
From the note sent by MBSA to its suppliers, it appears that the manufacturers' East London plant will operate for only 41 days out of a total possible 83 weekdays, excluding public holidays, between this month and June.
However, MBSA stressed that the production cutbacks were anticipated and still subject to confirmation.
Nico Vermeulen, Naamsa's executive director, said last week that the proposed production cutbacks anticipated by MBSA would only come into Naamsa's second-quarter data and review.
Naamsa's current projection is that the total domestic new vehicle market will decline to less than 450 000 units this year from 533 387 unit sales last year.
Production for the domestic market is anticipated to drop by 16.5 percent, while exports are projected to decline by about 35 percent in volume.
Vermeulen said that overall domestic sales and production this year were likely to fall to their lowest levels in the past seven years.
Naamsa has revised its projected total domestic production for this year downwards since the fourth quarter of 2007, when it was forecast that the industry would produce 679 700 units.
This dropped to 619 400 units in its quarterly review, published in August, and to 512 100 units in its third-quarter review, published in November.
Overall industry vehicle exports reached a record 284 211 units last year, but are projected to decline to 182 500 units this year, with car and light commercial vehicle exports projected to drop by almost 36 percent to 102 000 units.
Vermeulen said this year was expected to be extremely difficult for the entire local automotive industry, with the retail, auto parts manufacturing and vehicle production sectors all experiencing severe and unprecedented challenges to viability.
He said an improvement in the domestic environment depended on reviving consumer expenditure, lower inflation, aggressive interest rate reduction and fiscal stimulation.
Internationally, given the magnitude and severity of the economic crisis, any improvement depended on a return of confidence and the stabilisation of financial institutions and markets, which was only likely to occur next year, Vermeulen said.
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