CORONAVIRUS FALLOUT – SA’s car sector assesses threat of Coronavirus shutdown in China

5 March – David Furlonger – SA vehicle manufacturers are assessing the threat to operations from the coronavirus induced shutdown of large swathes of the Chinese motor industry, which supplies about R16bn worth of parts for local cars and commercial vehicles.

Though there appears to be no immediate risk of production disruption from components shortages, industry executives say they cannot guess the effect of long term problems caused by the epidemic, which has battered stocks amid fears of a global economic slowdown. About 60% of components built into SA vehicles are imported, and if the coronavirus halts production at major suppliers in other countries, the effect in SA could be profound. In 2018, the last year for which official figures are available, China exported more than R16bn of automotive parts to SA.

SA vehicle manufacturers assess coronavirus threat Of those, R4.2bn were for vehicle assembly and the rest for the aftermarket In the opposite direction, SA components manufacturers exported R254m of parts to China Anything that hurts the motor industry will have a wider impact on the SA economy. The industry accounts for 30% of SA’s manufacturing output, 14.5% of exports and nearly 7% of GDP. It also employs about 120,000 people directly and is responsible for an estimated 800,000 more in other sectors supporting the industry.

The National Association of Automobile Manufacturers of SA Naamsa has asked its members to outline their contingency plans. “We would like to know about their components order books and stock levels and how, if we run into problems, they can continue operating with the minimum degree of disruption. We want to understand if they have back up plans,” said CEO Mike Mabasa.

Many Chinese vehicle and components manufacturers have stopped production as their WE WOULD LIKE TO KNOW HOW, IF WE RUN INTO PROBLEMS, THEY CAN CONTINUE OPERATING WITH THE MINIMUM DEGREE OF DISRUPTION workers, like many of the country’s citizens, have locked themselves in their homes to escape the illness.

China is the second biggest global exporter, after Germany, of automotive parts to SA. Most of the Chinese parts are destined for the after sales repair market but it is still a significant provider to the local assembly lines of companies such as BMW, Volkswagen, Toyota and Ford. Parts supplied to BMW SA include electronics and alloy wheels. CEO Tim Abbott says he has stock available on site for up to three months’ production. Like other firms, BMW SA also has stock in the supply chain but moving it along that chain may not be straightforward.

Norman Lamprecht executive manager of the Automotive Industry Export Council, says that with China’s ports also paralysed by the virus, overseas customers are air freighting more parts out of China This is much more expensive than shipping and could eventually affect vehicle prices.

Renai Moothilal, director of the National Association of Auto motive Component and Allied Manufacturers Naacam, said the coronavirus threat to the SA motor industry comes not just from China If, as economists fear, the virus becomes a global pandemic, it will cut global eco nomic growth and thereby demand for new vehicles. “As an integral part of a globalised industry, we can’t escape what happens anywhere else,” he said.

According to analytics. company Global Data, the coronavirus is a leading cause behind the sharp drop in global new vehicle sales in 2020. The decline is worldwide but is most pronounced in China, the world’s biggest market. In January, sales there fell 33% from a year earlier against a 14% global decline. In the first week of February, says Global Data, Chinese sales fell a calamitous 96%.

Analyst Mike Vousden says: “We’re seeing alarming drops in worldwide sales across the board and we expect that to lead to a much weaker overall mar ket this year.” That is bad news for the SA motor industry, which exports more than half its vehicle pro duction. In 2019, the industry exported 11178.8bn of automotive goods. Of that, 11127.5bn was vehicles and R51.3bn components.

In 2019, the industry set an annual record of 386,683 vehicle exports. WE’RE SEEING ALARMING DROPS IN SALES ACROSS THE BOARD AND WE EXPECT THAT TO LEAD TO A MUCH WEAKER OVERALL MARKET 33% was how much sales of new vehicles dropped in China in January 96% was the drop in the first week of February. Source (BusinessDay)