- Lockdown took a severe toll on the automotive industry.
- With regulations eased, a number of scenarios could still play out.
- A rise in shared mobility and growth of the cycling economy are among the possibilities.
The South African automotive industry is a behemoth of industrial, commercial and transportation activity. According to the National Association of Automobile Manufacturers of South Africa (NAAMSA), it contributed 2.4% to GDP in retail, and 4.4% through manufacturing.
Last year motor vehicle trade sales peaked in April with R57.6m worth of motor vehicle sales. Lockdown's toll inflicted an 83% dip for year-on-year sales in April, a 75% decline since March 2020, right down to R11.5m in sales.
With lockdown relaxed, and increasing production capacity, there is a need to assess its immediate impact and reflect on the road ahead for the mobility industry.
1st Quarter results released in mid-May reveal that jobs are down from the industry average of 30 666 to 29 996 in March - with deep contractions in April, the 2nd Quarter may be bound by averages.
The general outlook is a 26% decline in domestic production for the year, down to 466 500 from 632 000 in 2019, and forecast to claw back to 560 000 in 2021.
This may inspire some into some short-run speculation about production capacity utilisation, and its impact on labour scheduling first, then lay-offs.
These could simply be guesses, but the reported estimates range between 21% and 30% in job losses - which resonates with contractions in production capacity.
Relief packages are the closest signpost to recovery, but the long-term outlook might require a different scheme of efforts.
One other valuable dimension of the automotive industry is reflected by the size of its capital expenditure - how much it invests in productive assets.
Between 2011 and 2019 this has grown from R3.2bn to R7.2bn, bringing attention to the capital value of this industry’s base. The Automotive Incentive Scheme is really the plinth upon which the base stands.
It represents the bulk of the R4.2bn for High Value Addition Industries presented in the 2018/19 Incentives Report from the Department of Trade, Industry and Competition.
Starting with a R2.5bn budget, projected to R8.5bn through foreign investment accounting for 78% of it. This coupled with nurturing 1 148 new jobs and retaining over 26 000 jobs directly.
When the report was published, end of February, a multinational investment appetite had a risk premium of 3.5%, the supplementary budget describes a jump to 5.2%.
Although some sentiments may have changed, retaining a resilient pool of investment is partly dependent on responsive policy decisions. However, the supplementary budget revealed a suspension in all incentive programmes, postponing all activities to the next financial year.
This is a tough trade-off because the front-end of the fiscus is directed at pandemic relief - there is also an economic priority to contain the rise in unemployment at a sector specific level. It is hoped that the R500m for firms in distress will hold the fort, but the scenarios for the industry are hard to see through.
For the automotive market, the scenarios represent a variety of tides scattered across new and old consumer segments, supply chain conditions, and lag effects.
Fighting back like Balboa's Round 14 scene, they project single digit contraction in acquisitions -5% to -9%, and a 3-month lag period for stock piles and supply constraints recovering.
The sour double-digit dip is a half full glass of lemonade with excess stock taking six months to clear, supply constraints hold tight in the same period, and the crisis shifts to the business holding slow moving stock.
Lastly, the I Am Legend scenario that hosts a 12-month lag in vehicle stock clearing, disrupted supply chains, and severe contraction in demand (-15% to -50% drop in acquisitions).
They propose exit strategies that lean more on internal and external initiatives that are evidence based, customer oriented and leaning in on the 83% of the 12.7m cars in South Africa being five or more years old.
However, the bellowing risk of consumer behavioral changes lay beneath the surface, and could be too hard to see because they're not eligible for a driver's license yet.
A current beneath the trends
One of the interesting themes that do not seem to be part of the industrial wave, is the rise of shared mobility.
Cities worldwide are leaning on the bicycle revolution by re-purposing their streets because this supports social distancing, and it eases congestion.
The automotive companies see a potential shift toward shared ownership of cars in the long-run. These are interesting developments in both ends of the extreme, but the long-run conversation about future consumer preferences once made policy makers in Germany anxious about pressing far forward for electric vehicles.
China is one country that has made aggressive shifts toward electric vehicle manufacturing, and has long been a leader in bicycle manufacturing too.
Electric vehicles aside, the bicycle industry was valued at $60.3bn in 2019 and was forecasted to surge to $80bn by 2026, largely led by Giant and Trek.
China, India, the European Union, Taiwan and Japan produce 87% of the world's bicycles, and India's Hero Cycles are set to rattle the scene as their annual production reached 5.5m.
According to the Confederation of the European Bicycle Industry (CONEBI) the bicycle industry employs over 90 000 people, in 800 Small Medium Enterprises selling nearly 20 million bicycles in 2017.
It is a high economic contributor, but it can only be complemented by appropriate transport infrastructure and accessible land-uses.
From an industrial development perspective, cycling firms in South Africa lag behind the global norms given the affordability and durability of commuter bicycles - with scale and incentives more bicycles can be locally produced, for local contexts and at lower prices.
Bicycle manufacturing is difficult to automate, requiring skilled labour, talented mechanics, and creatively designed equipment - a new segment of industry in South Africa.
Justifying cycling requires infrastructure and land use changes such as protected bicycle ways in neighbourhoods, towns, and cities, in addition to a reorientation in how property is developed.
Given the expanded definition of integrated public transport networks, inclusive of non-motorised transport and minibus taxis, it is key to consider a path beyond the sanitisation of infrastructure only.
For municipalities, 10% of infrastructure grants may be used to sanitise public transport facilities - that's about R146m which maybe better placed in some areas for encouraging NMT through infrastructure (temporary or permanent).
This is possible given the almost unscathed Neighbourhood Development partnership grant down to R492m, and a repurposed R1bn within the Public Transport Network Grant for pandemic responsiveness.
Like cities around the world, this could be one opportunity for municipalities to fill the gap for sanitisation, and enhancing social distancing mobility through cycling interventions.
One way of valuing the cycling economy is through its potential to reduce carbon emissions, improve health and reduce the cost of mobility. The Institute for Transport Development Policy estimates that a drastic shift toward cycling at a global level results in $24 trillion in cumulative savings between 2015 and 2050, reducing emissions from urban transport by 11% per year.
This is a large number, but it is a by-product of attractive bicycle infrastructure, safe streets and good land-uses that make a bike trip more practical than a public transport trip - about (1km to 5 km).
The generational spread between now and 2050 are the young people between ages 5 and 15, who will be adults when the South African population reaches 75 million inhabitants. How will they get around?
What kind of economies and industries will be at their disposal? There is a chance that the industrial side of the African cycling economy is primed for investment - even a new cycle of incentives.
For local mobility, cycling is an untapped opportunity. The new budget may have missed it, but municipalities still have a choice.
- Ofentse Mokwena is a transport economist, lecturer, researcher and podcast host. Views expressed are his own.