finweek

New Polo launched at upgraded Uitenhage plant

VWSA chairman and managing director Thomas Schaefer. (Picture: Supplied)
VWSA chairman and managing director Thomas Schaefer. (Picture: Supplied)

The recent launch of the new Polo was the culmination of Volkswagen Group South Africa's (VWSA's) R6.1bn investment programme in new models and upgraded plant infrastructure at its Uitenhage facility for production of the new successors to the brand's key models, the Polo and Polo Vivo.

The investment has grown from the R4.5bn announced in 2015 to R6.1bn as a result of exchange rate fluctuations as well as approval of additional plant investments.

The timing of the initial investment announcement was fortuitous for the country.

The story might have been a somewhat different one given the socio-economic and political challenges in the years following 2015. 

"Basic economic fundamentals, a stable economic and political environment and an investor-friendly legislative framework are essential for major investment decisions."

VWSA chairman and managing director Thomas Schaefer said at the launch of the new Polo and plant upgrades showcasing.

"Had the investment decision been due in 2017, it's unlikely it would have been approved," said Schaefer.

Given that Volkswagen's Polo and Polo Vivo have facilitated the brand's triumph in the hotly contested passenger car market, it was perhaps not that difficult an investment decision to make.

Since their introduction in 2010, Volkswagen has been the market leader in the local passenger car sector - its market share 21.8% in 2017 - with the Polo Vivo and Polo the two top-selling cars in the passenger market for seven consecutive years.

The majority of the investment spend was on capital expenditure for production facilities, local content tooling, quality assurance and manufacturing equipment as well as IT upgrades. 

A major change is how the cars are built - part of the investment is Volkswagen's innovative one-line concept that allows the plant to build two completely different platforms on one line.

One of the benefits of this concept is the flexibility it allows VWSA to react to market demand, said Schaefer. 

It's a line on which both new models, the just-launched new Polo and the new Polo Vivo (due for launch in February), will be manufactured. 

With the new flexible concept, technically VWSA could add a third model to production with not too much difficulty, a fourth model reserved for a model changeover and only run for a few weeks during the start-up phase.

"It would be ideal to have one more model," Schaefer told finweek when asked about a third model. "The rand is coming back nicely, making that more feasible," he said. 

The ability to utilise local components that would minimise the investment required would be a factor given that addition of a third model would require an investment of at least around R1.5bn, he told finweek

As part of VWSA's priority to boost the local economy, the new models have a 60% local content level with ongoing plans to achieve higher levels. And despite 330 new robots in the body shop, the plant's headcount has increased.
 
VWSA's Uitenhage plant also produces 1.4 and 1.6 EA111 engines, last year producing 122 000 engines which were used in the Polo Vivo as well as exported internationally.

But the global lean away from combustion engines toward alternative powertrains like electric motors has the potential to dampen export potential as well as impact local component manufacturers.

"Components need to be sustainable for the next 20 years," said Schaefer. Focus on localisation post 2020 is a discussion being addressed with the department of trade and industry, he said.

2017 may not have inspired positive investment decisions, but Schaeffer is upbeat about current conditions in the country. 

"We are pleased to see some positive developments occurring in the country and economy, which should improve business sentiment and bring investor confidence back," said Schaefer. Schaefer believes the vehicle market is likely to improve by between 1% and 2% in 2018.

VWSA produced 110 000 cars in 2017. This is expected to increase to 133 000 for 2018, of which 83 000 will be exported. Maximum annual plant capacity of around 160 000 vehicles is expected to be reached in 2019 with a three-shift operation.

A third shift will be introduced from April to meet expected demand and will result in the need for an additional 300 employees.

VWSA is the largest employer in the Nelson Mandela Bay region with 3 800 employees, supporting some 50 000 jobs in the metro and contributing R2.3bn by way of salaries, wages and benefits to the local economy. Additional impact on the metro in terms of services, rates and taxes equates to R125m.

The automotive industry contributes 7.4% to the country's GDP and directly employs 113 000 people.

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