What's the future outlooks for the automotive industry in South Africa?

Since the crisis of 2008, the automotive industry has been under a tremendous price pressure in a context of low volume. If we add to this the challenges of a volatile Rand which converts into high inflation, and repetitive social conflicts, this make the situation of being an automotive supplier in South Africa a tough one. Here are some learning from a past Cap40 Business Wednesday event on the challenges of the automotive industry in South Africa where Florent Spriet, managing director of Faurecia Emissions Challenge Technologies, shares his French man experience at the head of one of the biggest automotive plant of the Western Cape.

About Faurecia

Faurecia is a French group and the 6th top automotive supplier in the world with a group revenue of 17.3 billion euros in 2012. The main business lines of the company are automotive exteriors, interior systems, Emissions control technologies and automotive seating. The South African operations of the company focus on Emissions Control Technologies and in particular acoustic and emissions control systems. Faurecia is present in Cape Town and Port Elizabeth and represents more than 1100 jobs in the country. 

The Challenges of the Automotive industry in South Africa

The automotive industry in South Africa is mainly located in Port Elizabeth, nicknamed the 'Detroit of Africa and in the Gauteng and Durban. 

A main challenge of this industry is to deal with a very long and global supply chain that can hardly suffer much delay in the production because of its lack of flexibility. When social conflicts happen like they did this year, it creates a lot of pressure in the production. 

Another critical factor is that most sales are done via long term contracts that determine the selling price of the products for the coming years. In the context of volatile a Rand and high inflation in South Africa, it becomes very difficult for South African manufacturers to deal with increasing costs that cannot be reflected on the fixed selling price of their products.

Particularities of the automotive industry in the Western Cape

The Western Cape is not a traditionally a major territory for the automotive industry. For this reason, there is a skill shortage issue for automotive manufacturing skills. It is also more difficult to find the right suppliers for machine and tooling that it is in PE or Pretoria. 

However, Cape Town benefits from a better social environment with more cooperative unions and better planned strikes than in other areas. 

Opportunities of the automotive industry in South Africa

While the depreciation of the Rand has a negative impact on production costs, it is also making the South African automotive industry very competitive price-wise. The industry also benefit from the support of the government with the Automotive Production and Development Programme.

Conclusion: What are the 6 management take aways from the automotive industry?

1. LOGISTICS: Keep a tight control of supply chain in and out

2. CONTRACTS: make provision for exchange rate fluctuations, inflation, …

3. CAPACITY: hove some excess for strikes preparation and fluctuations in supply chain, also impacts cash seriously

4. LOCATION: go where the resources are (suppliers, competences)

5. PEOPLE MANAGEMENT: very tight! especially if large organization

6. FIND RIGHT COMPETENCES

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