UNIDO Rhythm Meeting

Lance Schultz

29 September 2011

Index

• Feedback on benchmarks• Current Local Content Levels in SA Automotive

Industry• Strategic Challenges in SA Local Content• Challenges in Expanding and Deepening Local

Content• A strategic model for competiveness• Competiveness in the SA Automotive Industry

Current Status

• NAACAM UNIDO benchmarking has resulted in 8 benchmarks including 2 benchmarks in WC region. The balance of the 2 for the EC region should be completed, October 2011, which will make the target of 10.

• The GP benchmarks (10)-outsourced to H.Viljoen, and is still WIP.• An opportunity remains to do at least 4 benchmarks in the KZN

area, which is being pursued by the EC .• On average, it takes 3 months from the time the first contact is

made until the benchmark is complete at a company. • Many NAACAM members have been reluctant or disinterested in

participating, largely citing lack of time to participate.

Way Forward

• Should the program be extended - include non NAACAM members as well?

• At the moment, the NAACAM pool of opportunity is exhausted and not much more members to market toward, hence the above suggestion. Perhaps - like Agri ?

• If the AIDC EC is contracted to do another 10 - 15 benchmarks, would strongly suggest that other industries in the EC be considered. At least in this way, we can achieve the desired targets.

• Alternatively, NAACAM provides list indicating who is willing to participate - this being based on some intervention on their part where they nominate their members who want a benchmark.

Electrical / Electronic

Chassis and Drive-train

Body

Exterior

Interior

65%: % of total material cost 35%: true local material plus value add as % of total material costNote: %’s indicative only, still being verified & vary by model and by OEM

19%

15%

33%

23%

10%

14%

• Axles• Differentials• Drive shafts• Brakes

• Harnesses• Starter

motors• Alternators• Wiper

systems• HVAC

• Glass• Paint• Bumpers• Mirrors

• Cockpit• Seats• Door panels• Carpets

• Bonnets• Bootlids• Sideframes• Doors6%

5%

3%

9%

Current Local Content Levels in SA Automotive Industry (average)

Source: Toyota SA: Dr J.van Zyl

Strategic Challenges in Expanding and Deepening Local Content

Low economies of scale with low volumes per model

High administered price increases

Labour regime

High spec vehicles which make it difficult to obtain high levels of local content at competitive

prices

More appropriate incentives are required to make the industry more competitive

OEM Policy of global sourcing, the unfair competition form Asia and the economies of

scale from Europe / USA

Have to potentially have a SA Car to increase

sustainability AFRICAR

Electrical / Electronic

Chassis and Drive-train

Body

Exterior

Interior

Challenges in Expanding and Deepening Local Content

• Differing OEM specifications• Local steel quality• Local steel specifications

• Volumes / economies of scale• Frequently changing technology• Distance from design centres• Low R&D spend and dev.

• Lack of common specifications across OEMs• Lack of competitive suppliers

• Differing raw materials specs (resins, carpets)• Differing technologies

• Local steel quality• Local steel specifications• Investment costs

Competitiveness within the automotive sector are linked to a set of internal/external factors.

EC Localisation achievements - 2009/10OEM 1 = 70%OEM 2 = 59%

EC OEM’s Future targets – 2014OEM 1 = 80%OEM 2 = 64%

Barriers to increasing localisation;• Limited supply base• Supplier competitiveness• Economies of scale• Small, independent suppliers - risky• Macro environment

Supplier development challenges;• Resistance to change• Global quality standards• Lean manufacturing• Lack of technical skills• 2nd / 3rd tier suppliers not competitive

Localisation of the Automotive Industry

1 252

54

56

58

60

62

64

66

68

70

72

OEM's

OEM's

Factors affecting our supplier competitiveness

Competitiveness within the automotive sector are linked to a set of internal/external factors.

External Factors include;- Government Policy- Exchange Rate Regime- Import parity Pricing- Socio-economic- Access to funds

Internal Factors include;- Productivity- Quality Standards- Internal Processes- Cost - Leadership & Change Management- Adherence to international standards- Labour Skills- Equipment

There are many factors that could directly or indirectly affect the competitiveness of sector. The question is which factors contribute the most to competitiveness within the internal environment of manufacturers. This is the space with which various initiatives could impact.(Unido Tirisano Programme SWOT analysis 2010, Crafting and executing strategy, Johan Hough, 2010)

Product

Process

People

Competiveness in the SA Automotive Industry

THE END

Questions?