Motor city in neutral but lost jobs in overdrive

Tens of thousands of workers in South Africa's automotive sector are facing unemployment as a consequence of the global economic slowdown.

 

Industry insiders are warning that if the 2008 trend of reduced demand continues through 2009, businesses would have to cut working hours and jobs to ensure their survival.



The automotive industry - one of the sectors used to gauge South Africa's economic health - has been a cornerstone of more than decade of growth, with a government strategy envisioning vehicle production increasing to 1.2 million units annually by 2020 from the current level of about 500,000 units.

 

The sector accounts for about 10 percent of manufacturing exports and 7.5 percent of gross domestic product, making it a crucial weapon in combating South Africa's unemployment rate, officially estimated at 24 percent.



More than 1,000 General Motors South Africa (GMSA) employees took voluntary redundancy in 2008, over a third of its local workforce, while in 2008 Ford retrenched 800 employees from its Port Elizabeth and Pretoria operations. 



The knock-on effect is putting at risk thousands more jobs in the components sector, which relies on the economic health of the car producers for its existence.

 

The National Union of Metalworkers of South Africa (NUMSA) - one of the country's largest unions, boasting a membership of about 220,000 workers - will hold a two-day meeting, starting on 5 February, with industry representatives to discuss ways of ameliorating the effects of the downturn.



"The bad news comes in daily. Volkswagen has served their employees with a notice of retrenchments, and for every manufacturer who downscales production, their suppliers are also adversely affected," Mphumzi Maqungo, NUMSA's regional treasurer in the Eastern Cape Province, told IRIN.



"Here in Port Elizabeth we have heard that Welfit Oddy, which makes wheel rims, will also be letting 550 employees go soon, which is half the plant." He said the union was receiving regular reports from shop stewards that companies were warning staff of the likelihood of retrenchments. 

 

No perks for the unemployed



"For the workers it is not only the salaries they lose but also the benefits, which in many cases are very important. Companies pay for medical aid and children's school fees, which can amount to a lot of money. And what happens if you are HIV positive and you need the medical aid for your antiretroviral drugs?" he said. 

 

Companies pay for medical aid and children's school fees, which can amount to a lot of money. And what happens if you are HIV positive and you need the medical aid for your antiretroviral drugs

"We feel the retrenchment packages are not enough in many cases, and that workers should not immediately accept them. We need to be discussing [with the companies] ways of saving jobs as well."            

 

The latest industry figures released by South Africa's National Association of Automobile Manufacturers of SA (NAAMSA) revealed huge declines in new vehicle sales.

 

Sales for December 2008 were 32,765 vehicles, a drop of 12,162 vehicles or 27.1 percent, compared to new vehicle sales of 44,927 units in December 2007. 

 

"On a market segment basis, vehicle sales during December 2008 (with the exception of the small volume bus sector) registered sharp declines in every segment relative to the corresponding month of December 2007," NAAMSA said in a recent press statement.

  

Economic pressures were also being felt by car dealerships said Brand Pretorius, chief executive of the country's biggest car dealership chain, McCarthy Motors.



"What we are experiencing has been brought on by a deterioration of vehicle affordability, due to a number of factors other than the global banking crisis," he commented.



"The weakness of the rand is driving up the cost of raw materials and, by extension, the vehicles; and the National Credit Act [a stringent means test for prospective loan applicants] has meant many people are not getting access to the money they need to purchase cars," he said. 

 

Car dealerships close



"The credit application approval from banks is disappointing at the moment - about 35 percent of people applying for credit are being approved, compared to 55 percent two years ago. I think it is a matter of trying to ride out the storm, as there is little the local industry can do."

 

Pretorius believed the automotive sector was facing significant lay-offs in the coming months, as companies could not maintain the current number of employees if sales were to fall by between 25 and 35 percent.

 

"We have already had to close down branches in the last six to eight months - we used to have 148 branches but now we have cut back to 120," he said.



"Many in the industry have made a number of mistakes over the past six months in terms of how we prepared for the downturn. The extent of it was underestimated, as was the speed at which it would happen."       

 

GMSA President Steve Koch told IRIN that to ensure the company remained profitable – sales in 2008 were up 18 percent on 2007 – and competitive during the difficult time ahead, restructuring needed to take place. This would include securing retrenchments as well as streamlining production systems to increase productivity.

 

"We had 12,000 units of stock in July last year [2008] and we needed to reduce this to 3,000 to keep us in a positive cash-flow position. Fortunately we have done this, but if the industry was to decline further we would have to examine further options to reduce our head count. A big concern for us is the health of our distribution network [car dealerships].

 

"It has been indicated that 200 of the 1,700 dealerships here may fail or consolidate during the downturn, and we estimate 120 or so have already done so," he said.  

 

According to Koch, the ongoing devaluation of the rand was a serious concern - it lost almost 50 percent of its value against the Japanese yen in 2008. "It takes 70 percent more rand today to acquire material in yen than it did at the beginning of last year [2008], and materials represent over 80 percent of the cost of a vehicle," he said.



"With local materials making up only 40 percent of an automobile, imports remain a significant factor in cost structure. The net affect is a tremendous pressure on [profit] margins, which means the consumer can expect to see a 20 percent price increase this year [2009]."

 

Koch said the industry hoped 2010 would herald an economic recovery, but it was not a certainty. "If the First World global economies don't find a solution to their economic problems, then I don't see South Africa recovering either." 

 

bc/go/he