nw dac august 2013
DESCRIPTION
TRANSCRIPT
The Challenge of Localisation
Nigel Ward
Senior Vice President
Toyota SA Motors
Vision 2020
Manufacture 1.2 million vehicles in
South Africa !
Vision 2020 : Manufacture 1 200 000 vehicles in South Africa !
Questions that we need to Ask :
• Is it possible ?
• What needs to happen to be able to produce
1 200 000 vehicles in SA ?
• What will the results be if we manufacture 1.2 million vehicles?
Contents
• History of the Sectoral Development Policy in the SA motor industry
• Vision 2020
– Growth plan for Motor Manufacturing in SA : Towards 1 200 000 production
• Localisation – A Strategic Pillar
• Conclusion
Sectoral Development Policy
Motor Industry in SA Years Policy Instrument
1959 Increase in duty on passenger cars and light commercial vehicles,
levy an excise duty, additional protection to domestic component
manufacturers, create rebate provisions subject to local content
requirements.
1961 – 1963 Phase I :15% to 40%. Ad valorem duty set at 35% up to a maximum
of 100% depending on the value and the weight of the car.
1964 - 1969 Phase II : increase local content in mass from 45% in 1964 to 55% in
1969.
Motor Industry in SA
Years Policy Instrument
1971 – 1976 Phase III : 52% at the beginning of 1971 to increase to 66% on 1
January 1977.
1977 - 1978 Phase IV : A two-year standstill phase
1980- 1988 Phase V :66% by mass in respect of motorcars and 50% by mass in
respect of light commercial vehicles.
1989 - 1995 Phase VI : Local content based on value as opposed to mass. 55% at
the inception of the programme to 75% (including exports) by the
year 1997. Reduce the foreign exchange used by the vehicle
manufacturing industry by about 50% over the period 1989 – 1997.
Motor Industry in SA
Years Policy Instrument
1989 - 1995 Import duty was increased to 50% ad valorem and on passenger
vehicles to 100% ad valorem.
1994 Reduction of the duty on passenger cars to 80% af valorem from
1Janury 1994.
1995 Reduction of the duty to 75% ad valorem from 1 January 1995 on
passenger cars.
• Customers
– Affordability
• Industry
– Plant modernisation
– Model line-up rationalisation
– Local production of volume models
• Economy
– Employment
– Investment
– Exports
OBJECTIVES OF THE MIDP
1 • Significantly Grow Vehicle
Production in South Africa
2 • Increase local value addition in
the automotive supply chain
3 • Increase employment in the
automotive supply chain
OBJECTIVES OF THE APDP
21
Vehicle Production and the Various phases of the Motor Industry Development Plan
0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
900 000
1 000 000
1960 1970 1980 1990 1995 2000 2005 2006 2010 2015 2020
Exports Local Market
Start-up
Phase
Initial
Growth
Isolation Phase Revitalisation Growth Phase
149,7%
36%
-17,3% 16% -8,3%
48%
57,7%
☀
20,4%
?
Vision 2020
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
13
2005 2013
350,000
600,000
Loca
l pro
du
ctio
n v
olu
me
per
an
nu
m
Domestic supply with some global and regional exports MIDP
Investment Support
AIS
Other IPAP 2
MIDP/ APDP
1995
Vulnerable
Sectors Light
Vehicles MCV / HCV
IDC
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
14
2005 2013
350,000
600,000
Loca
l pro
du
ctio
n v
olu
me
per
an
nu
m
Domestic supply with some global and regional exports MIDP
Vulnerable
Sectors Light
Vehicles MCV / HCV
Investment Support
IDC
AIS
Local content Development
Other IPAP 2
1995
MIDP/ APDP
0%
20%
40%
60%
80%
100%
Past Future (High-volumePlayers)
Future (Low-volume/Premium Players)
Imported Imported in Local Local
35-40%
70-80%
Local C
onte
nt
Excl. e
ng
ine &
ge
arb
ox
Local Content Development
40-50%
15
Brazil 104
W. Europe 100
Mexico 89
Russia 107
Malaysia 94
E. Europe 93
Cz. Rep 95
India 85
China 91
Thailand 92
RSA 107-110
Supplier Cost Competitiveness 2013
16 EUR 1 : ZAR 10.50
South Korea 88
USA/Canada 91
North Africa 86
Is this a real Threat? Hyundai/Kia in SA as an example
17
Hyundai/Kia produce in South Korea (cost index 88) and India (cost index 85), ship cars to SA, pay 25% import duty and are still highly competitive in SA
Passenger
Mark
et
Share
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
18
2005 2013 2020 And Beyond
350,000
600,000
1,200,000 Lo
cal p
rod
uct
ion
vo
lum
e p
er a
nn
um
Domestic supply with some global and regional exports MIDP
Tooling Initiative
Vulnerable
Sectors Light
Vehicles MCV / HCV
Investment Support
IDC
AIS
Local content Development
Other IPAP 2
Preferential Procurement
1995
MIDP/ APDP
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
19
2005 2013 2020 And Beyond
350,000
600,000
1,200,000 Lo
cal p
rod
uct
ion
vo
lum
e p
er a
nn
um
Domestic supply with some global and regional exports MIDP
Tooling Initiative
Vulnerable
Sectors Light
Vehicles MCV / HCV
Investment Support
IDC
AIS
Local content Development
Existing trade Agreements
AGOA SADC EU
Other IPAP 2
Preferential Procurement
1995
MIDP/ APDP
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
20
2005 2013 2020 And Beyond
350,000
600,000
1,200,000
Loca
l pro
du
ctio
n v
olu
me
per
an
nu
m
Domestic supply with some global and regional exports
Enhanced International Competitiveness
MIDP
Tooling Initiative
Beneficiation Strategy
Vulnerable Sectors
Light Vehicles
MCV / HCV
Investment Support
IDC
AIS
Local content Development
Existing trade Agreements
AGOA SADC EU
Other IPAP 2
Preferential Procurement
1995
MIDP/ APDP
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
21
2005 2013 2020 And Beyond
350,000
600,000
1,200,000
Loca
l pro
du
ctio
n v
olu
me
per
an
nu
m
Domestic supply with some global and regional exports
Enhanced International Competitiveness
MIDP
Tooling Initiative
Beneficiation Strategy
Vulnerable Sectors
Light Vehicles
MCV / HCV
Investment Support
IDC
AIS
Local content Development
Existing trade Agreements
AGOA SADC EU
Infrastructure Development
Electricity
Tariffs
Other IPAP 2
Preferential Procurement
1995
MIDP/ APDP
[%] 2008 – Index 100
Energy 30 25 25.3 25.6 11 10
22
CPI 9.5 6.3 3.5 6.1 5.7 5.5
Cumulative Inflation Cost Increases Energy vs. CPI (2008 – 2013 FC)
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
23
2005 2013 2020 And Beyond
350,000
600,000
1,200,000 Lo
cal p
rod
uct
ion
vo
lum
e p
er a
nn
um
Domestic supply with some global and regional exports
Enhanced International Competitiveness
MIDP
Tooling Initiative
Beneficiation Strategy
Vulnerable Sectors
Light Vehicles
MCV / HCV
Investment Support
IDC
AIS
Local content Development
Existing trade Agreements
AGOA SADC EU
Infrastructure Development
Ports and Rail
Electricity
Tariffs
Other IPAP 2
Preferential Procurement
1995
MIDP/ APDP
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
24
2005 2013 2020 And Beyond
350,000
600,000
1,200,000 Lo
cal p
rod
uct
ion
vo
lum
e p
er a
nn
um
Domestic supply with some global and regional exports
Enhanced International Competitiveness
MIDP
Tooling Initiative
Beneficiation Strategy
Vulnerable Sectors
Light Vehicles
MCV / HCV
Investment Support
IDC
AIS
Local content Development
Existing trade Agreements
AGOA SADC EU
Infrastructure Development
Ports and Rail
Electricity
Tariffs
Other IPAP 2
Preferential Procurement
Labour
Industrial stability
Productivity
1995
MIDP/ APDP
Nr of working days lost due to strikes SA vs other Countries
25
Note: Days lost during 2010 for SA = 20.6 Mio
Country GDP
(Mio USD) 2010
Canada 1,574,051
South Africa 357,259
France* 2,582,527
Spain 1,409,946
Britain 2,247,455
Ireland 204,261
Italy 2,055,114
Australia 1,235,539
Germany* 3,315,643
USA 14,657,800
Belgium 465,676
Finland 239,232
Denmark 310,760
Poland 468,539
Netherlands 783,293
Sweden 455,848
Russia 1,465,079
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
26
2005 2013 2020 And Beyond
350,000
600,000
1,200,000 Lo
cal p
rod
uct
ion
vo
lum
e p
er a
nn
um
Domestic supply with some global and regional exports
Enhanced International Competitiveness
MIDP
Tooling Initiative
Beneficiation Strategy
Vulnerable Sectors
Light Vehicles
MCV / HCV
Investment Support
IDC
AIS
Local content Development
Existing trade Agreements
AGOA SADC EU
Infrastructure Development
Ports and Rail
Electricity
Tariffs
Other IPAP 2
Preferential Procurement
Labour
Industrial stability
Skills / training
Productivity
Wage Inflation
1995
MIDP/ APDP
Cumulative Inflation Cost Increases
Auto Wages vs. CPI (1993 – 2013 FC)
[%]
1992 – Index 100
27
0
100
200
300
400
500
600
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
FC
Cum CPI (%)
Cum AutoWage increase
(%)
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
28
2005 2013 2020 And Beyond
350,000
600,000
1,200,000 Lo
cal p
rod
uct
ion
vo
lum
e p
er a
nn
um
Domestic supply with some global and regional exports
Enhanced International Competitiveness
MIDP
Tooling Initiative
Beneficiation Strategy
Local Content / Global Suppliers
Vulnerable Sectors
Light Vehicles
MCV / HCV
Investment Support
IDC
AIS
Local content Development
Existing trade Agreements
AGOA SADC EU
Infrastructure Development
Ports and Rail
Electricity
Tariffs
Other IPAP 2
Preferential Procurement
Labour
Industrial stability
Skills / training
Productivity
Wage Inflation
1995
MIDP/ APDP
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
2005 2013 2020 And Beyond
350,000
600,000
1,200,000 Lo
cal p
rod
uct
ion
vo
lum
e p
er a
nn
um
Domestic supply with some global and regional exports
Enhanced International Competitiveness
MIDP
Tooling Initiative
Beneficiation Strategy
Local Content / Global Suppliers
Vulnerable Sectors
Light Vehicles
MCV / HCV
Investment Support
IDC
AIS
Local content Development
Existing trade Agreements
AGOA SADC EU
Infrastructure Development
Ports and Rail
Electricity
Tariffs
New trade agreements
Mercusor
Africa (SSA)
BRIC
Other IPAP 2
Preferential Procurement
Labour
Industrial stability
Skills / training
Productivity
Wage Inflation
1995
29
MIDP/ APDP
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
2005 2013 2020 And Beyond
350,000
600,000
1,200,000 Lo
cal p
rod
uct
ion
vo
lum
e p
er a
nn
um
Domestic supply with some global and regional exports
Enhanced International Competitiveness
MIDP
Tooling Initiative
Beneficiation Strategy
Local Content / Global Suppliers
Vulnerable Sectors
Light Vehicles
MCV / HCV
Investment Support
IDC
AIS
Local content Development
Existing trade Agreements
AGOA SADC EU
Infrastructure Development
Ports and Rail
Electricity
Tariffs
New trade agreements
Mercusor
Africa (SSA)
BRIC
Other IPAP 2
Fuel quality
Preferential Procurement
Labour
Industrial stability
Skills / training
Productivity
Wage Inflation
1995
30
MIDP/ APDP
SA Fuel Quality vs Global Players
31
Legend:
Domestic Market only
The roadmap towards 1.2 mil vehicles and achieving international competitiveness
2005 2013 2020 And Beyond
350,000
600,000
1,200,000 Lo
cal p
rod
uct
ion
vo
lum
e p
er a
nn
um
Domestic supply with some global and regional exports
Enhanced International Competitiveness
MIDP
Tooling Initiative
Beneficiation Strategy
Local market growth Local Content /
Global Suppliers
Vulnerable Sectors
Light Vehicles
MCV / HCV
Investment Support
IDC
AIS
Local content Development
Existing trade Agreements
AGOA SADC EU
Infrastructure Development
Ports and Rail
Electricity
Tariffs
New trade agreements
Mercusor
Africa (SSA)
BRIC
Other IPAP 2
Fuel quality
Preferential Procurement
Labour
Industrial stability
Skills / training
Productivity
Wage Inflation
1995
32
MIDP/ APDP
Passenger and LCV Market in SA
354632
623921
1200000
0
200000
400000
600000
800000
1000000
1200000
1400000
2000 2012 2020 Vision
33
Annual Local
Market increase
required until 2020
= 8 - 9%
Units
+8% for Euro
+21% for Dollar [%]
2008 – Index 100
Exchange rate impact on revenue
R/Euro 12.07 11.69 9.71 9.99 10.53 13.00
R/Dollar 8.26 8.42 7.32 7.27 8.21 10.00
Extended Auto Industry – Cumulative Costs Inflation Impacts (2008 – 2013 FC)
[%] 2008 – Index 100
Wages 8 7.5 10 9 9 7.5
Energy 30 25 25.3 25.6 11 10
Local Material
10.9 -2.2 -3.5 1.1 -0.3 3.93
CPI 9.5 6.3 3.5 6.1 5.7 5.5
+
Major deterioration of export competitiveness! =
Costs inflation impacts (2008 – 2013 FC)
[%]
2008 – Index 100
Exchange rate impact on Revenue
[%]
2008 – Index 100
Combined effect of Exchange Rate + Cost Inflation
36
“Competitive”
Localisation
Weakness
Build to print industry
Assembler culture
Limited skills and resources
Low local content (value added)
International not competitive
Strength
Wide supplier base to the 7 OEM‘s
Availablity of basic raw materials
International certification of management systems
Strong automotive assembly experience
Threat
Political situation
High crime level
Free capacities in Asia and Europe
Monopoly situation of suppliers
Price increases
Opportunities
Export of single components
Local OEM‘s to use common suppliers
Localisation of current CKD parts
Currency development
APDP / BBBEE
IPAP Initiative to support supplier
Industry SWOT Analysis
Understanding where we are!
JSP/MSP
Parts
54%
Local Parts
46%
Lo
cal V
en
do
r
V-V
• 46% of Local
Parts Cost is V -
V Parts from
Overseas
• Highly affected
by exchange rate
fluctuation
• Logistics cost is
high
Other 2%
JPY 12%
EUR 14%
USD 18%
ZAR 54%
Local Vendor Parts
Breakdown
Reality: Net Local Content = ONLY 25%
Current Local Content Image
Opportunities
Electrical / Electronic
Chassis and Drive-train
Body
19%
15%
23%
10%
• Axles • Differentials • Drive shafts • Brakes
• Harnesses • Starter motors • Alternators • Wiper systems • HVAC
• Cockpit • Seats • Door panels • Carpets
• Bonnets • Bootlids • Side frames • Doors 6%
5%
3%
7%
XX%: % of total material cost YY%: True local material plus value add as % of total material cost Note: %’s indicative only
• Glass • Paint • Bumpers • Mirrors
Exterior
Interior
33% 14%
– Exchange Rate
5
7
9
11
13
15
17
19
Exchange Rate Projection
USD1 EUR1
Now2013
FC2025
USD
EUR InflationaryDifferential> 37%
Why Local Content ?
Increasing Differential - Competitiveness
• Job Creation
Why Local Content ?
Unemployment: National Average = 24.9% SA Population by Age: 2012
Sustainable Future
Ways to Improve Local Content Using The APDP Benefits
Improve Competitiveness NOT Profits
Price CIM CIL Price CIM CIL
Glass
100 1.77 1.06 91 1.68 0.97
Casting
100 1.06 0.87 89 0.95 0.76
Before APDP After APDPExamples
9% Improvement
11% Improvement
Ways to Improve Local Content Beneficiation
Export
Destinations:
China, Europe,
Japan, Asia-Pacific,
Middle East, South
Korea
Iron
6th Largest of 50
Export
Destinations:
China, Europe
20th of 45 countries
Copper
1 24 5
79 8
1214 15
1820
22 2325
27
34 35 36
4345
Export
Destinations:
China, Europe
12th of 38 countries
Lead
1 2 3 4 5 6 7 8 9 1011121314151617181920212223242526272829303132333435363738
Export
Destinations:
China1 2 3 4 57 8 9
13 1416 15
1921 22 23
27 28
33 34
41 42 43
9th of 43 countries
Aluminium
• Primary Raw Materials
All major
Commodities
available in
RSA
–
High Potential
Strategy Alignment Maximize Government Support and Utilize Local Materials
Ways to Improve Local Content Beneficiation
Finished Part Machining
Foundry Die Making Alusaf
Not OEM
Specific
Ways to Improve Local Content OEM Collaboration
Imperatives to sustain (manufacturing) industry
• Policy certainty and predictability with appropriate levels of support and investment incentives
• Labour stability • Average annual volumes per platform produced to increase to globally
competitive levels (minimum 80 000 units) with local content levels to increase to 70% plus for volume producers
• SA Supplier Competitiveness to improve to/align with average European costs
• Focused Industrialisation Strategy to broaden SA supplier chain and increase manufacturing depth
• Productivity to improve from 15 cars to 30 cars per employee per annum and continued industrial relations stability
• Massive investment in Training and Skills development at all levels • Substantial improvement in logistics competitiveness and infrastructure