Quarter of motoring SMEs at risk if lockdown drags on
More than a quarter of small and medium enterprises (SMEs) in the SA motor industry could close if the lockdown is extended beyond the end of April at a cost up to 24,000 industry jobs, National Association of Automobile Manufacturers of SA CEO Mike Mabasa said.
Many of the casualties could be small suppliers of sub-components and services, because they lack the scale and cash flow to sustain them through a prolonged period of inactivity.
Mabasa said average cash reserves across the industry were sufficient for only one month and many companies were likely to limit employee payments at the end of April.
He said 21-30% of SMEs were likely to close because of the pandemic.
If the lockdown continued to early May, he said 11-20% of the pre-crisis workforce would lose their jobs.
If it went to end-May, this would rise to 21-30%.
Vehicle and components manufacturers employ about 120,000 people.
National Association of Automotive Component and Allied Manufacturers (Naacam) director Renai Moothilal said the projected volume of automotive product demand was so heavily reduced it would be difficult to see how employment numbers could be maintained at pre-crisis levels.
Domestic new-vehicle sales in March fell 29.7% from a year earlier, and exports 21.5%.
April’s declines will be much more dramatic.
Mabasa’s forecast is included in his responses to a government survey of the SA manufacturing industry.
His views relate specifically to the motor industry, which accounts for 29.7% of SA manufacturing output.
Including aftersales and retail, the sector contributes 6.8% to national GDP.
A separate Naacam survey paints a similarly stark picture.
While Moothilal said smaller suppliers were most at risk, big companies were also under threat.
He is concerned that export competitors in other countries with less stringent lockdowns would substitute their goods for nondelivered SA exports.
Mabasa expects to see no closures among vehicle manufacturers, even if the lockdown continues until the end of May or beyond.
There is no such security in the components sector.
Companies supplying parts direct to vehicle assembly lines are known as tier-one suppliers.
Most are subsidiaries of multinationals and have financial backing to survive temporary lockdowns.
But even they were not immune, Moothilal said.
“I won’t be surprised if we see some downscaling or even closure at this level.”
Nearly two-thirds of vehicles built in SA are exported, so the global collapse in vehicle sales will slash demand for vehicles and components.
Many suppliers also export to overseas assembly plants.
“Where local tier ones have invested and employed both capital and labour based on expected volumes, if these don’t materialise, there is no reason why we can’t see tier-one casualties,” Moothilal said.
SA’s catalytic converter industry, which exports millions of units every year, is particularly dependent on overseas demand.
The greater risk, though, is at tiers two, three and below that supply the sub-parts and services required to produce major components.
The government has identified these tiers as a priority in the long-term development of the motor industry.
Under its SA automotive master plan, the government wants at least 20% of tier two and three companies to be black-owned by 2035.
The master plan, which comes into effect in 2021, aims to double industry employment in vehicle and components manufacture to 240,000, grow annual vehicle production from about 600,000 to 1.4-million and increase local content in SA-made vehicles by 50%.
Given the short-term and possible long-term effects of the pandemic, these targets will become even more difficult to achieve.
Moothilal said the components industry must start preparing for a post-Covid environment.
“The sector needs to start mapping out how manufacturing can return under risk-adjusted conditions, knowing that infection risk does not stop on April 30,” he said.
“It may be useful to have a subset of component companies starting to manufacture under controlled conditions in the weeks before lockdown ends.” — BusinessLIVE
Would you like to comment on this article or view other readers' comments? Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.