VZCZCXRO9061
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSA #0663/01 0931450
ZNR UUUUU ZZH
R 031450Z APR 09
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 7995
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHOR/AMEMBASSY GABORONE 5458
RUEHMR/AMEMBASSY MASERU 2841
RUEHMB/AMEMBASSY MBABANE 4526
RUEHWD/AMEMBASSY WINDHOEK 4993
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 PRETORIA 000663 
 
SIPDIS 
 
PLEASE PASS TO USTR FOR BILL JACKSON 
 
E.O. 12958: N/A 
TAGS: ECIN ECON EIND ETRD
SUBJECT: SOUTH AFRICAN AUTO INDUSTRY SUFFERING 
 
REF: PRETORIA 000209 
 
PRETORIA 00000663  001.2 OF 002 
 
 
¶1.  (SBU)  Summary.  The global economic crisis may cause 
South African auto exports to drop by 35 percent in 2009, 
according to the National Automobile Manufacturer's 
Association of South Africa.  The downturn in the export 
market combined with a sharp decline in domestic sales have 
lead the beleaguered auto industry to request assistance from 
the South African Government (SAG).  The industry has 
proposed a variety of measures to improve its cash flow and 
its access to credit as well as consumer incentives to 
purchase automobiles.  The SAG has not yet released an 
assistance plan and the industry does not expect it to raise 
tariffs.  End Summary. 
 
------------------------ 
A "DIRE, DIRE SITUATION" 
------------------------ 
 
¶2.  Trade and Investment Officer and Economic Specialist met 
with National Automobile Manufacturers Association of South 
Africa (NAAMSA) Director Nico Vermeulen on March 13 to 
discuss the effect of the global economic crisis on the local 
auto industry.  According to Vermeulen, the industry is 
facing a "dire, dire situation" because South Africa's 
primary export markets are in recession.  He predicted that 
2009 would bring a 35 percent decline in auto exports, and he 
did not expect a turnaround until sometime late in 2010. 
Meanwhile, domestic sales over the last 22 months have also 
taken a hit as consumers tighten their belts in response to 
hard economic times. 
 
¶3.  The bleak picture for exports and domestic sales has 
caused the auto companies and components manufacturers to 
have an "unrelenting focus on taking costs down," Vermeulen 
said.  The major multinational manufacturers with operations 
in South Africa are reviewing their export figures on a 
weekly basis, and manufacturers and importers are downsizing 
their operations in tandem with weakening sales prospects. 
NAAMSA estimates that 30,000 NAAMSA associated jobs (out of a 
total of approximately 110,000) could be at risk in 2009. 
Vermeulen commented that the companies are at an impasse with 
the unions: the companies want to cut costs, while unions 
want a moratorium on layoffs. 
 
---------------------------------- 
AUTO INDUSTRY SEEKS SAG ASSISTANCE 
---------------------------------- 
 
¶4.  The auto industry has asked the SAG for financial 
assistance, but Vermeulen distinguished the industry's 
request for assistance from the auto industry bailout in the 
U.S., saying, "no one is looking for handouts."  He said that 
the industry wants the SAG to assist it with cash flow and to 
facilitate its access to credit.  Auto industry 
representatives have proposed that the state-owned Industrial 
Development Corporation (IDC) factor the receivables of 
original equipment manufacturers (OEMs) in order to provide 
the OEMs with ready cash.  NAAMSA has proposed that the 
Unemployment Insurance Fund (UIF) advance some of its R27.5 
billion ($2.7 billion) to the IDC at 0 percent interest.  The 
IDC would then lend the money to auto companies at a low 
interest rate ( /- 2 percent).  He conceded that this 
proposal was "creative," but said the UIF and the auto 
industry support the idea.  The industry's other proposals 
include selling import rebate certificates and reducing 
interest rates.  The industry also suggested that the SAG 
consider offering tax incentives for auto purchases. 
 
¶5.  Vermeulen did not know when or how the SAG would respond 
Q5.  Vermeulen did not know when or how the SAG would respond 
to the industry's proposals.  He said that Department of 
Trade and Industry does not wish to unrealistically raise 
expectations of government assistance, and the National 
Treasury "has no appetite to release funds."  He expects the 
sector will "make do with what it has."  Vermeulen predicted 
that if the South African Reserve Bank continues to lower 
interest rates, the industry will see a domestic turnaround 
by the second half of 2009.  (Note:  The SARB slashed the 
policy interest rate by a cumulative 250 basis points since 
December 2008.) 
 
¶6.  Vermuelen said the SAG will not raise tariffs in order to 
protect the industry.  He remarked that while component 
manufacturers and unions support the idea of raising tariffs, 
 
PRETORIA 00000663  002.2 OF 002 
 
 
importers and distributors who comprise the majority of 
NAAMSA's membership believe that raising tariffs would have 
serious consequences that would outweigh the potential 
benefits.  He said that raising tariffs would raise the ire 
of trading partners and invite retaliation.  The idea of 
raising tariffs is a "horse that won't run."  (Comment: 
Raising tariffs on imported components could also increase 
the cost of assembled vehicles, reducing the competitiveness 
of vehicle exports.  Vehicle exports now represent almost 
half of domestic vehicle production.  End Comment.) 
 
---------------------------------------- 
SOUTH AFRICA'S AUTO INDUSTRY: A SNAPSHOT 
---------------------------------------- 
 
¶7. South Africa's automotive industry (including components) 
has grown to be the largest manufacturing sector in South 
Africa, accounting for 15 percent of manufacturing output and 
6.9 percent of GDP in 2008.  Vehicle exports grew from 15,764 
units in 1995 to an estimated 295,000 units in 2008.  Vehicle 
exports as a percentage of total domestic vehicle production 
increased from 4 percent in 1995 to 48 percent in 2008 and 
represented 10 percent of total exports in 2008.  As noted 
above, the industry employs about 110,000 workers, making it 
one of the largest employers in South Africa.  The industry 
has benefited from extensive government subsidies and is 
considered a model for industrial policy in many parts of the 
SAG. 
 
------- 
COMMENT 
------- 
 
¶8.  The South African auto industry is likely to remain 
export-oriented, but the immediate future of the industry is 
uncertain.  Auto makers are struggling to adapt to the 
reduced global demand for exports and the downturn in 
domestic demand.  The industry believes that dedicated 
government assistance as necessary for its survival, but the 
industry must also implement reforms to reduce costs and 
improve operations. 
LA LIME