mr dc powels (naamsa president and vwsa managing director)

Mr DC Powels

(Naamsa President and VWSA Managing Director)

2

The Vision for the Year 2020 under the new Automotive Production Development

Program (APDP) and it’s impact on the Automotive Industry

Car Conference 12th October 2011

Overview

1. SA Auto Industry in the Global Context

2. The importance of stable Government Policy for the Auto Sector

3. Reflection on achievements from the MIDP Program

4. Automotive Production Development Program (APDP)

5. Roadmap

SA Auto Industry in Context


Year 2008 2009 2010

Global vehicle Production

70.52 Mio 61.7 Mio 77.9 Mio

SA vehicle Production 0.563 Mio 0.374 Mio 0.472 Mio

SA share of Global Production

0.8% 0.61% 0.61%

SA Auto Production vs Global Production


Auto exports as % of total exports

YearYear 19951995 20002000 20072007 20082008 20092009 20102010

Total SA ExportsTotal SA Exports(R Billion)(R Billion) 102.1102.1 210.4210.4 494.4494.4 656.0656.0 515.4515.4 584584

Total Automotive Total Automotive ExportsExports(R Billion)(R Billion)

4.24.2 23.423.4 67.667.6 94.294.2 61.061.0 69.569.5

Automotive exports Automotive exports as a % of total SA as a % of total SA exportsexports

4.1%4.1% 11.1%11.1% 13.7%13.7% 14.4%14.4% 11.8%11.8% 11.9%11.9%

Overview





5. Roadmap

The importance of consistency and certainty in Government Policy for the Auto Industry

Phase 6 Local Content Programme

Motor Industry Development Programme (MIDP)

Automotive Production Development Plan

(APDP)

1989 – 1994

1995 – 2012

2013 – 2020

1989 202020102000

Overview





5. Roadmap

Development of Competition in SA Passenger Car Market

Brands & Models: 1994 to October 2011

Oct 201160 Brands1,309 models26% Import Duty

January 199417 Brands192 Models115% Import Duty

SA Automotive IndustryDevelopment of FBU export volume - units

15 764

68 031

171 237

284 211

174 947

239 465

301 000

1995 2000 2007 2008 2009 2010 2011 FC

Un

its

-38% 26%37%

SA Automotive IndustryDevelopment of Component Exports - R Bio

3.3

12.6

39.1

44.1

27.930.8

34.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

1995 2000 2007 2008 2009 2010 2011 FC

R B

io

-37% 12%10%

SA Automakers (7 Car and 2 Truck Producers)New Investments

0

5

10

15

20

1995-1999 2000-2004 2005-2009 2010-2011FC

Support Infrastructure (I.T,R&D, Technical, etc.)

Land and Buildings

Product / Local Content / ExportInvestment / ProductionFacilities (R Mio)

R B

io

Total (1995 – 2011FC) = R42.3 Bio

Total = R4.5 Bio

Total = R10.7 Bio

Total = R18.7 Bio

Total = R8.5 Bio

Rationalisation of Platforms in the SA Auto Industry

OEM Pre 1995 2010 2011 (projected)

BMW 4 1 1

Fiat 2 Ceased in 2008 -

GM 3 2 2

Ford 9 3 1

MBSA 5 2 2

Nissan 7 3 2

VW 5 2 2

Toyota 6 2 2

Total 41 15 12

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

SA Pass. & LCV Market 1950 to 2011

LCV Passenger

91%- 45%

41%

Growth in Auto IndustrySA vs Global

Year Global Production (Mio units)

SA Production (Mio units)

SA Exports (Mio units)

SA Component Exports (R Bio)

2000 57.8 0.357 0.068 12.6

2011 FC 78 0.566 0.301 36

% Growth 35 59 343 186

Overview





5. Roadmap

Objectives of the APDP

• Production increase to 1.2 million vehicles per annum

by 2020 with associated deepening of the

components industry.

• Provide appropriate levels of support for these

ambitious targets.

• Achieve better balance between domestic and export

sales to supply growing domestic demand.

• Ensure consistency with WTO rules.

Structure of the APDP

The APDP consists out of 4 pillars that will drive the programme:

1. Import Duty

2. Vehicle Assembly Allowance (VAA)

3. Production Incentive (PI)

4. Automotive Investment Scheme (AIS)

APDP

Imp

ort

Du

ty

taxa

tio

n

Veh

icle

Ass

emb

ly

All

ow

ance

Pro

du

ctio

n

Ince

nti

ve

Au

tom

oti

ve

Inve

stm

ent

Sch

eme

Duty Rebate Mechanisms Cash Grants

1 2 3 4

Pillar 1: Import Duty

36%

25%25% 25%

29%

24%

18%18%18%

10%

15%

20%

25%

30%

35%

40%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

FBU Import Duty FBU Import Duty (EU Pref Rate)

20%

24%

20%20%

28%

10%

15%

20%

25%

30%

35%

40%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

CKD Import Duty Rate

The New APDP will have stable, moderate import tariffs from 2012:

• 25% for Completely Built Up Vehicles (CBUs).

• 18% for CBU’s out of Europe via the EU preferential rate.

• 20% for CKD components used by vehicle assemblers.

FBU Import Duty Rate CKD Import Duty Rate

MIDP APDP MIDP APDP

Pillar 2: Vehicle Assembly Allowance (VAA)

The Vehicle Assembly Allowance (VAA) will allow vehicle manufacturers

with a plant volume of at least 50,000 units per annum to import a

percentage of their components duty free.

• 20% reducing to 18% over 3 years.

• Introduction in 2013.

27% 27%

19%18%18%

20%

14%

16%

18%

20%

22%

24%

26%

28%

30%

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

DFA% of Domestic Turnover VAA% of Domestic and Export Turnover

MIDP APDP

Pillar 3: Production Incentives (PI)

The Production Incentive will be in the form of a duty credit aimed at raising production value-added:

• 55% reducing to 50% over 5 years.

• Value-added = Sales minus Imported Components and Non qualifying Raw materials.

• Additional 5% for vulnerable sub-sectors.

• OEM’s accrue the PI Benefit for the parts supplied by component manufacturer

55%

52%

50%50%51%

54%53%

45%

50%

55%

60%

'13 '14 '15 '16 '17 '18 '19 '20Production Incentive

Qualifying Raw Materials

25% Standard Value added on raw materials

• PGM’s

•Leather

• Aluminium

• Steel

• Stainless steel

Pillar 4: Automotive Investment Scheme AIS)• The AIS program provides support to light motor vehicle manufacturers and

automotive component manufacturers.

• AIS provides for a taxable Cash Grant of 20% of the qualifying investment in Productive Assets (OEM has / will achieve 50 000 annual production within 3 years).

• An additional taxable Cash Grant of 5% to 10% is available to projects that are considered as strategic by the DTI and meet specified performance requirements.

• Project below R 30 mio by light motor vehicle manufacturers and R1 mio by component manufacturers will not qualify.

• The approved AIS grant is paid over a period of 3 years.

• The commencement date of the program was 1st of July 2009 (Retroactive legislation).

Overview





5. Roadmap

Legend:

Domestic Market only

The roadmap towards 1.2 mil vehicles and achieving international competitiveness

2005 2013

350,000

600,000

Loca

l pro

ducti

on v

olum

e pe

r ann

um

Domestic supply with some global and regional exportsMIDP

Vulnerable Sectors

Light Vehicles MCV / HCV

Investment Support

IDC

AIS

Local contentDevelopment

OtherIPAP 2

APDP

1995

0%

20%

40%

60%

80%

100%

Past Future

Imported Imported in Local Local

40%

70-80%Loca

l Con

tent

Exc

l. en

gine

& g

earb

oxLocal Content Development

Legend:



2005 2013 2020 And Beyond

350,000

600,000

1,200,000

Loca

l pro

ducti

on v

olum

e pe

r ann

um

Domestic supply with some global and regional exports

Enhanced International Competitiveness

MIDP

Tooling Initiative

Beneficiation Strategy

Vulnerable Sectors


Investment Support

IDC

AIS


Existing tradeAgreements AGOA SADCEU

OtherIPAP 2

APDP

PreferentialProcurement

APDP

1995


• Why is a beneficiation strategy so important? Because in

general local raw material costs provide no competitive

advantage for local beneficiators as they are internationally

priced commodities (LME etc.).

• NAAMSA endorses the importance of the early introduction

of effective beneficiation strategy as a key intervention to

establish sustainable long term competitiveness.

• In particular, reference was made to “developmental pricing”

that would support a lower commodity input cost for our

Industry.

Raw Material cost

Imported parts

Local parts

Operating costs

Overheads

Typi

cal e

xpor

t par

t cos

t mak

e up

%

50

100

70

Legend:



2005 2013 2020 And Beyond

350,000

600,000

1,200,000

Loca

l pro

ducti

on v

olum

e pe

r ann

um



MIDP

Tooling Initiative


Vulnerable Sectors


Investment Support

IDC

AIS



InfrastructureDevelopment

Electricity

Tariffs

OtherIPAP 2

APDP


APDP

1995

100.0

120.0

140.0

160.0

180.0

200.0

220.0

240.0

260.0

2007 2008 2009 2010 2011 FC

CPI Energy Increase (Eskom)

%

Cumulative Inflation Cost IncreasesEnergy vs CPI (2007 – 2011)

Legend:



2005 2013 2020 And Beyond

350,000

600,000

1,200,000

Loca

l pro

ducti

on v

olum

e pe

r ann

um



MIDP

Tooling Initiative


Vulnerable Sectors


Investment Support

IDC

AIS




Ports and Rail

Electricity

Tariffs

OtherIPAP 2

APDP


Labour

Industrial stability

Productivity

APDP

1995

Nr of working days lost due to strikes SA vs other Countries

Note: Days lost during 2010 for SA = 20.6 Mio

CountryGDP

(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:



2005 2013 2020 And Beyond

350,000

600,000

1,200,000

Loca

l pro

ducti

on v

olum

e pe

r ann

um



MIDP

Tooling Initiative


Vulnerable Sectors


Investment Support

IDC

AIS




Ports and Rail

Electricity

Tariffs

OtherIPAP 2

APDP


Labour


Skills / training

Productivity

APDP

Wage Inflation

1995

100.0

105.0

110.0

115.0

120.0

125.0

130.0

135.0

140.0

2007 2008 2009 2010 2011 FC

CPIWage Increase

%

Cumulative Inflation Cost Increases Wages vs CPI (2007 – 2011)

Legend:



2005 2013 2020 And Beyond

350,000

600,000

1,200,000

Loca

l pro

ducti

on v

olum

e pe

r ann

um



MIDP

Tooling Initiative


Local Content /Global Suppliers

Vulnerable Sectors


Investment Support

IDC

AIS




Ports and Rail

Electricity

Tariffs

New tradeagreements

Mercusor

Africa(SSA)

BRIC

OtherIPAP 2

APDP


Labour


Skills / training

Productivity

APDP

Wage Inflation

1995

Exporting to Sub-Saharan Africa

Legend:



2005 2013 2020 And Beyond

350,000

600,000

1,200,000

Loca

l pro

ducti

on v

olum

e pe

r ann

um



MIDP

Tooling Initiative



Vulnerable Sectors


Investment Support

IDC

AIS




Ports and Rail

Electricity

Tariffs

New tradeagreements

Mercusor

Africa(SSA)

BRIC

OtherIPAP 2

Fuel quality

APDP


Labour


Skills / training

Productivity

APDP

Wage Inflation

1995

SA Fuel Quality vs Global Players

Legend:



2005 2013 2020 And Beyond

350,000

600,000

1,200,000

Loca

l pro

ducti

on v

olum

e pe

r ann

um



MIDP

Tooling Initiative


Local market growth


Vulnerable Sectors


Investment Support

IDC

AIS




Ports and Rail

Electricity

Tariffs

New tradeagreements

Mercusor

Africa(SSA)

BRIC

OtherIPAP 2

Fuel quality

APDP


Labour


Skills / training

Productivity

APDP

Wage Inflation Electric vehicles

1995

354632555000

1200000

0

200000

400000

600000

800000

1000000

1200000

1400000

2000 Actual 2011 FC 2020 Vision

Passenger and LCV Market in SA

Annual Local Market increase required until 2020 = 8.9%U

nits

mr dc powels (naamsa president and vwsa managing director)

Documents

contextsa auto industry

auto industry1989

auto sector reflection

total sa exports4

contextauto exports

miosa vehicle production0

import dutyjanuary

brands192 models115