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Mr DC Powels (Naamsa President and VWSA Managing Director)

Mr DC Powels (Naamsa President and VWSA Managing Director). The Vision for the Year 2020 under the new Automotive Production Development Program (APDP) and it’s impact on the Automotive Industry. Car Conference 1 2 th October 2011. Overview. SA Auto Industry in the Global Context

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Mr DC Powels (Naamsa President and VWSA Managing Director)

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  1. 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

  3. Overview • SA Auto Industry in the Global Context • The importance of stable Government Policy for the Auto Sector • Reflection on achievements from the MIDP Program • Automotive Production Development Program (APDP) • Roadmap

  4. Overview • SA Auto Industry in the Global Context • The importance of stable Government Policy for the Auto Sector • Reflection on achievements from the MIDP Program • Automotive Production Development Program (APDP) • Roadmap

  5. SA Auto Industry in Context

  6. SA Auto Industry in Context

  7. SA Auto Industry in Context

  8. SA Auto Industry in Context SA Auto Production vs Global Production

  9. SA Auto Industry in Context Auto exports as % of total exports

  10. Overview • SA Auto Industry in the Global Context • The importance of stable Government Policy for the Auto Sector • Reflection on achievements from the MIDP Program • Automotive Production Development Program (APDP) • Roadmap

  11. The importance of consistency and certainty in Government Policy for the Auto Industry 2013 – 2020 Automotive Production Development Plan (APDP) 1995 – 2012 Motor Industry Development Programme (MIDP) 1989 – 1994 Phase 6 Local Content Programme 1989 2000 2010 2020

  12. Overview • SA Auto Industry in the Global Context • The importance of stable Government Policy for the Auto Sector • Reflection on achievements from the MIDP Program • Automotive Production Development Program (APDP) • Roadmap

  13. Development of Competition in SA Passenger Car Market Brands & Models: 1994 to October 2011 Oct 2011 60 Brands 1,309 models 26% Import Duty January 1994 17 Brands 192 Models 115% Import Duty

  14. SA Automotive IndustryDevelopment of FBU export volume - units -38% 37% 26%

  15. SA Automotive IndustryDevelopment of Component Exports - R Bio 12% -37% 10%

  16. SA Automakers (7 Car and 2 Truck Producers)New Investments Total = R18.7 Bio R Bio Total = R10.7 Bio Total = R8.5 Bio Total = R4.5 Bio Total (1995 – 2011FC) = R42.3 Bio

  17. Rationalisation of Platforms in the SA Auto Industry

  18. SA Pass. & LCV Market 1950 to 2011 - 45% 91% 41% LCV Passenger

  19. Growth in Auto IndustrySA vs Global

  20. Overview • SA Auto Industry in the Global Context • The importance of stable Government Policy for the Auto Sector • Reflection on achievements from the MIDP Program • Automotive Production Development Program (APDP) • Roadmap

  21. 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.

  22. Structure of the APDP • The APDP consists out of 4 pillars that will drive the programme: • Import Duty • Vehicle Assembly Allowance (VAA) • Production Incentive (PI) • Automotive Investment Scheme (AIS) APDP Production Incentive Vehicle Assembly Allowance Automotive Investment Scheme Import Duty taxation 1 2 3 4 Duty Cash Grants Rebate Mechanisms

  23. Pillar 1: Import Duty • 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 MIDP APDP APDP

  24. 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. MIDP APDP

  25. 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 • Qualifying Raw Materials • 25% Standard Value added on raw materials • PGM’s • Leather • Aluminium • Steel • Stainless steel

  26. 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).

  27. Overview • SA Auto Industry in the Global Context • The importance of stable Government Policy for the Auto Sector • Reflection on achievements from the MIDP Program • Automotive Production Development Program (APDP) • Roadmap

  28. The roadmap towards 1.2 mil vehicles and achieving international competitiveness Legend: IPAP 2 Other MIDP Local production volume per annum 600,000 Domestic supply with some global and regional exports Investment Support Local content Development IDC 350,000 AIS Light Vehicles Vulnerable Sectors MCV / HCV APDP Domestic Market only 1995 2005 2013

  29. Local Content Development Imported Imported in Local Local Local Content Excl. engine & gearbox 70-80% 40%

  30. The roadmap towards 1.2 mil vehicles and achieving international competitiveness Legend: IPAP 2 Other 1,200,000 Enhanced International Competitiveness APDP MIDP Local production volume per annum Beneficiation Strategy 600,000 Domestic supply with some global and regional exports Investment Support Existing trade Agreements EU AGOA SADC Local content Development Tooling Initiative Preferential Procurement IDC 350,000 AIS Light Vehicles Vulnerable Sectors MCV / HCV APDP Domestic Market only 1995 2005 2013 2020 And Beyond

  31. Beneficiation Strategy % • 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. 100 Overheads Operating costs Local parts 70 Imported parts 50 Typical export part cost make up Raw Material cost

  32. The roadmap towards 1.2 mil vehicles and achieving international competitiveness Legend: IPAP 2 Other 1,200,000 Enhanced International Competitiveness APDP Infrastructure Development Electricity Tariffs MIDP Local production volume per annum Beneficiation Strategy 600,000 Domestic supply with some global and regional exports Investment Support Existing trade Agreements EU AGOA SADC Local content Development Tooling Initiative Preferential Procurement IDC 350,000 AIS Light Vehicles Vulnerable Sectors MCV / HCV APDP Domestic Market only 1995 2005 2013 2020 And Beyond

  33. Cumulative Inflation Cost IncreasesEnergy vs CPI (2007 – 2011) %

  34. The roadmap towards 1.2 mil vehicles and achieving international competitiveness Legend: IPAP 2 Other 1,200,000 Enhanced International Competitiveness APDP Infrastructure Development Labour Productivity Ports and Rail Industrial stability Electricity Tariffs MIDP Local production volume per annum Beneficiation Strategy 600,000 Domestic supply with some global and regional exports Investment Support Existing trade Agreements EU AGOA SADC Local content Development Tooling Initiative Preferential Procurement IDC 350,000 AIS Light Vehicles Vulnerable Sectors MCV / HCV APDP Domestic Market only 1995 2005 2013 2020 And Beyond

  35. Nr of working days lost due to strikes SA vs other Countries Note: Days lost during 2010 for SA = 20.6 Mio

  36. The roadmap towards 1.2 mil vehicles and achieving international competitiveness Legend: IPAP 2 Other 1,200,000 Enhanced International Competitiveness APDP Infrastructure Development Labour Productivity Ports and Rail Industrial stability Electricity Skills / training Tariffs Wage Inflation MIDP Local production volume per annum Beneficiation Strategy 600,000 Domestic supply with some global and regional exports Investment Support Existing trade Agreements EU AGOA SADC Local content Development Tooling Initiative Preferential Procurement IDC 350,000 AIS Light Vehicles Vulnerable Sectors MCV / HCV APDP Domestic Market only 1995 2005 2013 2020 And Beyond

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

  38. The roadmap towards 1.2 mil vehicles and achieving international competitiveness Legend: IPAP 2 Other 1,200,000 Enhanced International Competitiveness APDP Infrastructure Development Labour New trade agreements Productivity BRIC Ports and Rail Industrial stability Mercusor Electricity Africa (SSA) Skills / training Tariffs Wage Inflation MIDP Local production volume per annum Beneficiation Strategy Local Content / Global Suppliers 600,000 Domestic supply with some global and regional exports Investment Support Existing trade Agreements EU AGOA SADC Local content Development Tooling Initiative Preferential Procurement IDC 350,000 AIS Light Vehicles Vulnerable Sectors MCV / HCV APDP Domestic Market only 1995 2005 2013 2020 And Beyond

  39. Exporting to Sub-Saharan Africa

  40. The roadmap towards 1.2 mil vehicles and achieving international competitiveness Legend: IPAP 2 Other 1,200,000 Enhanced International Competitiveness APDP Infrastructure Development Labour New trade agreements Productivity BRIC Ports and Rail Industrial stability Mercusor Electricity Africa (SSA) Skills / training Tariffs Fuel quality Wage Inflation MIDP Local production volume per annum Beneficiation Strategy Local Content / Global Suppliers 600,000 Domestic supply with some global and regional exports Investment Support Existing trade Agreements EU AGOA SADC Local content Development Tooling Initiative Preferential Procurement IDC 350,000 AIS Light Vehicles Vulnerable Sectors MCV / HCV APDP Domestic Market only 1995 2005 2013 2020 And Beyond

  41. SA Fuel Quality vs Global Players

  42. The roadmap towards 1.2 mil vehicles and achieving international competitiveness Legend: IPAP 2 Other 1,200,000 Enhanced International Competitiveness APDP Infrastructure Development Labour New trade agreements Productivity BRIC Ports and Rail Industrial stability Mercusor Electricity Africa (SSA) Skills / training Tariffs Fuel quality Wage Inflation MIDP Electric vehicles Local production volume per annum Beneficiation Strategy Local market growth Local Content / Global Suppliers 600,000 Domestic supply with some global and regional exports Investment Support Existing trade Agreements EU AGOA SADC Local content Development Tooling Initiative Preferential Procurement IDC 350,000 AIS Light Vehicles Vulnerable Sectors MCV / HCV APDP Domestic Market only 1995 2005 2013 2020 And Beyond

  43. Passenger and LCV Market in SA Annual Local Market increase required until 2020 = 8.9% Units

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