The outlook for SMEs in the component automotive space – a sector which has historically been highly concentrated – is today relatively good. Apart from the big seven OEM auto manufacturers, in recent years there has been a number of new entrants in the assembly space in South Africa such as BAIC and Mahindra, both of which have intentions to ramp up to manufacturing as they obtain higher volumes.
This was the view of Renai Moothilal, Executive Director: National Association of Automotive Component and Allied Manufacturers, talking on the sustainability of SMEs in the automotive industry at this year’s South African Motor Body Repairers’ Association (SAMBRA) Enterprise Supplier and Development Conference held at Emperors Palace last week in partnership with Siyakha Implementation Partners.
“The growth in variety of vehicles in South Africa is a direct result of government policy whereby manufacturers earn duty credits with which they can cost effectively import other vehicles. In South Africa, you can manufacture any component but business cases tend to be aligned to Original Equipment Manufacturers’ (OEM) global sourcing requirements. There is, in fact, a wide base of automotive component manufacturers in the country. From an OEM value chain perspective, it tends to be dominated by Tier 1 global suppliers, typically large companies which supply OEMs directly and of which there are about 180. There are about 200 Tier 2 and Tier 3 companies, some of which fall into the ESD space as developmental,” says Moothilal.
He says the climate is positive for small enterprise supplier development at present because those OEMs and tier 1 companies which currently have relatively low local content percentages, will be looking to form partnerships with Tier 2 supplier companies. Similarly there is an emphasis on buying a wider range from local Tier 1 companies. “At some point, Tier 1 gaps will be tapped as far as they can be tapped and then the pressure will mount on Tier 1 companies to find what is termed ‘deep local content’, where the Tier 2 and 3 opportunity comes in.”
“There has been recent talk of the establishment by the OEMs of a transformation fund to assist discharge of the ownership obligation under generic BBBEE codes. One would expect some preferential funding characteristics to come out of this linked to more offtake opportunities for SMEs as OEMs increase their local content percentage,” concludes Moothilal.