VW Commits To South Africa Vehicle Production; Imperial On The Fence

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Written by Dana Sanchez

Volkswagen Group South Africa said Thursday it would invest more than 4.5 billion rand ($344 million) to build new models in South Africa for local and export markets as part of its next phase of investments, TimesLive reports.

Imperial Holdings, whose motor vehicle import business has been hit hard by deteriorating rand values, is considering establishing a manufacturing plant in South Africa to produce Hyundai passenger cars, according to IndependentOnline.

“Exports will again play a key role in our strategy going forward,” said Thomas Schaefer, managing director of VWSA, at a South African press conference.

Volkswagen South Africa has dominated the passenger market for the last five years and continues to do so in 2015 with a year-to-date market share of 21.4 percent‚ VWSA said.

“Ongoing investment in new technologies and products will ensure that Volkswagen is positioned to continue to be the dominant player in the South African passenger market‚” Schaefer said.

The $344-million Volkswagen investment will include $229 million in production facilities‚ about $114.7 million in local supplier capacity and a further estimated $1.68 million in employee training and development, TimesLive reports.

“South Africa is not a logical production location for the motor industry as only 0.6 percent of the world’s vehicle production is situated here‚” Schaefer said.

“However due to the strategic location and the potential of Africa as a future market for exports‚ as well as the security that the APDP (Automotive Production and Development Programme) provides for investors‚ ongoing investments in our vehicle manufacturing base makes sense. Hence the decision by our parent company to allow us to embark on such a major new investment.”

South Africa’s Automotive Production and Development Programme is an incentive plan that aims to stimulate growth in the country’s auto vehicle production industry, according to the Global Alliance of SMEs.

Imperial/Hyundai

If Imperial Holdings decides to go with local assembly of Hyundai passenger cars, this will be the first new brand to be manufactured in South Africa since 2009 when Nissan started producing the Renault Sandero as part of the global Renault Nissan alliance, IOL reports. Local production of the Sandero was subsequently discontinued.

Chinese vehicle manufacturer First Automobile Works invested $45.87 million in a state-of-the-art truck and passenger car plant at the Coega industrial development zone outside Port Elizabeth in the Eastern Cape but has not begun production.

Hyundai Automotive South Africa, which is part of Imperial’s vehicle import and distribution business, Associated Motor Holdings, is expected in September to start semi-knocked-down assembly of Kia bakkies at its $9.94-million truck assembly plant in Benoni.

The group is studying South Africa’s incentive plan — the Automotive Production and Development Programme — for a locally produced passenger car versus an imported passenger car.

“That study should tell us whether we should talk to government and go to Korea to (discuss) setting up a small plant to manufacture, which obviously depends on numbers and the viability, or do we stay as is,” he said, according to IOL.

If Imperial decides to proceed with local assembly, it will have to set up its own plant and the planned multi-brand vehicle assembly plant, De Canha said. The plant would assemble Hyundai passenger cars but Imperial would also have to secure export contracts for the model produced to make local assembly viable.

“The problem is that all the studies are showing us that the cost of manufacturing in South Africa is probably 10 percent more than anywhere else. How can you justify it?” he asked.

The APDP study should be completed within two weeks, De Canha said.