South Africa’s Booming Auto Industry: How can African-American suppliers benefit?

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South Africa has emerged as a formidable force in the manufacture and sale of vehicles and automotive parts, both domestically and worldwide. A steadily increasing number of manufacturers now source components, including engines, transmission shafts, cranks and seat parts, from that country, according to the South African Department of Trade and Industry. The same is true for vehicles. Between 1999 and 2005, for example, South Africa’s production of cars and light commercial vehicles jumped from 315,000 units to almost half a million units, while exports more than doubled from approximately 60,000 units to 140,000 units. In the first half of 2006 alone, exports of South African-produced cars totaled 80,651 units, up from 51,823 units exported during the same period last year, the National Association of Automobile Manufacturers of South Africa (NAAMSA) reports in its 2006 second quarter review of the Motor Vehicle Manufacturing Industry.

The association projects that exports of new vehicles will reach 195,400 units for all of 2006, against 139,912 in 2005 and 68,031 in 2000. “The industry is poised for its third successive year of record sales. Total new vehicle sales for September were 57,617, a record figure for the spring season,” the NAAMSA review says. Its figures show that this year’s January-to-September sales of new cars already are 15.9 percent ahead of sales in the corresponding nine months of last year. 

Can African-American suppliers, who are struggling to cope with the downturn in the U.S. industry, benefit from South Africa’s automotive boom? Opportunities for African-Americans certainly exist in South Africa, but finding and exploiting them would require creativity and innovation, experts say. African-American suppliers would have to contend with the same issues that General Motors Corp., Ford Motor Co. and Daimler Chrysler AG—the Big Three—face in the global market, not the least of which is distance, says Leon Richardson, first vice president of National Association of Black Automotive Suppliers.

“For example, if General Motors wants to purchase car seats from China, it needs 90 days of inventory in China, 90 days of inventory on the open water and 90 days of inventory at the plant. So they have virtually six to nine months of inventory in that pipeline,” he says. African-American suppliers wishing to obtain parts from South Africa could face similar inventory requirements, a huge financial investment most of them likely cannot afford, he suggests. Moreover, some products simply are too problematic to be imported, he says. Chemical products are a case in point. Because of their highly sensitive nature, most of these products are best provided locally, Richardson notes.

While opportunities abound in much of Africa for African-American used-car dealers, South Africa’s burgeoning consumer car market essentially remains closed to such imports. Under the country’s Motor Industry Development Programme (MIDP), South Africans are required to purchase new or refurbished cars locally. The program, Volkswagen AG’s South Africa subsidiary says in a statement on its Web site, “has unquestionably been the catalyst behind the growth of both the domestic and export aspects of the industry and helped in the past to protect the industry.” And for the time being, it rules out sales from dealers overseas, including African-Americans.

Little by way of hard data or analyses exists to show how African-American automotive suppliers and dealers can effectively participate in South Africa’s booming automotive industry. Directly investing in the operations of the country’s Black suppliers, or establishing local partnerships to provide services, such as testing and certifying, warehousing and chemical, waste and logistics management, are worth exploring. With the MIDP up for review in 2012, at the very least African-American automotive suppliers and dealers should start now to acquaint themselves with the market as a step toward preparing themselves for opportunities that may arise at that time.