01 Oct Covid-19 and Vehicle Exports
Covid-19 and vehicle exports
First half 2020 South African vehicle exports reflected a massive decline of 73 419 vehicles, or 40,3%, compared to the first half 2019. For the same period the vehicle export revenue figure has declined by R21,3 billion from R67,2 billion in 2019 to R45,9 billion in 2020. This could directly be attributed to the Covid-19 pandemic as most countries in the world imposed lockdown restrictions resulting in a consequent fall of demand for new vehicles.
The significance of exports for the country’s motor industry was highlighted in 2019. Despite a progressively declining domestic new vehicle market, reaching its lowest sales level in since 2010, vehicle exports once again showed exceptional growth in 2019 to support the export-oriented industry’s overall performance. A record number of 387 125 left- and right-hand drive vehicles, up from the 351 139 vehicles in 2018, with a record export revenue figure of R148 billion, were exported to 105 country destinations in 2019. Record vehicle exports vehicles in 2019, accompanied by continued high levels of investment in the domestic automotive industry and large-scale employment of high skilled jobs were testimony to the largest manufacturing sector‘s contribution to the South African economy.
Considering that a significant 64,1% of South African vehicle production was exported in 2019 with Europe accounting for a substantial 73,8% of the 387 125 vehicles exported last year, developments in the region have a direct and measurable impact on the domestic automotive industry’s performance. This trend continued into the first half of 2020 with Europe accounting for 72,1% of vehicle exports during this period. Consequently, the 55 152 vehicles, or 41,3% decline in vehicle exports to Europe comprised the bulk of the domestic industry’s vehicle export losses during the first half of 2020.
VWSA, with its Polo model, topped the country’s vehicle export rankings in 2019 with 89 366 of these models destined for Europe. BMW exported 67 516 X3 models to Europe, followed by 55 373 Ford Ranger models, 43 253 Toyota Hilux/Corolla models and 30 003 Mercedes-Benz C-Class models. The UK, with 101 401 vehicles, followed by Germany with 37 152 vehicles, France with 25 629 vehicles, Italy with 14 624 vehicles and Austria with 12 675 vehicles were the domestic automotive industry’s top five European destinations in 2019.
According to data collated by the International Organisation of Motor Vehicle Manufacturers (OICA), first half 2020 new vehicle sales in the UK declined by 48,4% compared to the first half 2019, while in Germany the new vehicle market declined by 33,9%, in France by 37,1%, in Italy by 45,1%, and in Austria by 35,3%.
In all these markets the new vehicle sales decline peaked in April 2020, placing the massive 97,3% year-on-year decline of South African vehicle exports in April 2020 into perspective. During April 2020, the UK new vehicle market declined year-on-year by 95,3%, Germany by 59,5%, France by 87,2%, Italy by 96,4% and Austria by 62,7%. Some positive news for the domestic automotive industry is that the major European markets reflected an improved performance since June 2020 in line with the easing of the lockdown restrictions as well as buoyed by large financial government incentives to encourage drivers to trade in older cars for new ones. However, the bad news is that new vehicle sales across Europe are forecast to decline by a record 25% in 2020, the steepest percentage drop on record, and to its lowest level since 2013.
Vehicle exports to Asia also declined by 7 101 units, or 36,5% during the first half 2020 compared to the first half 2019, mainly reflecting the decline of 7 067 vehicles to Japan, the domestic automotive industry’s third largest vehicle export destination. The Covid-19 impact on Japan’s automotive industry has been relatively mild with the new vehicle market declining by only 8,9% for the first half of 2020 compared to the same period last year. The 28,6% year-on-year decline in April 2020 and 44,9% in May 2020, however, negatively affected domestic new vehicle exports to Japan. June 2020 new vehicle sales in Japan reflected 6% growth compared to June 2019, which is encouraging news for South African vehicle exporters to the country.
Despite the 40% decline in vehicle exports to the continent for the first half of 2020, Africa’s potential remains a priority focus for the domestic automotive industry. South African-built bakkies, in particular, continue to be the popular choice of mobility for new vehicle buyers on the continent. In the order of 85% of the 6 934 vehicles exported into Africa during the first half of 2020 comprised bakkies with Kenya, Zimbabwe, Ghana, and Nigeria topping the list of the 30 export destinations into the continent.
Large infrastructure projects linking African countries and increasing intra-African trade could be the platforms to launch the continent into a new era of prosperity. Investment in infrastructure tends to increase business confidence, and simultaneously lowers transaction costs by making it easier for businesses to move people, goods, and services. In this regard, the implementation of the African Continental Free Trade Area (AfCFTA) could mark the beginning of a promising decade for Africa. Unfortunately, due to COVID-19, the implementation of the AfCFTA, which aims to create the world’s largest free trade bloc, has been postponed from 1 July 2020 to 2021.
The decline of 2 263 vehicle exports to North America mainly relate to the decline of 2 173 vehicles to the US for the first half of 2020 where the new vehicle market declined by 23,1% compared to the first half 2019. The US was the domestic automotive industry’s top vehicle export destination for several years but since 2018 the same BMW and Mercedes-Benz models are manufactured in both South Africa and the US and hence the reason for the US moving down on the domestic automotive industry’s rankings of top vehicle export destinations.
Vehicle exports to Australasia also declined by 3 288 units during the first half of 2020 which could mainly be attributed to the decline of 3 038 vehicle exports to Australia. For the first half 2020 compared to the first half 2019 the Australian new vehicle market declined by 20,2%, relatively mild compared to other countries over this period as the Australian government had been slower in enforcing lockdown measures for non-essential businesses and most of car dealerships were allowed to remain active. Positive news for South African vehicle exporters is that new vehicles sales registered a robust improvement in the country in June 2020, supported by the lockdown easing and strong tax incentives.
Since the Covid-19 pandemic is stifling export-oriented industries such as the automotive industry significantly, South African vehicle exporters will be required to consider various scenarios for the world economy and global trade patterns in the short to medium term. Most domestic vehicle manufacturers have grown their volumes substantially, and now produce a very high proportion of vehicles for the export market. Exporting, therefore, have been and will remain key for the motor industry in South Africa to generate sufficient economies of scale and to achieve improved international competitiveness.
Dr. Norman LAMPRECHT
naamsa | The Automotive Business Council Executive: Trade, Exports and Research