South Africa’s automotive industry is at a crossroads, and the route ahead is far from certain.
Just this week, reports raised serious concern about the potential closure of Mercedes-Benz South Africa’s (MBSA) East London plant, which comes after a scheduled temporary production suspension last year.
Another report this week, however, suggests Mahindra & Mahindra is at an advanced stage of assessing plans to upgrade its South African plant.
These conflicting accounts indicate an industry being pulled in opposite directions, a worrying sign given the economic significance.
South Africa’s automotive industry accounts for 7% of GDP and more than 17% of manufacturing output, directly employing more than 115,000 people.
What happens to the industry has implications far beyond the showroom floor, but it’s there that the prospects seem the most positive. New vehicle sales are experiencing a significant boom, recording 17.3% year-on-year growth last month — the highest level in nearly two decades.
Most of the vehicles sold recently cost less than R500,000, reflecting a more price-sensitive, value-driven consumer who has been responding more favourably to affordable car brands entering the market.
However, higher car sales do not automatically translate into a stronger automotive economy. Naamsa CEO Mikel Mabasa points out that beyond the flashy dealerships and the latest models visible to consumers, the industry’s value chain stretches from mining and component manufacturing to logistics, retail and financial services.
Selling cars is just the surface; the real value lies in enabling movement across the entire chain. That’s where the opportunities lie for SMEs operating in the sector. More cars on the road means greater demand for servicing, insurance, parts and spares, logistics, financing and other mobility-linked services.
The composition of that growth matters more than the headline. If rising car sales are driven primarily by imports or low local-content assembly, the broader economic benefit is limited.
South Africa’s manufacturing bases have been under pressure for some time, with the manufacturing sector’s contribution to GDP steadily declining from about 22% in 1994 to just more than 11% by 2025.
Activity enabler
While still robust in some areas, automotive manufacturing is increasingly uneven, mainly because the local industry tends to export a significant share of its output and import much more of the vehicles South Africans buy.
That raises the question: are we building vehicles or merely selling them?
When growth is driven by imports, our ecosystem begins to narrow, and activity shifts downstream, towards sales and services, while upstream participation weakens. The consequences are tangible, with fewer opportunities for local suppliers, slower development and reduced scope for smaller businesses to scale.
Charl Potgieter of Absa Vehicle and Asset Finance recently said the automotive sector is not only a contributor to GDP and employment, but it is also an enabler of everyday economic activity. It gets people to work, to school and to healthcare, while enabling small businesses to operate and grow.
That makes the structure of the sector as important as its size. For the industry to have a meaningful impact, South Africa’s automotive ecosystem must be developed further to extend well beyond retail, creating space for industrial SMEs to participate in sustaining jobs across a wide and interconnected value chain.
The recent boom in car sales shows the challenge for the industry isn’t affordability but whether South Africa can still present a compelling investment case against competing manufacturing destinations such as China.
Persistent constraints, including inefficient ports, deteriorating road and rail infrastructure, unreliable energy supplies and policy uncertainty, have always weighed heavily on us, and these are the factors that ultimately determine whether manufacturers choose to expand locally or allocate capital elsewhere.
Automotive economy
In a rapidly changing market, competition is necessary to improve pricing, expand consumer choice and push incumbents to innovate, but it cannot build and sustain an industry.
Toyota’s latest R10.4bn investment pledge in KwaZulu-Natal shows that some big players are still willing to commit significant capital, but that still depends on a stable policy environment and an operating context that supports long-term production.
That is the main difference between a larger vehicle market and a stronger automotive economy.
South Africa is selling more cars, but it risks driving away from building a true automotive economy.
SMEs need to figure out how they fit into the future of this increasingly unpredictable value chain before the industry changes lanes without them.
• Mtwentwe is MD of Vantage Advisory and host of the SAICABIZ Impact Podcast
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