Government is taking steps that include possible punitive measures to accelerate the pace of change in the development of black suppliers to vehicle manufacturers
Motor industry companies that don’t help develop black-owned newcomers are risking not only industry incentives but also their own future.
A new drive to increase black participation could lead, in extreme cases, to the industry-supported creation of direct competitors to existing players.
Significant black involvement in the industry is among the goals of the 2013-2020 automotive production & development programme (APDP), but it has been happening painfully slowly. Trade & industry minister Rob Davies, whose department manages the programme, has repeatedly expressed frustration at the pace of change.
Dave Coffey, president of the National Association of Automotive Component & Allied Manufacturers (Naacam), says that out of hundreds of suppliers dealing directly with vehicle manufacturers, only 15 are black owned.
Of those, he says, most supply services — for example, the manufacturing of product handbooks — rather than vehicle parts.
Now Davies has lost patience. At an automotive conference in Durban last week, he said future policy would demand measurable commitments by vehicle and components manufacturers to black supplier development. Companies failing to act could lose access to incentives offered through the APDP and its successor. These incentives include import duty rebates and partial investment recovery.
The same threat applies to companies failing to achieve level 4 in future broad-based black economic empowerment codes. The shape of those codes is the subject of intense debate.
The challenge for Davies is that the country’s seven major vehicle manufacturers, namely BMW, Ford, General Motors, Mercedes-Benz, Nissan, Toyota and Volkswagen, are all wholly owned by multinationals. So are nearly all the local components companies supplying parts directly to vehicle production lines. However, Chinese manufacturer BAIC, in the early stages of an R11bn project to build a vehicle assembly plant near Port Elizabeth, has taken a different approach. Government’s Industrial Development Corp is a 35% equity partner.
Local industry executives say government has suggested foreign parents of 100% subsidiaries cede 10% to local ownership. The idea has not been well received. Volkswagen SA MD Thomas Schaefer says: “Companies have spent billions of rand here. They’re not just going to give it away.”
Another suggestion, says Coffey, is a profit-share scheme in terms of which companies would pay into a fund that could be used for black industrialisation.
Some supplier-development initiatives are already under way. Many companies have their own programmes. The nonprofit Automotive Supply Chain Competitiveness Initiative, supported by government, industry and labour, has played a pivotal role in broadening the industry’s supply chain base.
The Automotive Industry Development Centre trains and mentors potential black players. CEO David Masondo says some recently “graduated” after an incubation process lasting between five and seven years.
But Coffey says: “We don’t have five years. Government deadlines mean we have to find candidates now.” The immediate effect of black supplier development will be felt down the line. Components companies dealing directly with vehicle manufacturers are classified as tier one suppliers. They are provided with subcomponents by tier two, who rely, in turn, on tier three.
It is tiers two and three, mostly white-owned and independent, that will be expected to do most of the groundwork. Naacam is about to launch a road show encouraging members to sell off noncore activities to black investors — “or, even better, to the employees who work there” — but retain them as suppliers. For example, a metals company could hive off a press plant but continue to use its output in the business.
Coffey admits some companies will find it impossible to use this model but says those that resist without good reason could find customers encouraging others to move into that product space.
However, it’s not enough to identify black entrepreneurs and give them opportunities. Even the smallest widget or subcomponent must meet exacting standards demanded by multinational motor companies.
That means not only consistent product quality but also competitive pricing and reliable delivery.
That’s why Masondo says supporting companies, whether vehicle manufacturers, multinational components companies or tier two suppliers, must offer ongoing mentorship. That includes management training and helping to find markets.
None of this will be easy, but with the will, and the threat of lost incentives and revenue hanging over nonachievers, Coffey believes it can be done.
Davies wants the current 38% average local content in SA-made vehicles to rise to 60% in the next few years. Much of that, he hopes, will be provided by black suppliers. “We have to make it happen,” says Coffey. “There is no choice.”