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COLUMN: Feeding the fat cats

2008-09-19 11:50

Morgan Naidu

Columnist Morgan Naidu unpacks government's new plan to offer further assistance to local car companies - at consumers' expense.

Amidst the back-slapping and praises that followed government’s announcement of the Automotive Development and Production Programme (successor to the motor industry development programme or MIDP), let's spare a thought for the hapless consumer who has just had his sentence of getting shafted by car companies extended by another decade or so.

In fact there are many things the new plan simply cannot fix.

Scheduled to kick in from 2013, the new development and growth plan for the motor industry has yet to be detailed by government, but already it has drawn predictable praise from the motoring firms who benefit from this multi-billion dollar protection.

It's hard not to be cynical when examining the benefits of the motor industry development plan and its key beneficiaries.


When launched in the mid-nineties, the MIDP was geared at easing South Africa’s motor industry back into the global arena and reducing the level of protection by stimulating growth and lowering costs.

Lower import duties on cars and components were phased in while the industry began earning import rebate credit certificates to offset duty imports.

In simple terms it was a win-win for the car companies manufacturing in SA who could now look to export and use those same rebate benefits to import cars for local sale.

The irony is that despite massive growth in production numbers, in exports, imports and revenues for car and components manufacturers, the industry has remained protected and utterly dependent on government support.

In his ongoing writings and research into the MIDP, Professor Frank Flatters of Queen's University in Ontario, Canada, asserted that car manufacturers received and utilised rebate credit to the value of R55-billion in the first eight years of the MIDP.

By contrast, the first five years of the MIDP saw a decline of some 17% in employment in the car and components manufacturing sector.

Flatters maintained that despite investment of about R12-billion between 2000 and 2005, vehicle assembly growth was minimal while the components sector employment figures inched up by an average of one percent annually for six years.

“The system of duty credits on exports means that consumers subsidise not only vehicles produced for the domestic market but also those produced for export,” Flatters said in his review of the MIDP.

Government, in announcing the new plan recently, said the MIDP had helped maintain significant
employment levels in the automotive industry.

Benefits whom?

So, let's just stop it right there and make some sense of the complexities of the motoring industry and its subsidised protection.

Vehicle manufacturers received protection and monetary rebates to the tune of billions – in fact the protection far outweighed the size of investment that took place in the sector.

Domestic sales increased. Export programmes grew. Imports increased. Job creation remained at tepid levels while import duties have helped raise rather than reduce car prices.

In Professor Flatters’ assertion, the cost of the incentives and subsidies ultimately count as a net loss to the South African treasury as they accrue to foreign shareholders of the car companies. And, we won’t even delve into the fact that the South African automotive sector lags behind in transformation and black economic empowerment targets.

Another way of looking at this is simply that the benefits of the MIDP and its successor from 2013 spells good news for car companies and not so good news for the consumer.

The revised programme keeps tariffs at between 20 and 25%, introduces a local assembly allowance
and incentives for local production and investment.

"Take the money and run!"

Praising the new plan, Volkswagen South Africa’s (VWSA) managing director David Powells was quoted as saying the industry could plan ahead to 2020 with a greater degree of certainty and create a globally competitive position for SA.

Just days later Volkswagen’s director of marketing and sales announced that it was pulling the Seat brand from its SA stable.

"Current and expected circumstances make the ongoing importation of a niche brand in the South African market non-viable," said VW’s Mike Glendinning.

What was left out of the statement was the fact that VWSA had used the benefits and incentives of the MIDP to import Seat at a favourable rate and then palm it off to the local consumer as a niche product. And this for a car that is beneath the VW brand - both in price and status - in Europe.

So, now with the new plan coming into play by 2013, what new market forces will manufacturers and car companies use as excuses for higher pricing and limited job creation? Rand devaluation? Slump in monthly sales figures? Oil prices? The spectre of a Zuma presidency?

There are some things the new motor industry development plan simply cannot fix; some may argue that greed and stupidity are high up on that list.

Catch Morgan on DSTV’s new exclusive motoring channel IGNITION TV from October 11 on channel 412.


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