Hikes cripple component makers
2010-09-08 07:30
Wage increases will shut down some automotive component manufacturers, economist Chris Hart said on Tuesday.
"Motor component manufacturers have warned that the current wage negotiations raises the risk of permanently crippling the viability of manufacturing facilities should the settlement award wage increases excessively above the inflation rate," Hart said in a statement.
While manufacturers accepted that increases in wages were an acceptable cost of doing business, this had to be in the context of prevailing economic and market conditions.
"International business conditions are weak and competition is fierce."
Spoilt for choice
Hart said that already, Chinese and Indian competition enjoyed lower labour costs in their domestic markets and were able to compete effectively in the South African market.
"Already the local manufacturers have been placed at a major competitive disadvantage due to the strength of the Rand."
There were no significant barriers to entry in the automotive industry, which was highly globalised, Hart said.
Assemblers were "spoilt for choice" as to where production was located and there was ample surplus capacity available around the world.
"As such, the viability of the industry is tenuous at best, even in more prosperous times."
Hart said the current trend of collective bargaining had placed the small manufacturer at the biggest disadvantage.
"Viability for small manufacturers is already problematic."
Experience around the world was that small business was the key to job creation.
"In South Africa conditions are increasingly being stacked against small business and has been at the forefront of job destruction in this industry."
Hart said the combination of a 15% wage increase and 10% drop in the work week would be devastating, particularly for small business.
Industrial suicide
Economic conditions had already forced companies that had functioned with shorter work weeks to reverse those decisions, he said.
"The shorter working week demand is particularly retrogressive in the context of global economic conditions and feuds in other major manufacturers."
Hart said the strength of the Rand, combined with the demands on the table implied a dollar cost increase in excess of 40%.
"This is industrial suicide given the global weakness and excess capacity."
An excessive wage settlement did not create extra money, Hart said.
"The resources have to be extracted through job shedding and offshore sourcing and the implication is that the demands are creating victims."
These victims included the unemployed who face fewer job opportunities as a consequence of these actions.
The other victims would be retrenched workers who would inevitably follow and the customers who faced higher product cost.
"Over the longer term SA faces an increased risk of manufacturers sourcing production from countries that are more competitive."
Hart said industry investment would therefore shrink as a consequence.
