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Strike threatens SA car hub status

2010-08-18 06:55
Any prolonged strike and big wage rises in South Africa's auto industry could tempt global automakers to switch to lower-cost suppliers, though the country's leading status on the continent appears secure.

The strike over wages, which started last Wednesday (Aug 11), has hit companies such Toyota, Ford, Volkswagen, General Motors, Nissan, BMW and Daimler.

The auto sector accounts for 6 to 7% of South Africa's nearly $280-billion annual economy and about half of the 420 000 vehicles made in the country are exported to other African states, Europe, the US and the Asia-Pacific region.

Analysts said South Africa still had a lot going for it as a vehicle production hub but, with the globalised nature of sourcing, it should worry if there were a long disruption or a major increase in wages as a result of the strike.

"In an African context, South Africa has less to worry about in the immediate terms," said Ashvin Chotai, managing director, Intelligence Automotive Asia, "but South Africa competes with the global industry rather than within an African context."

The country offers some of the best ports, transport and parts supplier networks on the continent and that puts it far ahead of any other African state for vehicle manufacturing. Its output is the biggest in Africa but pales in comparison with, say, South Korea, which has a similar population but makes four million cars a year.

Wage worry

While sales in the domestic market are shielded by high import tarriffs, the bigger problem is being wage-competitive against rivals in other emerging markets. Workers at a major South African union are seeking a 15% wage rise, more than triple the inflation rate, and have promised an indefinite strike until its demands are met.

Already, compared to the likes of China and India, two other members of the Bric quartet, South Africa fares poorly in terms of labour costs. The average monthly salary, including overtime and benefits, is R6400 ($874), according to Statistics SA.

By contrast, this year the official average monthly wage for a city worker in China has been 1783 yuan ($263) and an entry-level factory worker could be on a third of that, albeit with food and dormitory accommodation thrown in.

"If recurring high wage settlements push us above the threshold that is tolerable, given our low productivity, then investors will regard us in a totally different light," said Tony Twine, a senior analyst at Ecometrix.

The strike has not stood out in the global context because workers in several major markets have sought wage increases, feeling they have leverage after automakers slashed personnel during the global financial crisis and are scrambling to man assembly floors now that demand has picked up, analysts said.

Strikes have plagued automakers in China, India and other countries in recent months that produce far more cars than South Africa and pose more of a concern to the world's biggest automakers.

The latest wage talks between the South African National Union of Metalworkers (Numsa) and the Automobile Manufacturer Employers' Organisation (Ameo) have failed to reach a deal and the strike continues.


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