Eastern Cape Auto Sector Efficient But Under Pressure

APRIL 21, 2015

The Automotive Industry Development Centre Eastern Cape, an agency established by the ECDC to support the region’s automotive industry, says the Province’s automotive supply chain is outperforming global peers in many aspects.

Commenting on the state of the Eastern Cape’s automotive sector at an annual briefing to industry and media today, Automotive industry Development Centre (AIDC) Eastern Cape MD, Lance Schultz said that while many suppliers were struggling to remain economically viable, their measured productivity and manufacturing benchmarks matched or exceeded many global peers.

In a sweet sour report on the industry that supports over 40 000 jobs in the Eastern Cape Province, Schultz said input costs, particularly the rising cost of electricity and water and logistics, as a result of large distances to markets, had brought into question the sustainability of many suppliers.

As many as four automotive component suppliers had relocated or disinvested from South Africa, mainly because of the high cost of doing business in the country, particularly the cost and instability of labour.

On a positive note, Schultz said many higher tier automotive manufacturers were achieving high standards

“On a recent industry trip to Thailand It was interesting to note that Operational Equipment Efficiency (OEE) and in particular machine downtime and Changeovers are benchmarked at 70%, almost 15% lower than the accepted benchmark set by local suppliers.

The Thailand industry’s productivity benchmark was 80% versus local industry’s 90%, Schultz said.

“One can extrapolate then that it is not efficiency as much as volumes that drives the success of Thailand and other industry peers.”

 “Where many other manufacturing companies globally have a competitive advantage as a result of access and proximity to markets or to economies of scale created by sheer volumes, South African manufacturers have to develop other areas of competitiveness, a key aspect of which is operational efficiency’’, Schultz said.

Whereas Thailand’s restrictive 200% import duty on vehicles and subsidies for 1st time car owners had spiked local volumes in that country, Schultz said increasing production volumes remained a key obstacle for Eastern Cape suppliers.

 Impressive production and quality levels,  including an average increase in OEE of 8% and an average reduction in power consumption of 10% achieved in the Eastern Cape supply chain, have been supported by the AIDC EC’s subsidised  Skills development and technical programmes in Total Productive Maintenance (TPM), 6 Sigma and Cleaner Production.

According to an independant  economic impact report, The Automotive Industry Development Centre Eastern Cape’s (AIDC EC), contribution to cumulative production of R112m over three years shows accelerating  increases of 5% and 13 % over the past two financial years.

Reaching a high this past financial year, the organisation that employs 52 engineers and support staff, leveraged  its operational  budget of R19.2m to add approximately R100.5 million to the sector’s production  and increased  the Province’s GDP by R42.6m.

ECDC Executive Manager Noludwe Ncokazi said the contribution that the agency had made to the economy and industry - in addition to the priorities of government -  with limited resources, was highly significant.

“The kind of measurable results achieved in industry is indicative of the AIDC EC’s world-class technical and project management skills, exceedingly high work ethic, and strong personal and corporate stewardship,” she said.

According to the impact report, undertaken by Urban-Econ Development Economists , the AIDC EC created a total of 262 new jobs.

Through the activities of its Supplier development Department, focussed on enhancing the manufacturing competitiveness of the Provinces’ sector, the AIDC EC assisted manufacturers make savings of approximately R62m in the past financial year  This created and/or sustained 901 jobs

 Relating specifically to its TPM programme, in the past financial year the AIDC EC spent R1.6m in grant funding for the TPM programme to leverage R5.1m in production value and contributed R2.1m to GDP, while creating 17 full time jobs.
In addition the participating companies had made audited annual savings of R9.5m through Kaizens (improvements), Schultz said.
SJM Flex, based in Nelson Mandela Bay and which exports 100% of its components,  was named the Eastern Cape’s Kaizen Champion recently for achieving an improvement in OEE of 40% since joining the AIDC Eastern Cape’s TPM Cluster programme and annual savings of R12 million over the past year.

“With limited resources the AIDC EC has been highly effective in assisting industry enhance their economic viability, thereby retaining and creating new jobs in the sector.’’ Schultz said.

Half of South Africa’s passenger vehicles are made in the Eastern Cape and 51% of the country’s motor exports originate here.

The sector accounts for over 40 000 formal sector jobs in the Eastern Cape – 10 000 employed at OEMs and an additional 30 000 employed by some of 150 supplier companies. 

Image: AIDC EC MD Lance Schultz, NAACAM Eastern Cape Chair, Andy Dealtry and ECDC Board Chairman Nhlanganiso Dladla attended the AIDC EC’s Annual Briefing this morning.