State’s rescue plan for SA vehicle sector takes shape

Trade and Industry Editor

A TASK team led by the Department of Trade and Industry is considering a three-pronged plan to rescue the automotive industry, including tax adjustments to stimulate demand for cars.

The team, which includes industry and labour representatives, was set up as part of a South African response to the global economic crisis, thrashed out in the National Economic Development and Labour Council (Nedlac). The framework envisaged a dedicated response to help ailing industries, including the automotive sector.
Industry players were not prepared to discuss the details of the plan, which is expected to be finalised by month-end, but it is understood that the rescue package will stand on three legs:

# Bridging finance to help cash-strapped car manufacturers’ balance sheets provided by the Industrial Development Corporation (IDC). An industry source stressed that the finance would not be a bail-out, but loans that have to be repaid;

# Tapping into Department of Labour and Manufacturing, Engineering and Related Services Sector Education and Training Authority funds for on-the-job training to minimise retrenchments, while additional funds from the Unemployment Insurance Fund could be allocated to help workers already retrenched. The loss of skills from inevitable downsizing has been identified as one of the biggest threats to the industry; and

# Incentives to stimulate demand, akin to programmes that have been rolled out in Germany and the UK. These could take the form of scrapping allowances, tax incentives or temporary rebates for trade-ins to stimulate demand.

The entire automotive industry has been severely affected by the global downturn.

Roger Pitout, director of the National Association of Automotive Component and Allied Manufacturers, told an industry workshop on Friday that component production was down 35% from last year and 8000 jobs had been lost in the components sector.

“This is a real crisis. Companies that have already retrenched people are now left with established, highly skilled people. If they were to lay off more workers, these skills would be lost. That is the real problem. We want to increase component output, but how will we do that if we lose these skills? It will set us back years,” he said.

Vehicle manufacturers are also bleeding. The net employment loss in the car assembly segment so far is 9500. More jobs were on the line, said Herman Ntlatleng, sector co-ordinator for the National Union of Metalworkers of SA.

New vehicle sales, which peaked at 714000 in 2006, have slumped and forecasts for the year are at 385000. Moreover, exports have also slumped.

National Association of Automobile Manufacturers of SA director Nico Vermeulen said at the same workshop that the depth of the decline had taken everyone by surprise. Vermeulen was counting on the Reserve Bank announcing an interest rate cut of between 150 and 200 basis points this week to help stimulate the economy.

Despite the dire situation, the government will not consider a bail-out on par with the stimulus packages in Europe and the US.

“If you look at the framework the social partners in Nedlac had agreed in response to the global economic crisis, it makes no specific commitment on the nature of interventions,” trade and industry director-general Tshediso Matona said last week. “We have agreed to mobilise specific institutions, but no language of bail-outs has been adopted and we have no resources to have such bail-outs.”

The industry was appreciative of the government’s position and “had no expectations of that kind of intervention”, he said.

Treasury spokesman Thoraya Pandy said yesterday the Treasury could not comment on the proposal about tax adjustments to stimulate demand, as the task team’s work was led by trade and industry. The Treasury would, however, consider the recommendations once the plan was tabled.
Sourced via www.businessday.co.za