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AIDC – guiding the growth of the South African automotive industry

South Africa’s automotive industry is proving extremely resilient and continues to grow in the face of global competition and pressure on prices.

South Africa’s automotive industry is proving extremely resilient and continues to grow in the face of global competition and pressure on prices. Investors in the country’s automotive sector, as well as companies sourcing components out of South Africa, have the support of the Automotive Industry Development Centre (AIDC).

The AIDC has developed particular expertise in assisting niche and short-run manufacturers to meet international quality, productivity and delivery standards, according to managing director Dr Paulo Fernandes.

He points out that South African component suppliers have a strong and growing local market on which to base their businesses. General Motors, which returned to South Africa in 2004, is the latest original equipment manufacturer (OEM) to announce a major export programme for fully built up units. The company’s plant in Port Elizabeth in the Eastern Cape province will be the only GM facility outside of the United States to assemble the civilian version of the Humvee. All the other OEMs in the country – Volkswagen, Ford, Nissan, Toyota, DaimlerChrysler and BMW have export programmes of mainly right-hand drive vehicles, as well as a wide variety of components.

Component manufacturers and assemblers have been able to remain competitive through the support of the government’s Motor Industry Development Plan (MIDP). Through this plan, both the local OEMs and importers of fully built up units qualify for import duty rebates on fully built up vehicles. These rebates make it possible for them to be competitive in the hotly contested South African market.

MIDP benefits are being scaled down in accordance with world trade agreements, but the industry has shown that it has the strength to continue without this support, believes Fernandes. “We are continuing to attract investment to this country. What we are seeing is announcements by companies like Volkswagen, Toyota and General Motors that will take the programmes well beyond the scheduled revision of the MIDP in 2012. Clearly, they are here to stay,” he says.

What will keep OEMs and component manufacturers in the country is the ability to meet world-class standards. Programmes developed by the AIDC to support the smaller suppliers include training in clusters rather than individual companies. “While all plants have unique challenges, there are certain elements which are repeated in every supplier. So, instead of repeating the same training, we group up to five suppliers and provide group training. Groups are clustered around processes and do not include competing companies. As a result, one of the big advantages of this approach is that managers are able to learn from each other. Most of the people attending the training are happy to share their experiences, he says. “This creates a buzz and rapid wins as the trainees start vying with each other to be the best. They want to be the best in aspects such as floor space utilisation, reduction of waste and productivity. This provides an additional boost to the success of the training.”
Another area of focus for the AIDC is logistics and supply chain management. South Africa is relatively far from the world’s major markets and component suppliers. In order to stay competitive it is finding ways to reduce logistics costs and delivery cycles. The AIDC has pulled together the whole industry to co-operate in programmes at improving on the gains that have already been made.
Productivity is being improved through a focus on skills training. “We have a good history of training and skills development in this industry. There is a good base to work from. The challenge is to raise the level of that base. The industry is moving forward at such a fast pace,” says Fernandes.

One of the programmes aimed at ensuring that there are sufficient skills to support the auto industry is the training of school leavers so that they have the basic knowledge needed for employment in the motor industry. It is a one-year course for school leavers with grade 12 maths and science which includes theory and practical experience in the workplace where they can both learn and be evaluated by potential employers. Related to this is a programme developed by the AIDC to manage HIV/Aids in the workplace.

The AIDC also operates in what Fernandes calls “the more traditional” area of providing infrastructure. It has helped develop supplier parks in the port city of East London, in Uitenhage, which is the home of Volkswagen South Africa, and at Rosslyn, which is near the assembly plants of Ford, Nissan and BMW in the Gauteng province.
Jochen Freese is the Managing Director of the Supplier Park Development Company in Rosslyn. He says there are “four levels” of support for manufacturers in these supplier parks. “Companies which are suppliers to the local industry have the advantage of working in a world-class environment with reasonably priced infrastructure in the form of modern buildings, roads, power and communications links. The overall infrastructure is designed to be environmentally friendly, which has a direct impact on quality as dust is kept to a minimum and the working environment is less stressful.
Factory and office space is built to order for customers using standard modules that have pre-approval from the local authorities in order to reduce the time to market. “We use common design standards, with a flexible layout.” Administration can be housed in a shared office park.
The second level of support is through shared services. These include a staff canteen, video conference rooms, the communication network, security, truck staging areas, parking and taxi ranks. “Most companies which move into a supplier park find that they have services that they did not have before,” he says.

Leading from this is the third level, which is the sharing of logistics services. “We have a shared warehouse with a single logistics service provider for the supplier park. It is all about synergies. Companies can optimise the space they hire by using it to make products, while outsourcing non value-added activities such as warehousing.” Included in the logistics facilities is a container park which provides consolidation and deconsolidation services.

The “fourth level” is directly related to marketing. A cluster of automotive suppliers in a park draws purchasers who can optimise their time and logistics lines by sourcing from a single area. “All companies which move into a supplier park get more business, because they are more exposed to the OEMs. The buyers also see that these companies are committed, and that they have invested in quality infrastructure. Our environment is a powerful selling tool,” he says.

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