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9/28/2011Bosch in South Africa indicative of global auto industryBy Karen E. Thuermer, AJOT

South Africa’s automotive industry is a global, turbo-charged engine for the manufacturing and export of vehicles and components. The sector accounts for about 10 percent of South Africa’s exports, making it a crucial cog in the economy.

South Africa currently exports vehicles to over 70 countries, mainly Japan (around 29 percent of the value of total exports), Australia (20 percent), the UK (12 percent) and the US (11 percent). African export destinations include Algeria, Zimbabwe and Nigeria.

While South Africa can be regarded a minor contributor of global vehicle production, locally the sector is a giant. The government estimates it contributes about 7.5 percent to the country’s gross domestic product (GDP) and employs some 36,000 people. In fact, new vehicle sales there in recent years have made South Africa one of the best performing automobile markets in the world

One reason for this may be the fact it’s very expensive to import cars into South Africa. Besides the high cost of shipping vehicles all the way to South Africa, a value-added tax of 14 percent is applied to new cars, in addition to a 36 percent customs duty tax.
Consequently, auto manufacturers such as Volkswagen, Daimler AG, BMW, Renalt-Nissan, Toyota, Ford and GM have invested in plants there. Each has benefited from South Africa’s growing market. In fact, last year the auto industry was one of South Africa’s bright spots in its economy.

According to figures reported by Bloomberg News, last year car companies produced 472,049 vehicles in South Africa, up 26 percent over 2009. The government’s goal is for 1 million cars to be produced there by 2020.

If achieved, this would be a boon for components manufacturers that benefit from the local and export market.

The National Association of Automotive Component and Allied Manufacturers (Naacam) reports that component exports ticked up 10 percent in rand terms – and about 15 percent in volume – in the first quarter of the year, compared with the first quarter of last year.

Component sales to local vehicle manufacturers were also up around 10 percent, while sales to the aftermarket declined as the trend moves from repairing old vehicles to buying new vehicles.

This is good news for a country where exports, in general, are falling and manufacturers continue to shed jobs.

Robert Bosch South Africa Enter Robert Bosch South Africa (RBSA), a regional branch of the Bosch Group, the world’s biggest private industrial corporations and where automotive technology is one of the biggest corporate divisions in the World Wide Bosch Group. Bosch is the world’s largest manufacturer of automotive parts and systems.

In South Africa, Bosch is one of several auto components manufacturers. Others include Arvin Exhaust, Bloxwitch, Corning, and Senior Flexonics. All located to South Africa to take advantage of low production costs, coupled with access to new markets as a result of trade agreements with the European Union and the Southern African Development Community free trade area.

Despite today’s economic climate where talk of another recession is on everyone’s lips, Dr. Steffan Hoffmann, managing director of Robert Bosch (Pty) Ltd in South Africa feels more positive, especially as it relates to his country’s auto industry.

This AJOT reporter spoke with Dr. Hoffmann in a recent telephone interview to follow up on a visit to the Bosch plant in Brits, North West Province, South Africa late last year.

The Bosch division also has operations in Midrand, in central Gauteng Province.

While Dr. Hoffmann did not offer updated sales figures, last year he revealed that the Bosch division did 1.4 million Rand, or about US $190 million, in sales in 2009.

He explained that Robert Bosch (Pty) Ltd manufacturers starters, alternators, electrical harnesses, drives, chassis systems, brakes, security systems, and parts for the automotive aftermarket, in addition to non-related items such as power tools, and solar /thermal systems for hot water heaters. It also manufactures home appliances in joint venture with Siemens.

“Our non-auto business started in 2010,” he explained.

It’s at the Brits site where electronics manufacturing is done. The plant there is roughly 18,300 square feet in size. Among its customers are GM, Ford and Polaris.

“Manufacturing at this site is dominated by energy management and security systems,” Dr. Hoffmann said. “Much of the work is in joint venture with local customers.”

Driving much of the business, he revealed, is a big price increase in electrical parts. “The goal is to make $50 million in this sector by 2014,” he added.

Purchasing Issues Most of the purchasing for parts that go into manufacturing Robert Bosch (Pty) Ltd’s products in South Africa is done by Bosch Germany. It also uses some local suppliers. Worldwide, Bosch’s total purchasing volume across all product lines is nearly US $32.8 billion and totals 4.3 million tons of freight each year, according to Bosch’s corporate website.

“They have a large purchasing department,” Dr. Hoffmann explained. The logistics is handled by Schenkers.

By working as a single department for the entire company worldwide, Bosch Germany buys items in bulk then ships them accordingly to supply each plant.

“The purchasing department plans the shipments on a monthly basis, but the window on planning is done on a three-month basis,” Dr. Hoffmann explained.

This is because a shortage of components can impact production. Consequently, the South African operation needs to carry more stock to balance out lead times, although it receives deliveries daily.

“There’s always a mix of central and local purchase ordering,” he continued. “But we obviously get a lot of components from Bosch plants all over the world. They have third party suppliers in Europe, Asia, China, India, as well as locally.”

Of those components, Bosch purchases for its South Africa plants, approximately 70 percent come from China and 20 percent are supplied locally. For the auto industry, the majority of imported components come from Europe due to the fact BMW, Mercedes, and Volkswagen have a major presence there.

“The model of cars manufactured in South Africa typically is part of a worldwide platform,” Dr. Hoffmann commented.

Those imported components are shipped to South Africa by containership. Most come through the Port of Durban, South Africa’s largest seaport. But other ports, such as Port Elizabeth, are also utilized.

There’s also talk down the road of one day using a seaport outside of South Africa in Mozambique or Namibia,” Dr. Hoffmann added. “But we’re not there yet.”

One reason is because Durban is one of the most expensive ports in the world to utilize.

Meanwhile, he stressed how there’s not enough purchasing being done from local suppliers.

We’re working on changing that, but it often requires developing those supplier relations ourselves.”

Purchasing locally not only helps South African manufacturers, but saves time and delivery costs.

All materials are collected from the local suppliers’ premises.

“This gives us the advantage of allowing us to bundle orders,” he revealed. “We work together with highly qualified contracted carriers here, and give them responsibility for the entire region.”

Networking between Bosch, the supplier and the carrier is managed via Web EDI (electronic data interchange), from the call-off to the goods receipt.

But first it takes place inside of our heads,” Dr. Hoffmann said. “A multitude of solution models and variants in networking and assignment of tasks has been developed. The really good ideas only work in close co-operation with our partners.”

There’s another issue Bosch faces when sourcing parts locally, one that can be common to any industry. Suppliers and their manufacturers use shortages to increase prices.

Many do not want to inventory,” he said.The problem is only exacerbated by recent disruptions to the supply of steel due to a dispute between Kumba Iron Ore and ArcelorMittal South Africa. In this respect, Dr. Hoffmann pointed out, the global system of purchasing helps out a lot. “We are limited here,” he said.

Export, Labor Issues When asked if Bosch South Africa exports any of its auto components to other countries, Dr. Hoffmann remarked that it is minimal. What the company does export, goes exclusively to Europe. We used to export more, as did the whole country,” he said.

For example, in the past the majority of catalytic converters worldwide came from South Africa due to the fact that 80 percent of worldwide platinum is mined there. Generally, each catalytic converter contains three to seven ounces of platinum.

Leather seats were also a big auto component exported from South Africa.

But as Dr. Hoffmann explained, the issue is more about being a reliable supplier. The fact there are so many unions in South Africa has translated into many production stoppages caused by strikes and labor disruptions.

There’s a national union that represents auto workers, and others dealing with the seaports, the trucking industry, and others,” he said. “Things got so bad that in a typical year, we were looking at at least two to three major disruptions from somewhere.”

Of course, Dr. Hoffmann attributes this, in part, to South Africa’s history of Apartheid when labor strikes were the only way workers could express themselves.

Things have been relatively quiet for close to three years,” he said.

Increasing Investment One positive trend affecting automotive industry in particular has been the massive investment original equipment makers (OEMs) have been making in South Africa.

Five years ago, an OEM might have considered locating elsewhere,” Dr. Hoffmann said. “But today, virtually every major OEM is here.” More so, they are growing their investments and upgrading their manufacturing plants. Ford Motor Company, for example, announced in June the completion of a two-year, US$500-million upgrade of its manufacturing and assembly plants in South Africa to enable it to produce and export its new Ranger diesel pickup trucks to 148 countries, mostly in Africa and Asia.

This solidifies South Africa’s role as a key operation in Ford’s global manufacturing footprint,” Ford executive vice-president and CFO Lewis Booth said in a statement.

In fact, Ford’s Struandale, Port Elizabeth engine plant has been extensively upgraded and is now capable of producing 75,000 engines and 220,000 engine component kits a year. Its Silverton, Pretoria vehicle assembly plant has also been expanded and is now capable of producing 110,000 vehicles a year. With about 10 percent of market share in South Africa, Ford trails Toyota, Volkswagen and GM. But, as executives report, Ford’s South Africa investment was not just aimed at growing local market share, its about transforming its South African operations from a domestic to global manufacturing site.

Ford’s news may not impact Bosch, but it is reason enough for Dr. Hoffmann to remain optimistic on the region and South Africa’s future.

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