Electricity hike a death threat for car part makers

26 October 2009

Another six automotive component manufacturers are seriously concerned about their continued survival.

This follows the first confirmation of the names of major automotive component companies that have already closed.

The closure of East Rand-based Kolbenco, the last remaining piston manufacturer in the country with the loss of 320 jobs, and the liquidation of Atlantis Forge in the Western Cape with the loss of about 400 jobs, were previously reported.

Others that have closed include RAH Auto, Powdermet, Vinyde, Eaton Aero Quip and Bloxwich, resulting in a total of more than 1 000 job losses.

Roger Pitot, the executive director of the National Association of Automotive Component and Allied Manufacturers (Naacam), which represents more than 200 companies in this sector, said the strength of the rand and Eskom's steep electricity prices were the major concerns of these distressed car part suppliers.

Pitot said Eskom's price increase had just started but the electricity costs of Naacam members had already increased by about 70 percent cumulatively in the past 18 months, which had had a huge impact on companies that operated ovens, forges and foundries.

He said the total costs of these businesses were going up by 10 percent to 20 percent but they were unable to put their prices up by that much because they would lose all their export business.

"They don't know how they will survive over the next three years," he said.

"We (Naacam) will be making a submission to the National Energy Regulator of SA (Nersa) because the electricity increases are going to kill some companies. It's a national crisis and the government needs to recognise it. It (the increases) should not be something that only Nersa adjudicates."

About 20 000 jobs in the automotive component sector have been lost since the middle of last year and at least seven major suppliers have closed.

Pitot said employment by the motor component sector had been steady at about 82 000 up until June last year but had now dropped to 62 000.

The automotive component sector has been hammered by the sudden sharp plunge in domestic and global new car sales and exports caused by the global financial crisis. This has led to manufacturers slashing production, leaving suppliers with lower production volumes and cash flow but overheads that remained high.

Pitot has not heard of any further business closures in the past few months but admitted some automotive companies were "desperate" and were disappointed with last week's decision by the Reserve Bank to leave interest rates unchanged.

Naacam had called for a 2 percentage point reduction in interest rates ahead of the meeting, claiming it would have many advantages, including assisting debt repayment of companies that had invested heavily in the boom between 2006 and last year and whose investments were not generating the expected turnover.

The Reserve Bank left rates unchanged and Pitot admitted the central bank's hands were tied because its mandate was to merely look at inflation.

However, he said the real issues in the economy were job creation and the strength of the rand and for the Reserve Bank to focus only on one issue - inflation - and ignore everything else was completely inappropriate when more than half a million people had lost their jobs this year alone.

"We need a stable, competitive currency in South Africa to assist in sustainable growth. We're rather have growth with 8 percent inflation than no growth and 5 percent inflation."

Naacam president Stewart Jennings said earlier this month the strength of the rand had made automotive component exports uncompetitive in global markets and also threatened local manufacturers by allowing a flood of cheap imports into the country.

Original Article Link:

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