Volkswagen Group Africa is expressing concern that its locally produced vehicles are struggling to compete with imported models from brands that do not invest in local manufacturing, largely due to the heightened operational costs associated with conducting business in South Africa.
On Thursday, Martina Biene, chair and managing director of Volkswagen Group Africa, highlighted that local producers and established importers are facing increased costs that warrant “a political discussion.”
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Biene pointed out that Volkswagen is not immune to load shedding challenges in the Nelson Mandela Bay Metro, and emphasized the additional costs originating from transport and logistics issues, as well as port operations.
During a National Automobile Dealers’ Association (Nada) event, she elaborated that Volkswagen had to invest in generators to cope with load shedding, allowing operations to continue without sending employees home, underscoring the company’s commitment to exporting record volumes last year, a target they successfully met.
“We now operate two generators that cost R130 million because we need substantial power, and each day of operating these generators costs us R1.6 million,” she remarked.
“This adds to our expenses in Nelson Mandela Bay, and since there is no reimbursement for these costs, it ultimately impacts car pricing and necessitates recovery of these funds from somewhere.
“I am not seeking protection as I oppose protectionism … but how can we create incentives for local businesses, manufacturing, and trading?
“I would rather focus on discussions about incentivization.”
Local manufacturers ‘underrated’
Biene underscored the vital role that Volkswagen and other local manufacturers play in economic contribution, job creation, skills development, and transformation, noting that Volkswagen directly employs 4,000 people.
“At times, local manufacturers feel undervalued, as do longstanding importers with rich histories in South Africa.
“There is significant automotive investment occurring in South Africa.
“Operating a business in South Africa is not the most lucrative endeavor globally, as I can assure you.”
She mentioned that Volkswagen is currently the only automotive manufacturer in South Africa producing a model within the small car segment, which is the country’s largest sector.
However, imported vehicles competing with the Vivo in this segment are priced lower.
“This is unjustified, and our pricing is not determined solely by profit margins.”
Biene explained that Volkswagen produces only 27,000 Vivos annually in South Africa, in contrast to vehicles from other countries that produce between 300,000 and 400,000 units each year, which allows them to leverage economies of scale.
These imported vehicles then flood the small South African domestic market at more competitive prices.
“This situation is inequitable.”
Deterring investment
Biene stressed that the additional costs related to electricity, transportation, logistics, and port operations in South Africa also negatively affect new investments within the country.
“Volkswagen globally cannot understand a situation where we lack power … and this impedes my ability to present a strong business case,” she commented.
“There are 117 Volkswagen plants worldwide – and they represent my toughest competition,” she added.
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In April 2024, Volkswagen Group Africa announced a R4 billion investment in its Kariega plant in the Eastern Cape, aimed at preparing for the production of a third model, a compact SUV, expected to begin in 2027.
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Alongside the Vivo, the facility also manufactures the Volkswagen Polo.
Biene indicated that the Kariega plant will undergo a month-long shutdown starting mid-next month for extensive refurbishment.
“That decision has already been made, so we now need to concentrate on the next investment opportunity.”
She confirmed that Volkswagen Group Africa is in the process of developing a business case for another model.
If all goes well, this could lead to the discontinuation of the Vivo, with Biene suggesting: “I am unsure whether we can continue producing the Vivo as long as we did with the Citi Golf.”
Navigating this new investment decision presents challenges, but “I remain optimistic.”
Unplanned power outages ‘a critical concern’
Denise van Huyssteen, CEO of the Nelson Mandela Bay Business Chamber, remarked that load shedding has “stabilized more or less” in the metro aside from some recent incidents – however, the significant issue lies with electricity infrastructure and unplanned power outages.
The chamber recorded nearly 120 unplanned power outages last year within the city’s business districts, she noted.
“Unplanned outages are a pressing concern for us.
“We have established an electrical technical task team working with Eskom and the municipality to tackle the hotspot areas where most outages occur,” Van Huyssteen shared.
In Struandale, home to various factories, including Isuzu, BASF, and Ford’s engine facility, continuous operations are critical, she pointed out.
She also noted that vandalism significantly contributes to power outages, as the municipality has failed to safeguard its assets, like substations.
In Struandale, multiple automotive companies have taken on the responsibility of ensuring the safety and security of substations nearby.
“This means they are investing in security measures to adequately protect those substations.”
The chamber consists of 11 geographical clusters, and similar efforts are being implemented across other clusters.
Moreover, technical faults in the infrastructure result from inadequate maintenance and municipal instability since 2016, as mayors and municipal managers change frequently, disrupting maintenance schedules and increasing operational costs in the metro.
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