South Africa’s automotive industry is under severe pressure in the current economic climate, which has already resulted in the shutting down of several dealerships and small businesses contributing to the local supply chain.
The two most prevalent issues currently affecting the industry are the ongoing load-shedding crisis and the country’s high interest rates, leading to raised operating costs for companies while motorists are simultaneously being deterred from purchasing new vehicles.
These concerns were recently brought to light by Motor Industry Staff Association (MISA) spokesperson Sonja Carstens, who went on Kaya Biz to discuss how many stakeholders within the car industry have had to restructure due to the ongoing pressures.
A big loss
Carstens said that several car dealerships and tyre manufacturers have given notice that they have instituted Section 189 processes because their businesses are no longer financially viable.
Section 189 refers to the Labor Relations Act clause that permits employers to dismiss employees for operational requirements such as economic, technological, or structural needs, which in this case applies to layoffs due to financial struggles.
Broadly speaking, the reason for this is due to the current lack of demand for new cars in South Africa, a claim that has also been made by groups like the National Association of Automobile Manufacturers of South Africa (Naamsa).
The average household does not have the money to buy a new car, and when it comes to downsizing, many families are now choosing to sell one of their vehicles and make do with just one set of wheels, rather than having two more affordable models in the garage.
Making things worse is the fact that many South Africans do not have a high enough credit rating to apply for vehicle financing, said Carstens.
The effect this is having on the local industry is readily apparent, as three Gauteng dealerships closed down in the first week of October alone, with another 11 joining that list the following week.
A major tyre manufacturer also recently pulled out of the country, which is expected to affect 11 retail stores and 237 employees.
Carstens said this is because companies believe that operating in South Africa is no longer viable on account of its electricity issues, high interest rates, and inflation.
If these issues are not addressed, the long-term impact on the local auto sector may be even worse than what was seen during the Covid-19 pandemic, said Carstens.
“And there’s basically nothing we can do about it – there’s no quick fix. There’s no solution unless we get load-shedding to stop and unless we get the interest rate to fall,” she said.
“That will be the only way to ease this burden on the economy. And we don’t foresee that in the near future.”
Keyword: South African automotive industry forced to cut hundreds of jobs