The auto sector, the economy and you …

Every South African buying a new vehicle today is doing so against a backdrop of challenges and dramatic shifts in both the local and global automotive manufacturing and mobility environment.

They are also making vehicle buying decisions against a backdrop of rising unemployment.

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The reality is that employment is a condition for being able to even consider buying a car – and automotive manufacturing is a key enabler of employment, both in its factories and its deep knock-on impact into its supply chain and the wider economy.

The automotive manufacturing industry around the world is undergoing profound change, driven by the shift away from internal combustion engines to hybrid and new energy vehicles (NEVs), rapid technological advances and growing competition from cheaper Asian manufacturers entering markets previously dominated by American and European marques.

In contrast to SA manufacturers, the rising Asian manufacturers can keep costs down due to highly conducive and enabling local manufacturing environments, including low energy costs and well-developed infrastructure to support logistics.

Chinese auto manufacturers, in particular, benefit from high levels of government subsidisation and they manufacture at levels of automation that far exceed their domestic demand, hence the push to move into new markets.

The result is a severe threat to the future of our local automotive manufacturing, a sector that contributes more than a fifth of SA’s total manufacturing value addition and 5% of GDP, a major employer and employment multiplier through its deep supply chains.

Buying ‘local’

There is an argument of national economic value for consumers to consider buying locally-manufactured vehicles, but this “big picture” is likely not top-of-mind for a buyer more focused on a vehicle’s features versus its affordability in terms not only of the ticket price today but the ongoing costs of ownership amid rising inflation and fuel prices.

Read: Tau launches new Toyota Hilux production line in Durban

Recent debate around SA’s industrial policy, particularly the cost of subsidies for vehicle manufacturing under the Automotive Production and Development Programme (APDP), has put the spotlight on whether consumers and taxpayers would benefit if government cut these incentives.

The widely quoted (but misleading) figures that automotive subsidies make locally manufactured cars more expensive and cost the government, and thus the taxpayer, R40 billion annually, and that eliminating them could allow value-added tax (Vat) to be cut to 12%, overlooks several crucial points.

Naamsa, the automotive business council, has refuted the figures and the misleading picture painted.

Even if the figure of an estimated R35 billion to R40 billion paid out by government in duty rebates and production support is correct, the returns to the local economy far exceed the costs.

The returns are evident in the automotive industry’s contribution to the economy.

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In 2025, vehicle manufacturing generated approximately R137 billion in local value added through domestic production, supplier development and localisation. The sector is also one of SA’s largest sources of export earnings, contributing R270 billion, or 17.4% of the country’s total in 2025.

Naamsa calculates that, based on these two indicators alone, every R1 associated with the APDP supports almost R4 in domestic manufacturing value and close to R8 in export earnings.

This excludes the wider economic benefits generated through employment, supplier development, corporate tax, PAYE, Vat, technology transfer and foreign direct investment.

Without a globally competitive automotive industry, SA would forfeit billions of rand in exports, manufacturing output, investment and skilled jobs, weakening the country’s industrial base, reducing foreign exchange earnings and ultimately shrinking the national tax base, Naamsa argues.

Another key point which needs to be considered is the impact that this potential loss in volume would have on the viability of the country’s ports, and on the export costs for other sectors such as agriculture.

Stark reality 

At a consumer level, the stark reality is what South Africa would look like without a domestic automotive manufacturing industry.

An estimated 10% more people unemployed would mean more people unable to pay their home loans or school fees, longer queues at public healthcare facilities, fewer industry-funded bursaries for tertiary education, the loss of community health projects supported by vehicle manufacturers that often compensate for gaps in public service delivery, and struggling small businesses as larger companies scale back.

The reality is that government is not going to simply “create” jobs to replace those lost due to the weakening of local manufacturing.

The argument that scrapping automotive rebates and production incentives would benefit consumers by creating scope to reduce Vat, for example, misses the point that what government support for manufacturing is a separate policy issue from measures aimed at supporting consumers.

Reducing Vat may give people more money in their pockets for a while, but won’t help them when unemployment increases.

Additionally, the impact of increasing consumers’ spending power will assist importers as much as it does local manufacturers.

Reforms needed

Without reforms to industrial policy, incentives and tariffs that help level the playing field – alongside restoring the rail system and improving infrastructure and basic service delivery – local manufacturers will continue to compete against cheap imports from producers that enjoy significant economies of scale and generate economic value in their own countries, not in SA.

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The R40 billion supposedly gained by the government not subsidising auto manufacturing is not suddenly going to translate into R40 billion put into housing, healthcare or education that people can no longer afford due to reduced employment and lost incomes.

It wouldn’t be enough in any case.

A further reality is that all countries that host automotive manufacturing support the industry in some form, through tariffs, investment incentives and production-linked support, for good reason.

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While it is a capital-intensive sector, auto manufacturing is also a substantial employer.

The deep supply chains surrounding vehicle manufacturing add value to an economy through industrial diversification and the resulting employment multiplier of between five and eight people employed for every one employee in an original equipment manufacturer (OEM).

Job creation 

In SA, the approximately 115 000 direct jobs in vehicle and component manufacturing generate employment of more than 500 000 people in the surrounding value chains of sales, vehicle service and repairs, and aftermarket parts and accessories.

This figure rises to about a million if the wider up- and down-stream impacts of the spending power of the manufacturers and their employees are considered.

Any local automaker’s investment in expansion – usually tied to production of a new or updated vehicle model and associated with technology and facilities upgrades – represents growth for this entire economic ecosystem.

Toyota SA chief executive Andrew Kirby highlighted this at the recent launch of a R10.4 billion investment in production of the latest generation Toyota Hilux, pointing out that “behind every vehicle stand more than 100 local suppliers, together with their employees, logistics partners and small businesses”.

These collectively invested R2 billion in their own facilities, tooling and capabilities to support production of the model, he said.

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Investments such as these by an OEM have multiple ripple effects in the manufacturing ecosystem and SA’s industrial capabilities.

At the same time as the auto manufacturer upgrades its production and vehicle technology and the skills of its people, so too do its suppliers of technology, components and logistics – strengthening employment, localisation and the overall competitiveness of the economy.

Toyota’s latest investment, for example, added four new local suppliers and an additional 210 new locally sourced parts, creating over 1 000 new jobs in its supply chain.

At the same time as reforming policy and fixing infrastructure, government needs to be putting its money where its mouth is.

Long-overdue reforms to the APDP are now underway, aiming to more strongly incentivise local manufacturing using locally manufactured components over simple assembly using fully imported components, and reviewing ad valorem taxes to enable greater affordability and price competitiveness of locally-manufactured entry-level vehicles.

However, while providing stimulus for consumers to favour purchasing locally-made vehicles, where is government itself buying its vehicles?

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Preventing a ‘jobs bloodbath’

The National Union of Metalworkers (Numsa) has called for the Public Procurement Act regulations to enforce purchase of locally-made vehicles for government fleets, among other interventions to prevent the risk of a “jobs bloodbath”.

Read:

Fears over auto sector jobs bloodbath
Government must act to stop job losses and deindustrialisation – Numsa

This is an obvious and logical step that government can implement immediately to tangibly signal its commitment to retaining the country’s manufacturing base.

Further, to extract maximum value from incentives to support automotive manufacturing, this needs to be coupled with stronger action to resolve the country’s polycrisis of rising crime and deteriorating municipal infrastructure for electricity, water and logistics.

The basics of service delivery create the conditions for manufacturers to keep their doors open and to expand.

Forms of government support for auto manufacturing are also shifting rapidly in response to fast-moving global changes, a combination of carrot and stick measures of incentives, tariffs, local content rules and emissions policies that are working together to shape global automakers’ choices of investment destinations and production technologies.

If South Africa aims to keep up, government needs to truly step up as a partner to industry, with agility, flexibility and rapid response that cuts through political noise and bureaucratic red tape.

Despite the nay-sayers in many spheres, driving manufacturing (along with increased local beneficiation of our mineral wealth) remains South Africa’s best chance at reducing unemployment at large scale.

The reality is we do not yet have the broad technological and digitally-enabled skills base, nor the enabling policy and infrastructure environment, to move from an economy based on extraction, processing and manufacturing to a high-tech economy based around services and knowledge production.

That may be the ultimate destination, but it will be built on supporting and diversifying manufacturing, driving local minerals beneficiation, rectifying infrastructure failings, and developing the appropriate skills for the economy to move in that direction.

Local manufacturing

It is understandable that vehicle buyers will put their hard-earned rands where it makes most sense to their pockets today.

Ensuring that their choice is a locally manufactured car will not come from false promises, but from concerted action to ensure that local manufacturing is sustainable, globally competitive and competing on a level local playing field.

In addition to enabling competitive vehicle pricing, supporting local manufacturing will ensure an employed base of consumers able to afford buying that car.

 Denise van Huyssteen is CEO of the Nelson Mandela Bay Business Chamber.

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