Localisation can save the embattled local automotive manufacturing sector

There has been a lot of public commentary about the challenges facing the automotive manufacturing industry and the outcomes of the 2025 Auto Week, however scant attention is being paid on one of the key takeaways of the event, namely, how intensified localisation of the vehicle production process can help to alleviate the pressure the industry is facing.

The recent Auto Week 2025 conference that was hosted in the city of Gqeberha in the Eastern Cape was not only historically significant as the choice of venue for the event was unprecedented in the history of the sector, but it was also held at a time when the industry is at crossroads and is staving off debilitating aftershocks that pose an existential threat to the industry in the country.

Gqeberha’s status as the centre of automotive manufacturing since the 1920’s provided a fitting backdrop for stakeholders to take stock of the challenges that beset this critical industry that supports more than 115 000 direct manufacturing jobs, more than 500 000 employment opportunities across its value chain and contributes approximately 5.3% to the gross domestic product.

The nearly century-old South African car manufacturing industry is gingerly walking through unfamiliar terrain in a minefield dotted by punitive tariffs imposed by the Donald Trump administration, the influx of cheaper vehicle imports from China and India, declining production volumes, an introduction of more rigorous vehicle emissions regulations in leading export destinations such as the European Union (EU), and an expensive shift to electric vehicles.

What is more telling is that though the industry is under siege, increased localisation provides the sector with a much-needed lifeline that can help insulate it against some of these external pressures. Though there is not much that the doyens of the industry can do to influence policy changes that have an adverse impact on the industry, it has become abundantly clear that increased localisation of production can serve as the industry’s saving grace.

The importance of leveraging localisation to insulate the industry from the impact of increased tariffs, influx of cheap imports, and compliance with exacting EU emissions is to leverage local procurement to bolster the resilience of the industry.

With exports currently accounting for approximately two-thirds of local vehicle production, it is critical that we strengthen the sector to not only overcome current headwinds, but to ensure its long-term sustainability.

Minister of Trade, Industry and Competition, Parks Tau, eloquently explained the importance of localisation when he pointed out that the local vehicle production, at 515 850 units in 2024, fell far below the Automotive Masterplan 2035 target of 784 509. He said what he found equally worrying was that local content for vehicle production has remained stagnant at 39%, well below the 64% target.

“Localisation is not merely policy compliance - it is existential,” Minister Tau told the delegates at Auto Week. “A 5% increase in local content would unlock R30 billion in new procurement, dwarfing the R4.4 billion US export market. To achieve this, we must act collectively to address some of the bottlenecks to growth,” Tau said.

While some of the original equipment manufacturers (OEMs) may have fallen short in meeting the localisation targets set out in the sectoral plans, there is general consensus that all stakeholders need to play their part in salvaging this important industry which contributes significantly to the wellbeing of the economy. Encouragingly, some OEMs such as Isuzu Motors have invested R1.2 billion to fund the production of the marque’s next generation bakkie programme in South Africa which entails the localisation of a diverse set of components and systems, the local sourcing of supplier and in-house tooling and equipment and manufacturing facility modifications. 

Amid growing calls for more domestic production, some Chinese and Indian car manufacturers have also pledged localisation commitments at the recent Auto Week to upgrade their semi-knocked-down (SKD) vehicle assembly operations to full-scale manufacturing. Minister Tau revealed that in both those markets, the companies that currently have SKD operations in South Africa have committed to transition to CKD (complete knocked down).

The size of the automotive market in South Africa might not be big enough to save the ailing automotive sector and replace the lucrative market share our vehicle exports have lost in the United States market due to increased tariffs, however when all stakeholders act in concert in the interest of the sustainability of the local automotive manufacturing industry, we have a fighting chance of salvaging the industry and the thousands of livelihoods it supports.

The challenges that beset the local automotive manufacturing industry are not insurmountable. They require the private and the public sector to prioritise locally manufactured vehicles and give preference to locally manufactured vehicles when fleet buying and replacement decisions are made across all spheres of government – at national, provincial and local levels. State-owned entities (SOEs) should also come to the party by ensuring that they leverage their procurement muscle to support locally manufactured vehicles in order to bolster the local industry.

Private sector players such as car rental companies, shuttle service companies, logistics businesses, hotels, as well as those that have company cars as part of their business operations also have a critical role to play by ensuring that their procurement spend is unashamedly biased in favour of locally manufactured vehicles.

National Treasury has transversal contracts for buying cars (RT tenders) and the fiscus should lead by example by including local content requirements as part of the criteria when advertising and evaluating tenders for the procurement of vehicles. The aggregated demand will make a meaningful difference. The renewed demand for fleets will not only help to give a much-needed lifeline to the industry, but it will go a long way towards safeguarding the jobs and increasing the tax base that will enhance revenue collection for the state.

Consumers should also make conscientious in their car buying decisions and wherever possible, opt for locally manufactured vehicles. The variety of options from reputable car manufacturers is wide enough to cater for every taste, budget and preference.

It is encouraging that government is revisiting the Automotive Production and Development Programme and seeks to create an enabling policy environment where automotive manufacturers would be incentivised for local manufacturing, for example in battery manufacturing in the growing electric vehicle space.

While localisation of production has been rather lethargic, a growing number of automotive manufacturers have begun to realise that their fortunes and long-term sustainability is closely tied with ramping up procurement from local component manufacturers.

We can only hope that the doomsday scenario facing the industry will galvanise it to ramp up localisation to weather the current storms and beyond. Localisation of production is not simply a compliance issue, but it is a commercial imperative that guarantees business continuity and security of supply in an increasingly volatile world where supply chains can be severely disrupted at a hum of a military drone.

Eustace Mashimbye is the chief executive of Proudly South African

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

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