Toyota confident of improvements in energy and logistics

Toyota South Africa Motors (TSAM) is confident the assistance the private sector is providing to government will lead to an improvement in energy stability and the transport logistics environment.

However, TSAM president and CEO Andrew Kirby is only anticipating minimal growth in new vehicle sales because of the uncertainty created by this year’s general election and other structural issues, including high interest rates and inflation and low GDP growth in the country in 2024.

Kirby said the auto sector has been engaging with government and there are a number of private sector initiatives.

He believes the preeminent initiative is the Business for South Africa initiative, which is working with the office of The Presidency to coordinate how the private sector can support government, especially state-owned enterprises (SOEs) and different government ministries to tackle the three priority areas – energy stability, transport logistics, and crime and corruption.

To date, hundreds of specialists have been put into Eskom and Transnet, said Kirby, who is part of the transport logistics focus area.

But he said there are a lot of fundamental structural challenges in the energy and transport logistics environment and how to deal with these challenges from a policy perspective, and how to ensure investments are made in the right infrastructure to actually reform these businesses.

‘Not a silver bullet’

“I’m confident it will lead to improvements. We are already starting to see green shoots from the initiatives.

“What is not easy for us to forecast is how long it’s going to take or how fast the reforms will take place. But at least we are seeing the policy reforms being published.

“What is really needed is the right leadership and strategy in the particular SOEs to start turning them around,” he said.

“But it’s not a silver bullet. It will take quite a while.”

Kirby confirmed there is “a fairly good alignment” between the government and the private sector on the realities and where resources are most needed, but challenges exist on how to fund some of the investments.

New vehicle sales forecasts

He said TSAM is only forecasting a 1.5% growth in total new vehicle sales to 540 000 units in 2024.

The first half of the year will be “fairly soft”, with the build-up to the elections creating a level of uncertainty.

“We know that customers and businesses will hold back a little bit. We are quite conservative about our outlook but we think the new vehicle market will comfortably get to 540 000 unit sales.”

Kirby said although this only represents 1.5% growth compared to 2023, it is important because it will mean sales will be better than in 2019 and the industry has recovered from the Covid-19 pandemic environment.

Mikel Mabasa, CEO of automotive business council Naamsa, on Thursday described TSAM’s new vehicle sales forecast for 2024 as “conservative”.

Naamsa in its quarterly review of business conditions in the new vehicle market for the third quarter of 2023, released in November, was projecting total new vehicles sales of 601 000 units for 2024.

However, Mabasa said Naamsa now believes 2024 will be a tough year for the new vehicle market and it could achieve total sales of 565 000 units.

Kirby said the total size of the new vehicle market is closely correlated to GDP growth and interest rates, which remained high throughout 2023.

It will be a while before there are changes in interest rates, which is a big driver of consumer and business confidence.

“Inflation is not where we need it to be and the currency has played a big part in terms of imported inflation and keeping interest rates high,” he said.

Read: Sarb keeps repo rate steady at 8.25%

Kirby said TSAM does not predict that load shedding will get to the record-breaking 332-day level it did last year.

He said TSAM knows a bit about the transport logistic issues but does not fully understand the magnitude of them, with a five-week backlog at the country’s ports negatively impacting GDP and also business confidence.

“The transport logistics elements had a terrible impact on the market. Obviously with shipping rates being higher and the GDP forecasts over the year slowly dropping month on month, by December the new vehicle market showed only 0.5% growth for the year,” he said.

Affordability

Toyota Financial Services South Africa (TFSSA) CEO Thabo Manaka said the biggest challenge in the vehicle finance space is affordability.

Manaka said vehicle inflation does not correlate with normal inflation, which results in vehicles becoming increasingly more expensive, which then impacts the buying patterns and the replacement cycle, with customers tending to hold onto their vehicles for longer.

“We are seeing customers are under pressure. They will remain under pressure for a while because this economy requires a lot of momentum to speed up the market and get customers back into dealerships,” he said.

New energy vehicles

Kirby said there was a 65% increase in new energy vehicle (NEV) sales in 2023 compared to 2022 although the total volume of NEV sales is still fairly small.

However, Kirby said the trajectory of NEV sales is “quite interesting” and it will be interesting to see what happens to it in the next five years.

Kirby added that South Africa does not yet have a specific government policy to support the transition to electrified vehicles, which means the adoption of NEVs has been relatively slow.

“As a business and as a country, we don’t want to be left behind and want to make sure we also transition to the technologies that are available in the rest of the world.

“With Naamsa, we are discussing this with the dtic [Department of Trade, Industry and Competition], and we would really like to see an accelerated implementation of the programme that will reduce the premium cost of these electrified vehicles in South Africa so we can accelerate the mass adoption of the whole range of NEVs,” he said.

Kirby said the automotive industry is concerned about how it transitions the entire automotive environment towards NEVs, particularly as the manufacturing base is very reliant on exports and the industry is very reliant on exports to Europe.

He referred to the regulations and restrictions on internal combustion engine (ICE) vehicles in Europe that will impact future sales to the European Union.

Kirby said that while the South African automotive industry is in this period of disruption, the original equipment manufacturers (OEMs) are also centralising and consolidating their investments into just a few core markets.

“This puts us at risk in South Africa, especially when our local market is not that large,” he said.

Kirby said the uncertainty about government support for the transition to NEVs means investment decisions cannot be taken.

“We need to know how the support package will be structured and the quantum of that so that we can include that in our justification proposals for investment.

“At the moment it’s very difficult to get approval for investment decisions,” he said.

“Government’s proposal in the White Paper was that there would be some support for asset investments, which will make a big difference to us in justifying the projects, so it’s a critical element for us.”