German carmaker Volkswagen took a multibillion-rand decision in 2015 to invest in new Polo and Polo Vivo production in South Africa. However, it is “unlikely” that the group would have come to the same positive conclusion in 2017, says Volkswagen Group South Africa (VWSA) MD and chairperson Thomas Schaefer.
VWSA launched the new Polo at its Uitenhage plant, in the Eastern Cape, in January.
The VWSA plant received a R6.1-billion injection to assemble the new Polo and the new Polo Vivo.
The latter, less expensive model – essentially the previous Polo – will be launched in South Africa in February.
The original investment announcement was for R4.5-billion, but increased, owing to exchange rate fluctuations and the approval of additional plant investments.
Schaefer said that the political and economic environment of South Africa in 2017 would probably have failed to convince Germany to make the investment in the local operation. The fragile rand would also have weakened any argument for continued investment in South Africa.
Schaefer was, however, more positive about the outlook for South Africa in 2018.
He cited Cyril Ramaphosa being appointed as the new African National Congress president in December, government intervention at Eskom and the strengthening rand as reasons driving VWSA’s more upbeat outlook for the year ahead.
Schaefer said VWSA was one of 122 production sites for the Volkswagen group worldwide. It produces only 1.5% of the almost 11-million vehicles the group produces yearly.
Production of the new Polo and Polo Vivo started in September last year.
Schaefer said the strengthening of the rand had reintroduced the possible production of a third model at the VWSA plant.
“It is still in play. It was put on the back burner last year. At R17 against the euro, the project was not feasible.”
Schaefer was hopeful of a decision on a possible third model later this year.
The bulk of the R6.1-billion investment at the Uitenhage plant comprised capital expenditure for production facilities, local content tooling, quality assurance and manufacturing equipment, as well as information technology upgrades.
Upgrades included a R564-million new press shop and 330 new robots for the body shop.
VWSA produced 110 000 cars last year. This is set to increase to 133 000 units in 2018, of which 83 000 will be exported to markets around the world.
This will include not only right-hand-drive markets, but also some left-hand-drive markets, especially for the Polo GTI.
Maximum yearly plant capacity is expected to be reached with a three-shift operation of some 160 000 vehicles in 2019.
The addition of a third shift will add another 300 employees to the assembly line.
Local content of the new Polo and Polo Vivo is 60%, with ongoing plans to increase this number.
VWSA introduced the one-line concept for the first time as part of the investment, with the new Polo and Polo Vivo now built on one line.
Traditionally, vehicles on different platforms are assembled on unique production lines. To build two completely different platforms on one line is challenging, complex and requires new training for employees.
The introduction of the one-line concept at Uitenhage also introduced a new integrated logistics concept.
While there were no short-term benefits, there are synergies and efficiencies to be gained from the one-line concept. It is, for example, easier to react to fluctuating market demand, says Schaefer.
VWSA retained its number one position in the passenger car market for the seventh consecutive year in 2017, achieving a 21.8% market share.
The Polo and Polo Vivo have been the best-selling passenger cars in South Africa for seven consecutive years.
VWSA also produces engines at the Uitenhage plant.
Production capacity at the engine plant is 175 000 units a year.
The group built 122 000 engines last year, with 95 000 engines exported to countries such as Malaysia, India and Mexico.
Schaefer said VWSA was “fighting” to bring a new engine variant to the plant.
He expected the decision to be made in the next six months.
Schaefer said the automotive industry was currently faced with an uncertain future regarding engine development with the rapid global development of electric and electrified drivetrains.
He said much of VWSA’s discussions with the Department of Trade and Industry centred on finding components that could withstand the current revolution in drivetrains, otherwise “we could say goodbye to our suppliers” by 2025.