Volkswagen Sounds Alarm: South Africa’s Auto Industry Undervalued and Under Threat

Volkswagen Group Africa has issued a stark warning about the challenges facing South Africa’s automotive industry, citing unreliable electricity, inefficient logistics, and unfair competition from cheaper imports as major threats to local manufacturing. Speaking at a National Automobile Dealers’ Association (Nada) event, Volkswagen Chair and Managing Director Martina Biene highlighted the additional costs and systemic inefficiencies that are undermining the sector’s competitiveness.

The Cost of Power Failures

One of the most pressing issues for Volkswagen and other local manufacturers is South Africa’s unreliable electricity supply. To mitigate the impact of load shedding, Volkswagen invested R130 million in generators at its Kariega plant. However, running these generators costs the company R1.6 million per day—a significant expense that is ultimately passed on to consumers.

“Every day I run those generators, it costs R1.6 million,” Biene explained. “That is added to the pricing of cars because that money must come from somewhere.” These additional costs, she noted, are not unique to Volkswagen but affect the entire automotive supply chain, from component manufacturers to vehicle assemblers.

Unfair Competition from Imports

Compounding the issue is the influx of cheaper imported vehicles, which dominate the South African market. Biene pointed out that Volkswagen is the only local manufacturer producing a model in the small car segment, yet it struggles to compete with mass-produced imports from countries like India and China.

“Volkswagen only manufactures 27,000 Vivos a year in South Africa, whereas other cars in the segment are produced in countries where 300,000 to 400,000 vehicles are manufactured annually,” she said. This disparity in production volumes allows imported vehicles to benefit from economies of scale, making them significantly cheaper than locally produced cars.

Broader Industry Challenges

The challenges facing Volkswagen are emblematic of the broader issues plaguing South Africa’s auto industry. Earlier this year, automotive component makers and vehicle manufacturers, including Toyota, called on the government to intervene in ArcelorMittal South Africa’s (AMSA) planned shutdown. The steel giant’s decision to close mills threatened to disrupt supply chains and undermine localisation efforts, further straining the sector.

Biene also highlighted the inefficiencies in South Africa’s transport and logistics networks, particularly at the country’s ports. These infrastructural bottlenecks increase operational costs and make it difficult for local manufacturers to remain competitive in the global market.

A Call for Government Support

Biene stressed that local manufacturers need strategic government interventions to thrive. “I don’t want protection because I’m not a protectionist advocate … but we need to incentivise local business, local manufacturing, and local trading,” she said. She called for policies that recognise the automotive sector’s importance and support its growth, warning that without such measures, South Africa risks losing its local manufacturing base.

“We’ve invested in skills development, job creation, and infrastructure in South Africa,” Biene said. “Yet, we find ourselves unable to compete fairly due to structural inefficiencies and a lack of support.”

The Economic Impact

The automotive industry is a cornerstone of South Africa’s economy, contributing significantly to job creation, skills development, and transformation. Volkswagen alone employs 4,000 people at its Kariega plant. However, the sector’s long-term sustainability is under threat due to the high cost of production and unfair competition from imports.

Biene warned that if these challenges are not addressed, South Africa could face de-industrialisation, with severe economic consequences. “Without strategic government interventions, local manufacturers will struggle to thrive,” she said.

Volkswagen’s warning underscores the urgent need for South Africa to address the systemic inefficiencies and policy gaps that are undermining its auto industry. From unreliable electricity to port inefficiencies and unfair competition, the challenges are significant but not insurmountable. By incentivising local manufacturing and implementing supportive policies, the government can help ensure the sector’s long-term viability and protect the thousands of jobs it supports.

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