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David Furlonger attends BMW’s Annual General Meeting in Munich – and gets some insight into BMW’s thinking regarding its manufacturing facility at Rosslyn, near Pretoria
It was a rare moment of candour. Following two hours of questions in which BMW management executives had tried to reveal as little as possible about the company’s plans, global production head Oliver Zipse warned South African government officials that if they tampered unnecessarily with future automotive policy, the country could face an exodus of multinational motor companies. Fiddling with export benefits or local content requirements would be ‘very dangerous,’ he warned.
Zipse, who is also chairman of BMW South Africa, was speaking in Munich after the German carmaker’s annual results presentation. What should have been a routine question and answer session with the world’s media had turned out to be anything but, following a raid the previous day on BMW’s offices in which German law enforcement agencies searched for documents related to diesel emissions.
Inevitably, questions about the raid surfaced during the media conference. Just as inevitably, they were deflected with protestations and assurances of ‘we are co-operating with police.’ But this defensiveness seemed to permeate the rest of the event, causing CEO Harald Kruger and most of his fellow board members to offer bland statements regarding many of the results-related questions that came their way.
It was a relief when Zipse answered openly on developments in South Africa. Admittedly, he began cagily. Was BMW – which has just completed a R6,2-billion investment programme to build the X3 sports utility vehicle in the country – worried about government plans for land expropriation without compensation?
“We have been in South Africa for more than 50 years and have seen a lot of policies and different developments. We won’t comment directly on expropriation at this time, but we have always believed in the strength and future of the country, and that won’t change in view of what the government is doing.”
Zipse confirmed that BMW was ready to pay its share into an industry venture capital fund to support black-owned components suppliers and dealerships. The fund is expected to start at about R3,5-billion and will require an estimated R1-billion annual top-up.
So far, so safe. But then Zipse got on to government policy and discussions on a successor to the Automotive Production and Development Programme (APDP), which will expire at the end of 2020.
There’s talk that government wants to reduce the rate of import-duty rebates offered in exchange for vehicle exports – and that poses a big challenge for companies such as BMW SA, which exports most of its production.
Zipse said: “The South African market works because we get export credits for cars built there and use them to import other cars. If you endanger that, there is no reason why we should have a plant in the country,” he said.
Then there’s local content. Trade and industry minister Rob Davies has spoken of setting a 60% target for all motor companies. That’s more than twice BMW SA’S current level. While local MD Tim Abbott says the company will look for more black suppliers, economies of scale leave little room for manoeuvre.
Zipse again: “Increasing local content for its own sake will not help. For us it will remain around where it is. Whatever South Africa does to push manufacturers into localisation will have the opposite effect—in my view it will force them to leave.”
But what if the German parent pushes more business BMW SA’s way – won’t that create the economies of scale to justify more localisation? When the X3 investment was announced in 2015, BMW SA’s Rosslyn assembly plant was to be one of only two in the world to build the new model.
So when it became clear BMW had seriously under-estimated international demand for the product, there were hopes that Rosslyn might benefit and become more than just a niche or ‘top-up’ producer.
No such luck. Instead, BMW opted for an additional plant in China. Rosslyn is as big as it’s going to get, said Zipse. Its new 78 000 annual production capacity is the absolute limit.
Despite this, he said the R6,2-billion investment should be seen as a vote of confidence in the plant’s future. Local demand for the 3-Series, which began production at Rosslyn in 1985, had begun to fall away, with current sales about half of what they were a few years ago.
“There must be demand for vehicles where they are built, so to continue with 3-Series would be to give up,” said Zipse. Instead, BMW had decided to produce the X3 at the plant, which represented an upgrade in that the new vehicle had a growing future not only in South Africa but also in the rest of Africa.
Asked whether BMW’s manufacturing future in the country included electric vehicles, Zipse was at pains to point out that the company’s assembly plants worldwide were being developed with the capability to build electric or hybrid versions of all their products – except Rosslyn.
The reason? South Africa’s tax regime punishes buyers of electric vehicles, and there is virtually no recharging infrastructure for the vehicles. Government promises to encourage electric mobility have come to nothing.
“There must be relevance in markets where we build,” said Zipse. “If there were demand in South Africa we could easily adjust production – but that’s a long way off.”