Industry News
| by Gavin Foster
Contract Motor Assembly
Journalists at the recent launch of the Peugeot 2008 pricked up their ears upon hearing that Peugeot South
Africa was investigating the possibility of contracting an existing local manufacturer to produce a right-handdrive version of the budget Peugeot 301, a compact car developed for sale only in developing markets. The 301,
launched at the 2012 Paris Motor Show alongside its twin, the Citroen C-Elysee, went on sale in West Asia, North
Africa and Eastern Europe in left-hand-drive versions only, and was at the time produced only in Spain. China
started producing more left-hand-drive versions for Asian markets in late 2013.
B
udget
cars from
mainstream
European and
Japanese
manufacturers
aimed at developing
markets sell well
in South Africa –
think VW Po lo Vivo,
Renault Sandero,
Ford Figo and Toyota
Etios for example –
and Peugeot would
obviously like to
have a slice of that
market. aBr spoke
to Johan Cloete,
managing director of
JFS Technology that acts as a consultancy
for various automotive companies in South
Africa. We asked what factors - apart
from the swings and the roundabouts
of the APDP - would be relevant to any
manufacturer considering contracting
another to build vehicles on their behalf in
just such a situation. “That would not be
an easy investment decision, obviously,”
he says. “Importing complete cars is out
of the question because there are no righthand-drive versions available .I would say
that the probable route would be to go for
semi-knocked-down manufacture because
you would then be spared the need to
invest in a paint shop and body shop – you
can basically bring in the vehicle body fully
painted and trim it in South Africa which is
really labour-intensive. Because it’s not a
robotised capital intensive facility it would
be easy to contract a third-party assember
that has geared itself up for this type of low
volume assembly. For a semi-knockeddown (SKD) single platform I’d say you’d
need to produce at least 5000 annually
for South African and neighbouring
➲ GWM factory in China, 2008
consumption. The real benefit is a low-cost
assembly model for any assembler and the
parent company is of course also happy
because it’s also making money out of the
SKD kits”.
There are numerous factors to be taken
into account by any manufacturer wanting
to contract another to build their vehicles
in a new market. Firstly is the size of the
market to be catered for. “If I were looking
at an investment model for a semiknocked-down single platform here I’d
imagine that at least 5000 vehicles would
have to be built per annum to make it
viable for both parties. We have importers
bringing in 10, 15 or even 20 000 units of
a single brand so it makes sense for even
those companies to start looking at SKD
assembled vehicles for South Africa.
The real benefit is a low assembly cost
model for any manufacturer. There are
signs in the automotive world that OEMs
are increasingly starting to address niche
products in the market and unfortunately
these are often small-volume product
| words in action
80
may 2014
runs, with some of
them outsourced
to contract
assemblers
around the world.
We’ve recently
done a study on
all the contract
assemblers of
note and there
are six or seven of
them worldwide
manufacturing lowvolume models
for well-known
brands, some
of them from
the ground up.
Magna Steyr is
a well-known contract assembler
based in Austria who builds high-value
low-volume cars models for various
companies - Mercedes-Benz, BMW and
Peugeot are all using the company that
has been operating like this for more than
100 years.”
Apart from the local market, it makes
sense to look at export markets for the
contract-built vehicles. Should the SKD
right-hand-drive version of the Peugeot
301 be assembled in South Africa for
the first time it would make sense to
seek other right-hand-drive markets in
developing countries. The contracting
company would need a relatively small
South African investment and staff
contingent at the contacted factory,
and economies of scale would be
enormous.
Other factors to be carefully considered
would be the length of the contract, the
protection of the brand through quality
control, and the capital investment
required to get the show on the road.