aBr May 2014 | Page 82

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.