Chery: A “seismic moment” for the SA auto sector?
The recently announced transaction which will see Chinese auto group Chery purchase the Rosslyn manufacturing operations of Nissan South Africa isn’t just a factory handover. – it’s the stress test moment for the Chinese onslaught.
This is the view of Global Strategy Consultant Chris Welman commenting on the transaction on LinkedIn.
Welman writes: “I’ve said it countless times that the real measure of sustainability in this wave of new entrants will only reveal itself after the second or third sales cycle. Price alone wins the first round. Quality, service, and consistency decide who stays in the game.”
He adds that with Chery stepping into Rosslyn, the stakes just changed.
– They’ve moved from import disruptor to local manufacturer.
– They now face higher production costs, stricter regulation, and the weight of legacy expectations.
– Competing on price is no longer enough – they must prove they can deliver quality at scale.
Labour unions flex their muscles
The first major test for this transaction is likely to be a tussle with the well-entrenched labour unions who have indicated their displeasure with the transaction.
The National Union of Metalworkers (NUMSA) is the largest union in the sector and they are cognisant of the impact of lower cost Chinese and Indian brands coming into the market and disrupting manufacturing from the likes of Ford, Nissan, Toyota, VW and other German brands.
NUMSA General Secretary Irvin Jim was quoted as saying: ““We need a decisive and coordinated state response. We are openly being raided, and there is no sense of urgency,”
“Bigger plans or they wouldn’t be here”
Ross Smith, Chief Programme Officer at the Automotive Industry Transformation Fund (AITF) shared his own insights on the LinkedIn thread by pointing out that they have survived a very competitive Chinese market.
“Volumes in SA are very small so they must have bigger plans or they wouldn’t be here,” he noted.
EU Access and Export Credits?
In its analysis of the transaction, the team from Cars.Co.Za raised an interesting point noting:
“Chinese companies are not in the habit of overpaying for foreign assets. Chery and Nissan have not disclosed the numbers involved but you can be sure the math made sense to Chery.
The Chinese automaker bought a fully functional vehicle assembly plant for a likely bargain. And buying it also unlocks the potential of South African government subsidies and export credits to offset the tariffs on imports. Chery’s aggressive growth, with all the sub-brands (Jaecoo, Omoda, Jetour), means that those export credits can make Chery’s products cheaper.
And then there’s the US and EU market issues. International trade regulations have become highly volatile, but a Chery-built vehicle in Rosslyn could be exported to the lucrative US and EU markets under the preferential trade status that South African-built vehicles enjoy into those markets. This could become very relevant in the near future, as Chery wants to unlock wealthier global markets in North America and Europe.”
(Read the full article here)
A seismic shift or a changing world order?
The South African automotive sector has been under significant pressure for a number of years. Manufacturing has been disrupted by a number of factors including inconsistent electricity supply and poor rail and port infrastructure.
Despite these challenges, the sector remains one of the few bastions of industrialisation and manufacturing in the country.
The entrance of lower cost Chinese and Indian manufactured vehicles is proving a disruptive force and is creating a robust debate on how to protect the sector.
Being such a critical sector for the country, we at the SA Trade Desk continue to monitor developments and welcome input from industry stakeholders.
