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Contents

Scope of Report ........................................................................................................................................... 2

Introduction to SAABC ................................................................................................................................. 2

Letter from the Chairperson ........................................................................................................................ 4

Letter from Chief Facilitator ........................................................................................................................ 5

Executive Committee .................................................................................................................................. 6

Scope of activities ........................................................................................................................................ 7

Profile of the SAABC Database .................................................................................................................. 10

Summary of 2012 Benchmark Findings ..................................................................................................... 12

World Class Manufacturing Study Tour Series .......................................................................................... 19

SAABC Research Report............................................................................................................................. 23

SAABC Audited Financial Statement ......................................................................................................... 35

Member listing .......................................................................................................................................... 37

Contact Information .................................................................................................................................. 41

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Scope of Report

The South African Automotive Benchmarking Club (SAABC) is a privately funded, non-profit continuous

improvement programme. The report represents a review of the activities of the club for the year

ended 31 December 2012. This is an integrated report, considering the financial, economic and

programme performance.

Introduction to SAABC

The SAABC, established in 1997, is a continuous improvement programme which supports the South

African automotive component manufacturing industry in order to achieve World Class Manufacturing

levels through firm-level benchmarking and clustering activities. The benchmarking club is now into its

fifteenth year of operation.

The SAABC originally comprised three programmes - the KwaZulu-Natal Benchmarking Club (established

in 1997), the Eastern Cape Benchmarking Club (established in 1999) and the Gauteng Benchmarking

Club (established in 2001). These three programmes were public-private partnerships, funded through

the Department of Trade and Industry’s (dti) Sector Partnership Fund (SPF). In 2004, when the

programme ended, the SAABC was formally promulgated as a privately funded, non-profit initiative,

comprising of four chapters – namely KwaZulu-Natal, Gauteng, Port Elizabeth and East London. The

Western Cape chapter amalgamated

into the initiative in 2005. The SAABC

thus has a strong national presence,

with the five regional chapters covering

the major automotive regions in South

Africa.

As a privately funded programme, a

National Executive Committee with

Regional representation, oversees the

activities of the SAABC and provides

critical input on its direction and focus.

The primary activities of the SAABC

comprise of firm-level benchmarking and supporting clustering activities.

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Firm-level benchmarking is being increasingly viewed by the local auto industry, including the OEMs, as

being crucial to establishing world class standards amongst local suppliers. In support of this, the SAABC

programme has been endorsed by the local automotive associations.

The SAABC offers the following benchmarking benefits for members:

The objective assessment of relative competitiveness so as to identify opportunities for

improvement through the application of proven practices, processes and experiences of other

firms.

The alignment of strategic goals and operational priorities to ultimately improve competitiveness,

profitability, and sustainability.

Importantly, the firm-level benchmarking exercise undertaken by firms is not an end-point in itself. The

benchmarking process represents an important continuous improvement mechanism intended to

objectively inform management decisions on competitiveness and sustainability challenges. A

presentation of the findings and recommendations are provided to executive management and,

together with the implications, are ‘work shopped’ and discussed to ensure maximum benefit. The

findings, conclusions and recommendations contained in the benchmarking report are considered to

provide important inputs into the company’s strategic and operational decision-making processes.

Over and above the firm-level benchmarking, the SAABC facilitates the exchange of best practice

knowledge between consenting member firms. This is intended to assist firms in leveraging maximum

advantage from the benchmarking network.

Newsletter reports, compiled and circulated to members on a quarterly basis, further explore key

findings emerging from the latest benchmarking data and automotive trends.

In addition, members of the SAABC are able to enjoy the benefits of national World Class

Manufacturing study tours.

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Letter from the Chairperson

On behalf of the South African Automotive Benchmarking Club Executive Committee, I am very pleased

to deliver the SAABC’s first Annual Report. This report

provides an overview of the activities of the SAABC for the

period 1 January to 31 December 2012, all of which were

directed at utilising benchmarking and inter-firm sharing of

best practices to support industry competitiveness and

growth. The SAABC continues to play a key role in the

development of the local industry, with this taking place at

three distinct levels:

At a firm-level the SAABC continues to provide suppliers

with insights into their comparable operational

performance so as to support enhanced strategic and

operational decision making. In this regard, 2012 saw the

introduction of new analytical tools that provide new insights into competitiveness and

sustainability performance.

At a cluster or inter-firm level the SAABC is focused on facilitating the exchange of best practice

knowledge amongst firms. Key activities include best practice site visits, analytical newsletters and

the exchange of knowledge via facilitating firm to firm site visits. Over the past year the shorter best

practice workshops were replaced with longer best practice study tours with great success, with

these now taking place on a rotational basis in all major automotive manufacturing locations in the

country.

Lastly, from a macroeconomic perspective the SAABC is uniquely positioned to provide objective

insights to key stakeholders in respect of industry performance and the critical development

challenges.

From a financial perspective, I am very pleased to report that the SAABC is in a healthy financial

position and remains compliant with all relevant legal and statutory requirements and in turn continues

to receive unqualified, clean audits from PKF, the appointed auditing firm. Overall, despite the

challenging global and local operating environment that the automotive industry finds itself in, the

SAABC continues to add substantial value to the industry. This places well in relation to exploring

opportunities to deepen its support to member firms in 2013.

Johan Steyn

Chairman

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Letter from Chief Facilitator

As a fledgling organisation in 1997, the SAABC had limited supplier membership; limited access to

international benchmarking data; and access to an

academically robust yet comparatively new methodology.

Counting in its favour was financial support from the Sector

Partnership Fund of the Department of Trade and Industry

(dti).

Over the past 16 years the SAABC has come a long way. It

receives support from suppliers in all major automotive

manufacturing locations in the country as well as four OEMs;

access to benchmarking data from North America, the

European Union, India and more recently South East Asia; and

access to world class benchmarking methodology.

The firm-level benchmarking activities continued throughout

2012, with new analytical tools such as the cost competitiveness analysis, sustainability analysis and

opportunity planner being well received. In additions to this, the findings at an aggregated level have

also assisted key stakeholders to better understand the competitiveness position and challenges facing

local suppliers. This is an important indirect role that the SAABC plays as it is uniquely positioned to

objectively inform industry development decisions made by these stakeholders.

The best practice study tours initiated in 2012 were well received and included visits to Volkswagen and

Mercedes-Benz as well as suppliers and non-automotive manufacturers. 2013 will see the format of

multi-site best practice study tours continuing. The newsletters published during the year focused on

issues of central relevance to suppliers in the automotive industry in South Africa. Topics explored

included the emergence of Turkish as a powerhouse of automotive manufacturing; the cost of

production downtime to suppliers; and the potential impact of the Automotive Production and

Development Programme (APDP) on the local automotive sector.

Importantly, the achievements of the SAABC would not be possible without the strategic direction and

guidance of the Executive Committee. I would accordingly like to take this opportunity to thank the

members of the Executive Committee for their on-going commitment, support and leadership.

Douglas Comrie

Chief Facilitator

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Executive Committee

The SAABC is a privately funded, industry driven non-profit organisation (NPC), drawing on the

leadership and expertise of individuals from a broad range of automotive member firms and using it to

identify and address a wide variety of challenges confronting the automotive industry. The National

Executive Committee, with Regional representation, oversees the activities of the SAABC and provides

critical input on its direction and focus.

The members of the Executive Committee for the year ending 31 December 2012 are listed below.

Chairperson of Executive Committee

Eastern Cape Chairperson

Johan Steyn Dynamic Automotive Systems

Operations Director

Deputy Chairperson of Executive Committee

KwaZulu-Natal Chairperson

Bruce Muggeridge Feltex Fehrer

General Manager

Industry Representative

Gauteng Chairperson

Stoney Steenkamp Nampak Wiegand Glass

Managing Director

Industry Representative

Western Cape Chairperson

Toni Mancini Senior Flexonics

Managing Director

Project Manager Michele Arde B&M Analysts

Executive

Chief Facilitator Douglas Comrie B&M Analysts

Managing Director

Compliance and transformation

The Executive Committee pro-actively identifies and puts in place mechanisms to ensure that the

SAABC is compliant with relevant legislation. Appropriate measures have therefore been put in place to

ensure compliance with the Public Finance Management Act (PFMA) and the Competition Act. The Club

is a verified ‘Level 4 contributor’, or what the Codes define as being 100% B-BBEE compliant.

Facilitation

The SAABC facilitation services are provided by an independent team from Benchmarking &

Manufacturing Analysts SA (Pty) Ltd (B&M Analysts) appointed by the Executive Committee.

Founded in 1997, B&M Analysts’ primary areas of expertise and service provision include cluster

facilitation, competitiveness benchmarking and upgrading, project management, training, and policy

and strategy research services. These services are provided to government, non-government

organisations (NGOs), clusters, industry associations, and manufacturing companies.

B&M Analysts is a verified ‘Level 2 contributor’, or what the Codes define as being 125% B-BBEE

compliant. For more information on B&M Analysts please visit www.bmanalysts.com.

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Scope of activities

Conceptual model for the Continuous Improvement network

The SAABC is a continuous improvement programme founded on a ‘restructuring for competitive

advantage model’.

This model aggregates firm-level knowledge and then aggregates the collective knowledge to inform

industrial restructuring strategies and actions.

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Benchmarking Methodology

Using a firm-level value chain model benchmarking approach, the annual competitiveness

benchmarking assessments provide member firms with a clear understanding of their operational

competitiveness strengths and weaknesses from both an intra and inter firm organisational

perspective. The benchmark further provides an insight into a firm’s ability to meet and exceed

competitor performance levels.

The firm’s value chain and operational performance is assessed in relation to six market drivers, namely

cost, quality, value chain flexibility, value chain reliability, human resource development and

innovation, on both a quantitative and qualitative basis against both lean manufacturing best practice

and an extensive global competitiveness database.

The customised report that is submitted to management contains a performance analysis of the

company in terms of:

1. Customer Benchmark Assessment: The customer benchmark is an invaluable tool that ascertains

the extent to which a firm meets customer performance requirements. The extent to which a firm’s

competitors are meeting the same requirements is also examined and evaluated (if applicable).

Additional issues related to performance are also considered. The customer assessment also

includes a ‘Customer Benchmark Index’ percentage score which is intended to provide a single

value for customer satisfaction levels, as well as a methodology for benchmarking comparative

overall customer satisfaction levels against other companies and against past performance.

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2. Comparative Financial Performance: An overview of financial indicators that is indicative of the

firm’s financial health is undertaken. The data required to undertake this aspect of the benchmark

can in many cases be sourced from standard company reports and documents.

3. Sustainability Analysis: A firm’s ability to achieve sustainable operating profit margins is evaluated.

A comparison of changes in key financial measures over time provides insights into whether or not

current strategies are effectively managing costs in support of sustaining long term profitability.

4. Cost Competitiveness Analysis: The analysis systematically unpacks factors of comparative

advantage and disadvantage that emanate from locating automotive production operations in

South Africa versus Thailand and Central Europe respectively. Findings consider factors such as

trade access, operating costs, input costs and government incentives.

5. Waste Analysis: The direct unnecessary costs/waste incurred as a result of the operational

performance of the firm as a percentage of manufacturing value addition (MVA) is assessed.

6. Operational Competitiveness Percentile Analysis: An evaluation of the firm’s current operational

performance profile is undertaken. The firm is analysed relative to local, international and sub-

sector comparator groupings.

7. Opportunity Planner: The planner assesses the relative benefits associated with enhancing

performance in several key areas.

Strategic Management Sessions

These are annual strategic sessions, held for each chapter, focusing on the latest global and South

African automotive industry trends and developments, including assisting firms in understanding the

latest industry issues, i.e. the firm-level implications of the shift from the Motor Industry Development

Programme (MIDP) to the Automotive Production Development Programme (APDP) in 2013.

World Class Manufacturing (WCM) Study Tours

The WCM programme comprises practical orientated WCM workshops focusing on Total Productive

Maintenance (TPM), Continuous Improvement (CI) and Total Quality Management (TQM). These

capacity building sessions are aimed at a management level, with an increased focus on practical

application of TPM, CI and TQM. Shop floor assessments and reviews of practices and tools in the

workplace are undertaken. The study tours are explored in further detail below.

Newsletters

The SAABC newsletters explore the latest industry trends and key findings that emanate from the

SAABC database and the strategic impact of these on the local automotive industry.

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Profile of the SAABC Database

The following section unpacks the SAABC Database. This database has been generated since the

SAABC’s inception in 1997.

Global locational breakdown

The SAABC database comprises of a total of 429 firms, from South Africa (66 firms); Central Europe (66

firms); Asia Pacific (25 firms); and Northern America (272 firms).

Global automotive sub-sector breakdown

The database is broken down into 14 sub-sector categories, of which the follow six are the most

common: the metal forming/pressing (15.21%); metal fabrication (11.99%); plastic moulding (10.20%);

trim (9.12%); JIT assembly and precision machining (8.59%).

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Global breakdown of market focus and ownership

The market focus of the SAABC database comprises of firms supplying the OEMs (38.4%) and the

aftermarket (9.0%), as well as additional firms supplying into other auto markets (52.5%). The

ownership profile of the database is split 53.4% multinational and 46.6% locally owned.

Global breakdown of sales and employment

The SAABC global database is relatively evenly split between the four sales categories with 24.9% of the

firms having sales above R250 million; 24.0% between R100 and R250 million; 33.0% between R30 and

R100 million, and 18.2% below R30 million. In terms of employment, 22.1% of firms within the database

are classified as large firms who employ more than 250 employees, 15.6% employ between 151 and

250 employees, and the majority, 62.3%, employing below 50 employees.

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Summary of 2012 Benchmark Findings

The following 2012 findings represent the aggregated benchmark findings for the SAABC for 2012. The

benchmarking findings compiled consider the performance levels of three local comparators in 2012,

namely, the SA supplier industry (SA firms), as well as those firms classified as SA Tier 1 firms (SA T1)

and SA Tier 2 firms (SA T2). The comparative performance levels of automotive supplier firms located in

Central Europe, Asia and North America are included.

Customer Benchmark

The customer benchmark findings for the seven domestic SA based OEMs are considered below where

the responses received are in relation to the seven local OEMs. In 2012, conformance to standards,

quality, responsiveness, delivery reliability, and communication flow was identified as the top 5 most

important performance criteria for suppliers. In terms of performance, communication flow was

identified by OEM’s as being the largest customer performance gap, with responsiveness, quality and

price also areas of concern. Positively, historical performance of those benchmarked has improved,

albeit marginally.

Domestic OEM – Importance rating of criteria for SA benchmarked firms (n=7): 2012

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Domestic OEM – SA benchmarked firms’ performance versus customer demands (n=7): 2012

Comparative Financial Performance

The Comparative Financial Performance in 2012 highlights very interesting and critical issues for the

industry as a whole. Key findings are highlighted below.

Inflation adjusted sales (domestic currency), indexed to 2010/11 figures

The findings reveal that sales have increased marginally in real terms for Tier 1 suppliers, but a decrease

is evident for Tier 2 suppliers. Looking at the profitability below, Tier 1 firms have seen a large increase

in profitability in relation to total sales, from 2010/11 – 2012/13, whereas Tier 2 firms have experienced

a decrease in profitability over the same time period.

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Operating profit levels as a percentage of total sales

Value added per employee figures, adjusted to 2012/13 levels for SA firms

The findings above indicate that there is, notably, limited evidence of substantive productivity

improvements in the local automotive value chain. This has also emerged as a critical issue when

evaluating the cost competitiveness of SA and Thai suppliers. Together with low capital expenditure

levels for Tier 1 and Tier 2 suppliers, this has serious implications of the long term sustainability of the

industry. It is therefore critical that capital expenditure and skills investment take place at both the Tier

1 and Tier 2 supply level.

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Capital expenditure levels as a percentage of total sales

Total cost of sales percentage breakdown

The differing profile of Tier 1 and Tier 2 suppliers in respect of overhead cost reduction should be noted

as it poses a clear challenge to long term supplier competitiveness of the sector. Materials remain the

largest contributor to both Tier 1 and Tier 2 suppliers. Identifying opportunities to reduce material costs

at both a Tier 1 and Tier 2 level (without undermining local content) therefore represents the best

opportunity to sustainably improve competitiveness.

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Waste Analysis

The Waste Analysis considers the direct unnecessary costs/ waste incurred by operational performance

levels at firms. The analysis considers the direct costs linked only to the critical operational measures,

calculated against manufacturing value addition (MVA).

The Waste Analyses undertaken reveals that both Tier 1 and Tier 2 suppliers have reduced their overall

operational waste, in particularly over the last year. Their total average cost as a percentage of

manufacturing value addition for the first and second tier remains above the South African average and

the Asian comparator. Reliability and cost remain the biggest challenge for South African firms.

Average waste analysis summary

Opportunity Planner

The Opportunity Planner considers the relative benefit associated with enhancing performance in key

areas. The tool provides insights and possible direction in respect of:

Quantifying the potential for reducing costs and/or increasing profitability on a renewable basis

through focused interventions

Quantifying the potential for leveraging once-off costs or working capital gains through focused

interventions

Assisting with the relative prioritisation focus areas

The tool considers the ‘actual’ benefits achieved for the 2011/12 to 2012/13 period based on real

performance, as well as the ‘proposed’ benefits for 2013/14 by considering standard levels of

improvement.

The analysis suggests that SA Tier 1 suppliers have been successful in reducing cost in nominal terms in

2012/13, although it should be noted that the largest contributor to this was a reduction in materials

costs. Tier 2 suppliers have in contrast increased costs, with the largest contributor being an increase in

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overheads. For both Tier 1 and Tier 2 suppliers the largest opportunities for cost reduction are in

relation to increased sales and reduced overheads.

SA Firms – Opportunity planner

SA T1 Firms – Opportunity planner

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SA T2 Firms – Opportunity planner

Conclusion

The findings for 2012 reveal critical matters for the local automotive value chain to address as a whole.

While recovery in profit levels is being achieved via increased sales and marginally reduced fixed costs,

the cost pressures exerted within the chain has had serious implication on the lower supply base.

Serious cost pressures from the OEM’s have been felt at the Tier 1 level, and, on an aggregate level, this

has not resulted in effective cost reduction but rather the costs are being transferred on to the second

Tier supply base. Tier 1’s have not sufficiently supported their suppliers in recovering and reducing

costs, and thereby reducing the Tier 2 profitability levels. This needs to be addressed for sustainability

of the industry in the long term.

Productivity, in relation to capital and labour; overhead costs; and material costs are the three main

areas which require consideration for firms going forward.

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World Class Manufacturing Study Tour Series

In 2012, the SAABC hosted a World Class Manufacturing (WCM) National Study Tour Series. The

intention of this series is that it operates as an extension of the individual firm-level benchmarks and

enables firms to deepen their knowledge in relation to WCM. The following represents a summary of

the key findings and highlights from this study tour series.

Study Tour Series Participant Comments

Port Elizabeth

The tour to VW & SAB I found to be very informative as I picked up a lot of new systems which I can

implement back at my company.

Very good study. I always learn a lot from other people.

Fantastic variety in companies visited. Big money vs. making things happen on minimal budget or passion.

Overall presentation/tour was insightful and provides guidance to World Class Manufacturers.

I really learnt a lot. It was worth being a part of the two day tour.

KwaZulu-Natal

Worthwhile learning experience

Eye opening experience. Learnt a lot and realised we have a long journey ahead and this has helped equip

us with knowledge and contacts to help us get to our destination.

East London

I'm happy about the level of communication and the involvement of the shop-floor personnel.

Very interesting and the depth of the tour was very good.

The tour was quite an eye opening experience which I will introduce in our firm

Interesting to see that TQM is a common language, plants all using terms like: Pride Ownership,

Responsibility, Accountability, problem solving, escalation & containment, Equal stakes in the business and

good work relationships & customer focus

Very informational tour, TQM tools and techniques used are maintained with passion and dedication which

is very motivating.

The Study Tours focused on several key pillars of WCM namely:

Just-In-Time (JIT)

Total Productive Maintenance (TPM)

Continuous Improvement (CI)

Total Quality Management (TQM)

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All member firms were encouraged to participate in the best practice study tours as they are viewed as

highly beneficial. The tours allow personnel to take two consecutive days to reflect on the principles

and application of the key WCM pillars. Three tours occurred in 2012, as outlined below.

Region Focus Date

Port Elizabeth Total Productive Maintenance 19 – 20 June 2012

KwaZulu-Natal Continuous Improvement 23 – 24 October 2012

East London Total Quality Management 27 – 28 November 2012

Total Productive Maintenance (TPM) Study Tour - Port Elizabeth

In light of the clear opportunity for our SA

automotive component sector to lower its

machine and tooling breakdowns through TPM

activities, the SAABC launched the WCM National

Study Tour series with a TPM tour to Port

Elizabeth on 19 and 20 June 2012. The study tour

firms included Volkswagen, Lumotech, Dynamic

Automotive Systems and SAB Miller. The

objective of the study tour was for delegates to

enhance their WCM knowledge in a practical way and thereafter implement tools and techniques at

their own plants.

The tour commenced with 28 delegates from member firms around the country arriving at Volkswagen.

Key general TPM lessons to have emerged from the plant tours included:

The understanding that lean principles are applicable to all organisations, highlighting that the

essence of lean does not change according to the size or type of manufacturing operation, or the

ownership profile.

The delegates involved in the tour were impressed with the ‘simplicity’ of the lean cultures in place

at firms. This highlighted that lean principles could be applied in their own environments.

Strong visual management and measurement systems were evident (i.e. Visual boards showing

hourly, daily and monthly trends). This was highlighted by the host firms as being key to making any

improvement.

Strong 5S and quality systems were apparent.

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Having the right people in place, at all levels, was noted as being critically important when

embarking on a change process. A ’Change the people or change the people’ culture and approach

was apparent.

In support of the previous point, the investment in people was found to be high at host firms. It was

further emphasised that changes must be followed by a strong training programme at all levels to

ensure that the correct mind-set is in place.

Importantly, teams were empowered at the host firms to run their own areas and make on-going

improvements, allowing management to focus on strategic activities.

Continuous Improvement (CI) Tour - KZN

On 23 and 24 October 2012, the SAABC conducted a Study tour in KwaZulu-Natal focusing on CI and

four firms which exhibit best practice tenets in terms of

this area were visited. These firms included Altech UEC,

Behr South Africa, Smiths Manufacturing and Hesto

Harnesses. The study tour was attended by 20 firm

representatives of SAABC members from across the

country and proved to be a very beneficial learning

experience for the attendees. The best practice principles

of CI application were shared and reiterated throughout

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the factory tours. The following diagram represents the key learnings and basic principles of CI that

were evident amongst the factories visited.

Whilst many of these appear to be common sense, their application combines to be a powerful force in

the development of a genuine CI culture and has assisted these firms to continuously drive

improvements and excellence in automotive manufacturing.

Total Quality Management (TQM) Tour - East London

The SAABC hosted its third Study Tour for 2012 to East London on 27 and 28 November. This tour

focused on TQM and the tour party comprised of

19 member firm representatives who benefited

being exposed to TQM practices at Mercedes Benz

SA, Faurecia Interior Systems and Defy Appliances.

The key lesson from the tour was that TQM clearly

seeks to build on worker involvement by creating

mechanisms for increasing their ownership and

responsibility for quality, and providing the

training, tools, and the top management

commitment to support it. Those persons who attended the tour were practically able to see these

principles of TQM in operation.

Study Tour Assessment

The feedback from the study tours was exceptionally positive with a high level of engagement evident

amongst the various participants.

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SAABC Research Report

Turkey: A rising star in the Automotive Industry

By Sean Kirby

In light of the tremendous growth of the automotive sector in Turkey in recent years, the Durban

Automotive Cluster conducted a study tour to Turkey in November 2011. The findings from this study

tour were generated into a research report and disseminated to SAABC members. This article is

presented below.

Introduction

The foundations of the Turkish automotive industry date back to the early 1960s, when the first efforts

to develop and produce the first Turkish-made passenger cars were undertaken by the Automotive

Industry Association in 1961. During a period of rapid industrialisation and progress, this key sector

transformed itself from a collection of assembly-based partnerships to a fully-fledged industry with

expanding design capability and a significant production capacity. Today, the Turkish automotive

industry is highly efficient and competitive with its value-added production. The industry has expanded

exponentially over the last 50-years: from the assembly of 3,468 vehicles and the manufacturing of

their spare parts in 1963 (OETK 2011), Turkey has grown to be the sixteenth largest automotive

producer globally in 2010 (OICA, 2012). In recent years the automotive sector has become the country’s

leading export sector, exceeding US$18.6 billion in export revenue in 2011.

The substantial growth of the Turkish automotive industry in recent decades, is due primarily to two

main factors: the large size of the domestic market where individuals have gained increasing purchasing

power as the economy develops; and secondly, the enormous expansion of international trade

especially following the Customs Union Agreement signed with the EU1 in 1996 (Deloitte 2010, 2).

Profile of the Turkish automotive industry

Comprising the production of both passenger and commercial vehicles (including minibuses, midibuses,

buses, pick-ups and trucks) the Turkish automotive industry has experienced considerable growth in

recent decades. 56% of vehicles produced between 2006 and 2010 were passenger vehicles. In 2007

the sector achieved a production milestone by surpassing a total of one million vehicles for the first

time. The Turkish automotive sector was affected by the global financial crises where the reduction in

global demand for vehicles impacted negatively on the Turkish automotive exports which comprise the

majority of the industry’s production. This is reflected in the 24.2% decline in Turkey’s total vehicle

production from 2008-2009.

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Figure 1: Turkish motor vehicle production 2006 - 2010

Source: TSKB Research (2008), (2010), (2011).

Major Vehicle Manufacturers

Ford Otosan; Oyak-Renault; Tofas-Fiat, and Toyota Turkey contribute a combined manufacturing output

of approximately 88% of all vehicles manufactured in Turkey in 2009 (Deloitte 2010).

Table 1: Major Vehicle Producers in Turkey

Producer Ownership Production

Ford Otosan Partnership (USA-Turkey) Mainly transit commercial vehicles

Oyak-Renault Partnership (France-Turkey) Passenger cars

Tofas-Fiat Partnership (Italy-Turkey) Light commercial vehicles & passenger cars

Toyota Turkey Foreign (Japan) Passenger vehicles

Source: Deloitte (2010)

Ford Otosan, Oyak-Renault, and Tofas-Fiat are partnerships between Turkish and foreign carmakers,

while Toyota is now wholly Japanese-owned. Oyak-Renault, manufacturing passenger vehicles only, is

the largest vehicle producer in the country. As of June 2010 Oyak-Renault produced 54% of all

passenger cars in Turkey. Toyota entered the Turkish market through a partnership with a leading

Turkish conglomerate, Sabanci Holding, in 1989, and in 2001 Toyota Turkey became wholly Japanese-

owned. The company began producing almost exclusively for export in 2002 at its plant in Adapazari. By

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year-end 2010, Toyota had produced 83 384 passenger vehicles from the Turkey plant of which 73 165

where exported (Aksongur 2011).

The Turkish automotive industry has a large components manufacturing sector which comprises a

mixture of major multinational and locally owned companies. Prominent multinational automotive

parts manufacturers such as Bosch, Autoliv, Pirelli, ZF, Valeo, and Denso have established a presence in

the country through joint-ventures, which dominate production and exports. Notably, there has also

been substantial locally-owned investment by parts manufacturers. Productive capacities include a very

wide range of injection-moulded parts, tyres, batteries, spark plugs, carburettors, castings, fuel

injection systems and transmission parts amongst others (Deloitte 2010, 10).

The Turkish industry has benefitted from the integration of Turkish plants into the global production

planning of multinationals, with this made possible by the Customs Union Agreement with the EU,

which has been in force since 1996. The role that the Customs Union Agreement with the EU played in

relation to attracting investments from the Far Eastern manufacturers (such as Toyota, Hyundai and

Honda) was particularly significant. These Eastern manufacturers were attracted to Turkey by the low-

cost base from which both a domestic market and the European export market could be supplied.

A Strong Export Focus

The Turkish automotive industry has a dominant export focus. Table 2 below demonstrates the

significant contribution export-related production contributes toward total automotive production in

Turkey.

Table 2: Exports as a percentage of total automotive production

2006 2007 2008 2009 2010

Total Vehicle Production 987,580 1,099,413 1,147,110 869,605 1,094,557

Total Vehicle Exports 696,688 818,349 910,270 628,970 754,469

Exports as % of total production 70.5 74.4 79.3 72.3 68.9

Source: TSKB Research (2008), (2010) and (2011)

However, Figure 2 highlights that automotive export volumes showed signs of recovery in 2010

increasing by 16.6% from 628,970 in 2009 to 754,469 in 2010. Turkey is one of the largest exporters of

passenger vehicles into Europe (Deloitte 2010) where passenger vehicle exports contributed on average

60% of the total vehicle exports over the period 2006 – 20101.

1 European Union

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Figure 2: Turkish vehicle exports 2006 - 2010

Source: TSKB Research (2008), (2010), (2011).

Based on these impressive production and export figures demonstrated by the Turkish automotive

industry, an interesting question emerges with regard to Turkey’s passenger vehicle production services

domestic passenger demand. Figure 3 suggests that domestic demand for passenger vehicles in Turkey

is in fact largely serviced by imported motor vehicles2. The decrease in total sales from 2006 – 2008 is

evidence of the Turkish economy slowing down in 2007 and 2008 due to domestic factors before the

effects of the global financial crisis (Deloitte 2010, 8). The increase in total sales from 2008 to 2009 can

be directly attributed to the Turkish government’s reaction to the crisis by implementing a temporary

reduction in Special Consumption Tax3 from March – June 2009 (Deloitte 2010, 8). The increase in total

sales from 2008 to 2009 can be directly attributed to the Turkish government’s reaction to the crisis by

implementing a temporary reduction in Special Consumption Tax4 from March – June 2009 (Deloitte

2010, 8). This had a positive effect on the local producers who faced significant decreases in the

demand from the struggling European export-markets.

2 Based on calculation made from data in TSKB Research (2008), (2010) & (2011)

3 TSKB (2008), (2010), (2011)

4 Which, in addition to VAT is one of the major taxes on motor vehicle purchases

27

Figure 3: Domestic motor vehicle production and domestic demand

Source: TSKB Research (2008), (2010) and (2011)

Building Industry on key Government Support

Since the early 1990s, the Turkish government has granted incentives to assist the development of the

automotive sector in Turkey. Specifically, the government has actively facilitated and encouraged the

transfer of technology and foreign capital to assist the growth of the automotive industry. Barnes et al

(2010) found that the Turkish government offers extensive investment support to multinational

automotive companies looking to invest in Turkey, making note however, that although the

government’s support for the assembly and components industry clearly lies within the boundaries of

World Trade Organization rules. The level of support provided by the government is also highly

dependent on the scale of the investment taking place and the region in which the investment is taking

place. Referring to the investment-incentive structure as described by the Turkish Government (2011),

there are clear incentives that encourage: large scale investments5, investment in certain strategically

chosen regions6 as well as sector-based incentives7.

5 Investments totalling a minimum of TRY 250 million in the automotive industry will be corporate tax rates of

between 2-10% for investments started before 31-12-2010 and then 4-15% for those that start after 31-12-2010. 6 Turkey has a number of comparatively poor regions in the central and Eastern parts of the country, and the

government provides particularly generous incentives for investing in these regions. 7 Sectors that generally require the use of advanced technology such as the automotive and supply industry.

28

Strength Weakness

Friendly investment environment

Customs Union agreement with EU reduces

tariffs on exports.

Skilled and productive workforce with lower

labour costs compared to the European

Union countries.

Strong emphasis on R&D.

Geographic proximity to Europe (and Asia)

provides access to crucial markets,

favourable production base.

Special Consumption Tax and VAT raise the

domestic purchase price of a vehicle to 60% -

100% and above the pre-tax price8.

Dependence on European markets.

Opportunity Threats

Turkey’s Ministry of Industry and Trade has

been studying the trend towards electric and

hybrid-powered vehicles and aims to make

Turkey a leading electric vehicle producer.

Domestic market potential, with

approximately three-quarters of households

still not owning a car9.

Preparations to join the EU could erode

Turkey’s competitiveness.

Dependence on EU Markets.

Rapid Growth in China And India.

Rising labour costs.

Summary of key study tour review findings

The following discussion stems from key observations and lessons attained in Turkey by the study tour

participants from IJ Components, Ramsay Engineering, Smiths Manufacturing and Webroy in November

2011. Over the course of five days the representatives visited ten automotive supplier plants, met with

the Deputy Secretary General of the automotive industry association, TAYSAD, and attended Otomotiv

2011, an international automotive supplier exhibition that took place in Istanbul. The tour spanned four

industrial locations situated in the Western coastal areas of the country namely Istanbul, Gebze,

Adapazari and Bursa. The post study tour review focused on firm operating environment,

manufacturing practices and evidence of government support and incentives observed by the

participants during their visit to Turkey. Critically, this review is aimed at harnessing key observations

and lessons experienced during the tour that will better help understand the local automotive

8 Özbudun (2010)

9 Deloitte (2010)

29

industries’ competitive positioning in relation to a rising strength in global automotive industry in

Turkey. These issues will be unpacked in relation to specific firm-level, cluster and government lessons.

One key point to note is that the responses provided by the participants indicated Turkish suppliers

were not uniform and varied according to the type of customer supplied amongst other factors. Whilst

a number of the firms visited were first and second tier suppliers to Toyota, the majority are suppliers

to Renault and other OEMs.

Operating Environment

Capital investment

It was evident in the participants responses that some of the factories visited were amongst the best

they had seen. Large capital investments had resulted in clean, orderly and well maintained facilities

that housed state-of-the-art machinery in highly automated production lines. For example, the last

factory visited boasted a €30 million investment in a robotically-operated metal pressing line that

commenced with full production in 2010. The scale of investment in this locally owned plant, as well as

a few of the other large tier one suppliers visited, seem to be indicative of the confidence that Turkish

investors have in the ability of these investments to deliver healthy and sustainable returns based on

the outlook for Turkish automotive industry.

However, not all factories visited were of such high standards. Some of the smaller Tier 2 suppliers

visited showed evidence of little or no investment in their machinery and had small, cluttered and

badly-lit work stations.

Notably, despite the facilities that demonstrated huge financial investments in robotic production lines,

the participants felt the factories visited were not unlike those in the local automotive industry. As is

with the case of the Toyota supplier plants, the factory standards are relatively uniform no matter

where in the world they are located.

As one of the tour participants stated,

“I observed equipment from the very latest level with robotics and electronic controls to that of the very basic

hand operated level. Some firms had refurbished equipment, and others have innovated their own purpose-

made equipment. Overall, I would say very similar to what we see in South Africa.” (Turkey Tour Participant).

Factor costs

When asked what they felt the comparative impact of the cost of factory rentals were for the Turkish

firms they visited, a unanimous response indicated the low number of factories that rented their

factory space. One of the smaller Tier 2 suppliers they visited was in fact the only one that rented their

factory space, the rest all owned their respective land and factory facilities. The government investment

30

incentive schemes discussed in the previous section provide a possible explanation for this trend. As

part of an incentive for large investments, the government provides land allocations for investors in the

automotive industry, where automotive-related investments totalling a minimum of TRY 250 million are

eligible for the incentive10. However, the scale of this investment is immense and unlikely to be the sole

reason to describe such high levels of factory and land ownership among the small, medium and large

firms.

With regard to the cost of electricity the participants did not believe the cost of electricity in Turkey

provided any significant competitive advantage. However the Turkish firms had little or no concerns

regarding the reliability of electricity as well as the burden of significant electricity price increases as

experienced in South Africa. Alternative sources of power, as in piped-gas, were observed at a couple of

the plants visited; indicating moves to reduce energy costs where they contribute a large cost in the

production process.

Overall, the cost and reliability of utilities in Turkey was not perceived to give the Turkish producers any

significant competitive advantage or disadvantage by the tour participants. However, whilst current

costs did not seem to give the Turkish producers a significant competitive advantage over the local

automotive industry, the reality of continual and significant electricity tariff increases in South Africa

coupled with the threat of electricity shortages stresses the importance of local producers to control

the impact of this cost component.

Skills and productivity

Levels of labour-intensity in the production process varied among the supplier plants visited. However,

the large press-plants that were visited operated highly automated production lines, where the labour

was utilised predominantly to ensure quality controls at the end of the production line. Overall, the

study tour participants observed generally high levels of worker productivity. Notably higher levels of

worker productivity were observed in those plants that exhibited higher adherence to TPS.

Skill-levels of the factory-floor workers observed by the study tour participants were high. It was noted

that workers demonstrated good levels of basic literacy and numeracy: it was learned that workers’

academic qualifications varied with a mix of those with secondary and tertiary qualifications.

Inadequate numeracy skills among factory workers is a common problem faced by many manufacturing

firms in South Africa, stressing the importance of continual in-house skills training and development.

Whilst it seemed that on average the workers at the firms visited during the Turkish study tour

demonstrated a higher level of skills, productivity and qualifications to that of similar workers in South

Africa, the underlying reasons would likely be structural in nature due to different socio-economic

contexts, particularly with regard to education. Skills levels among management were observed to be

10

www.invest.gov.tr

31

of a similar level to that of the local firms. A notable difference between many of the local firms to

those visited in Turkey was the very flat management structures compared to many South African

operations. Turkish management tended to have multiple responsibilities which included a greater

understanding of the machinery on the factory floor. A notable observation made by the participants

was the extent to which their Turkish counterparts, particularly in those firms that supplied Toyota,

invested time and resources in communicating the importance of an employee’s task within the

broader context of production. In doing so, the employees had a better understanding of the broader

context of their work, and the extent to which their particular activity adds to the construction of a

vehicle. The participants felt this was a focal point that could be strengthened within the South African

manufacturing context.

Manufacturing practices

The extent to which TPS was evident in the firms visited was strongly dependent on the customers they

supplied. The participants were requested to provide their views on examples (or lack thereof) of

manufacturing best practices that were visible to them during the ten factory visits. Crucially, the post

study tour review aimed at harnessing specific examples of manufacturing best practice both for the

participants’ respective firms.

Just In Time (JIT)

Generally, the Toyota Boshoku Turkey (TBT) Plant seemed to demonstrate good examples of JIT as

noted by all the participants. The participants stressed that most of the other factories that were visited

practiced batch-type production. Further, many of these plants were press plants where tool

changeover is an issue and hence one would expect to see a certain level on batch production being

practiced. These press-plants had visible inventory stock in most cases however there seemed to be

little concern over the prospects of moving the stock. In general the participants agreed most factories

they visited showed signs of good on-time delivery of their finished products.

Total Quality Management (TQM)

“Elements of TQM were evident in some of the plants, however it was not as high as I would have expected”

(Turkey Tour Participant)

Linked to the issue of safety mentioned above, the participants felt the ‘lack’ of visible TQM systems in

place may in fact be linked to the level of skill and productivity of the labour employed in these plants,

whereby there was “no need to be constantly reminded about quality” as it is inherently built into the

production system through the workers themselves. It was noted that many of the larger Tier 1

32

suppliers made use of mechanically controlled quality control systems that were positioned at the end

of large, robotic production lines.

Continuous Improvement (CI)

The participants noted little evidence of continuous improvement initiatives on the factory floors they

visited. TBT did however have a reasonable amount of CI initiatives in place. A notable example was an

active “problem board” that was visibly placed in the sections/lines of the factories that had process

problems. This board encouraged factory workers (of all levels) to try seek solutions to these process

problems in an attempt to reduce their impact on the final product – an outcome of which may be a

reduction in the number of rejects on the production line caused by the process-fault. Such an

approach to CI would be useful for South Africa firms to implement as it encourages worker

involvement and problem solving whilst harnessing a more collective response to CI initiatives, rather

than a top-down approach.

Reflecting on the above responses by the tour participants, the best application of the various aspects

of TPS could be observed at a large Toyota suppler visited. Examples of capital intensive quick die

change to improve JIT, simple yet effective visualisation initiatives to assist TQM and small operator-

driven ideas on the shop-floor used to increase worker involvement and buy-in to CI were evidence of

how TPS flow right through all aspects of their plants production.

“We often see these things happening overseas, why are they not happening here?” (Turkey Tour Participant)

In order to understand the implications of these findings for the South African firms, we need to further

unpack whether these examples of manufacturing best practice are specific to the customer the firms

supply and the demands/developments they make to their supply chain; whether the supplier is part of

a particular multi-national organisation that emphasises best practices that are uniformly adopted at all

plants; or whether structural/contextual factors specific to the location of the plant (such as a highly

skilled and productive workforce, or a culture with a strong work ethic) are the primary determinants. A

plausible explanation would be the combination of the above factors.

Key Study Outcomes: What does the Turkey Model Mean for SA?

The structural advantage

It is clear that the Turkish automotive industry has secured growth by identifying and acting on an

opportunity to exploit key competitive advantages that are largely structural in nature: Principally,

Turkey has used the combination of geographical proximity to the European market and lower cost,

33

skilled and productive labour to attract a mix of both foreign and local investment in the industry that

services an export-orientated production model.

Alignment of stakeholder interests

The incentives scheme offered by the Turkish government coupled with their drive to market the

strengths of the country as a manufacturing location are indicative of their efforts to foster investment

in support of industry growth.

Critically the objectives of various Turkish stakeholders seem to be aligned to ensure the long-term

survival and growth of the Turkish automotive industry and herein lies an important key lesson for

South Africa. Whilst the nature and scope of the opportunities for the South African automotive

industry differ greatly from that of their Turkish counterparts, there is a clear indication that there

would be benefit from a closer alignment of industry and government in relation to promoting

investment, competitiveness and growth.

Manufacturing Practices

Other than the large-scale capital investments, the factories visited were not unlike those in the South

Africa automotive industry. The notable example of manufacturing best practice was observed at the

Toyota supplier plant. The production standards at the firm are representative of a large Japanese

multi-national supplier with excellent manufacturing best practices inherent in the company’s culture.

However, there were two key observations made by the participants relating to manufacturing

practices at Turkish plants which do appear to differ significantly from South African plants.

1. The flat management systems demonstrated by the Turkish firms meant the managers in the firms

had multiple responsibilities and demonstrated a greater technical understanding of the machinery

on the factory floor.

2. Turkish managers invest greater time and resources in communicating the importance of an

employee’s task within the broader context of production processes. The participants felt this was a

focal point that could be strengthened within the South African manufacturing context.

34

Reference List

Aksongur, G. (2011). Turkish Automotive Industry, November 2011. TSKB Research. 28 December 2011

Barnes, J. Black, A. & Hartogh, T. (2010). Final Report: A value chain study of the development potential

of the South African M&HCV Sector. Benchmarking and Manufacturing Analysts SA, for the Department

of Trade and Industry. 12 July 2010.

Deloitte. (2010). Republic of Turkey Prime Ministry, Investment Support and Promotion Agency of

Turkey. Turkish Automotive Industry Report. August 2010

Fındıkçıoğlu, G. Yıldırım, B & Bahar Şenol, G. (2008).Turkish Automotive Industry, December 2008. TSKB

Research. 21 December 2008

Fındıkçıoğlu, G. & Yıldırım, B. (2010). Turkish Automotive Industry, September 2010. TSKB Research. 2

November 2010

Automotive Industry Production Committee (OETK). (2011). Shining Star of the World, Turkey’s

Automotive Industry. Stil Matbaasi, Istanbul.

Özbudun, H. (2010). The Automotive Industry in Turkey. 2010 Technology Foresight Training

Programme. UNIDO. 14 June 2010

Turkish Government. (2011). Invest in Turkey: Incentives. www.invest.gov.tr. [Accessed February 2012]

35

SAABC Audited Financial Statement

Statement of Financial Position

Figures in Rand Notes 2012

R

2011

R

ASSETS

CURRENT ASSETS

Trade and other receivables

Cash and cash equivalents

3

4

73 703 55 624

82 634 60 238

156 337 115 862

Equity and Liabilities

Equity

Retained income 3 738 6 201

Liabilities

Current Liabilities

Trade and other payables 5 152 599 109 661

Total Equity and Liabilities 156 337 115 862

Statement of Comprehensive

Notes 2012

R

2011

R

Revenue 6 816 744 729 619

Operating expenses (819 207) (723 557)

Operating (Loss) profit (2 463) 6 062

Investment revenue

(Loss) Profit for the year (2 463) 6 062

Other comprehensive income

Total comprehensive income (2 463) 6 062

36

Statement of Changes in Equity

Retained

income

R

Total equity

R

Balance at January 2011 139 139

Changes in equity

Total comprehensive income for the year 6 062 6 062

Balance at 01 January 2012 6 201 6 201

Changes in equity

Total comprehensive income for the year (2 463) (2 463)

Balance at December 2012 3 738 3 738

Statement of Cash Flows

Notes 2012

R

2011

R

Cash flows from operating activities

Cash (used in) from operating activities 9 22 396 25 868

Total cash movement for the year 22 396 25 868

Cash and cash equivalents at the beginning of the year 60 238 34 370

Total cash and cash equivalents at end of the year 82 634 60 238

37

Member listing

Company name Apollo Tyres South Africa

Telephone +27 (31) 242 1111

Website www.dunloptyres.co.za

Company name Autoneum Feltex (Rieter)

Telephone +27 (12) 564 3100

Website www.autoneum.com

Company name Behr South Africa

Telephone +27 (31) 719 7600

Website www.behrgroup.com

Company name Dana Spicer Axle

Telephone +27 (41) 991 0880

Website www.dana.com

Company name Defy Appliance eZakheni

Telephone +27 (36) 634 6000

Website www.defy.co.za

Company name Defy Appliance Jacobs

Telephone +27 (31) 460 9711

Website www.defy.co.za

Company name Defy Appliances Wilsonia

Telephone +27 (43) 745 1129

Website www.defy.co.za

Company name Duys Component Manufacturers

Telephone +27 (31) 713 1700

Website www.duys.co.za

Company name Dynamic Auto Systems (Dorbyl)

Telephone +27 (41) 408 6111

Website www.anduluciatrading.co.za

38

Company name Faurecia Interior Systems

Telephone +27 (43) 731 2919

Website www.faurecia.com

Company name Feltex Automotive Trim

Telephone +27 (31) 460 4200

Website www.feltex.co.za

Company name Feltex Fehrer DBN

Telephone +27 (31) 460 4200

Website www.feltex.co.za

Company name Feltex Fehrer EL

Telephone +27 (43) 706 4826

Website www.feltex.co.za

Company name Feltex Fehrer GP

Telephone +27 (12) 564 4653

Website www.feltex.co.za

Company name Feltex Trim GP

Telephone +27 (12) 564 4618

Website www.feltex.co.za

Company name Gabriel

Telephone +27 (11) 627 2500

Website www.gabriel.co.za

Company name General Motors

Telephone +27 (41) 4039111

Website www.gmsa.com

Company name Goodyear Tyres

Telephone +27 (41) 505 5400

Website www.goodyear.com

Company name Halberg Guss SA

39

Telephone +27 (41) 405 5500

Website www.autocast.co.za

Company name Hesto Harnesses

Telephone +27 (32) 552 1001

Website www.hesto.co.za

Company name Inergy Automotive

Telephone +27 (12) 250 9300

Website www.inergyautomotive.com

Company name Isringhausen

Telephone +27 (43) 736 3545

Website www.isri.co.za

Company name Mercedes-Benz South Africa

Telephone +27 (43) 706 9111

Website www.mercedes-benz.co.za

Company name National Association of Automobile Manufacturers of South Africa (NAAMSA)

Telephone +27 (12) 323 2980

Website www.naamsa.co.za

Company name Nampak Wiegand Glass

Telephone +27 (11) 856 0000

Website www.nampak.com

Company name NGK

Telephone +27 (11) 418 7900

Website www.ngksparkplugs.co.za

Company name Pi Shurlok

Telephone +27 (33) 845 4700

Website www.pi-shurlok.com

40

Company name Ramsay Engineering

Telephone +27 (33) 387 1575

Website www.ramsay.co.za

Company name Senior Flexonics

Telephone +27 (21) 532 5300

Website www.senior-flexonics.com

Company name Statelined Pressed Metals

Telephone +27 (45) 858 8020

Website www.spmza.co.za

Company name Trade & Investment KwaZulu-Natal (TIKZN)

Telephone +27 (31) 368 9600

Website www.tikzn.co.za

Company name Toyota South Africa Motors

Telephone +27 (31) 910 2911/4750

Website www.toyota.co.za

Company name Visteon South Africa

Telephone +27 (41) 404 7602

Website www.visteon.com

Company name Volkswagen South Africa

Telephone +27 (41) 994 4111

Website www.volkswagen.co.za

Company name Webroy

Telephone +27 (33) 387 2331

Website www.webroy.co.za

41

Contact Information

Tel: +27 (0) 31 764 6100

Fax: +27 (0) 86 607 4510

Email: saabc@bmanalysts.com

Unit 3 St Helier Office Park

Valdean Rd, Gillitts

3610

South Africa

PostNet Suite 10139

Private Bag X7005

Hillcrest

3650

South Africa

42