Automakers Withstanding South Africa Labor Strife

CAPE TOWN, South Africa – Despite losing $2 billion in sales during labor disputes last year, and wage-related strikes having become an annual specter, the lure of the sub-Saharan Africa market should ensure automakers in South Africa do not divest from the country, industry experts say.

Last year was difficult for the car industry in the continent’s economic powerhouse, a production base for many of the world’s largest global car companies including Ford, BMW, General Motors and Mercedes-Benz.

It was only after eight weeks of consecutive strikes by the National Union of Metalworkers of South Africa (NUMSA) that wage negotiations with the country’s seven largest automakers in October yielded a 3-year deal providing an initial increase of 10% and 8% in each of the following two years.

The strike by 30,000 employees caused the industry’s export sales to drop 75% in September, according to the National Association of Automobile Manufacturers of South Africa (NAAMSA).

BMW South Africa subsequently confirmed the labor unrest had dashed its South Africa plants’ chances of producing a new model. The strike had reduced BMW’s 2013 production in the country 15.8%, or 13,000 vehicles.

The German automaker says this decision does not mean it wants to disinvest from the country, but the labor situation has sparked concerns within the government about the industry’s future.

NUMSA General Secretary Irvin Jim says BMW’s decision amounts to “blackmail” and an attempt to prevent future strikes in the industry.

“They will not find the kind of cheap labor as they find here. We will not accept the BMW blackmail. We expect them to bring back that investment,” he says in a statement.

Auto production is one of South Africa’s most important industries. It contributes at least 6% to gross domestic product and accounts for almost 12% of the country's manufacturing exports.

Under the African National Congress government’s 2013-2020 automotive production and development program, the motor industry hopes to build 1.2 million vehicles a year by 2020, but just 16 months into the program industry officials say output is lagging about 30% below that goal.

Automakers Say Need Stability in Return for Investment

The government has indicated it wants to meet with automakers to find ways of improving the local investment climate, but industry representatives insist labor stability must be at the heart of such a goal.

Could further worker unrest lead to some global automakers divesting completely from South Africa in favor of other, faster-growing economies with a more stable labor market?

NAAMSA Director Nico Vermuelen tells WardsAuto he believes most car companies in South Africa are here to stay, as it has a relatively developed economy and can be used as a base for selling cars in the rest of Africa.

“Africa is one of the greatest opportunities in the world in terms of car sales, and South Africa will be used as the platform to make these vehicles, so I don’t think companies will pull out,” Vermuelen says. “There are no concerns about the sustainability of the industry going forward.

“But in terms of industrial relations, we need to move forward and create a good working relationship with employees – contractually if necessary. One of the main issues is that the different unions bargain at different times, even though the industry is one value chain.

“So even if we have a deal with workers who assemble the cars, there are 15 different companies supplying us. When employees from one of these go out on strike we are ground to a halt,” he says.

To find a current example of this problem one needs to look no further than the industrial action under way in South Africa’s platinum sector, the longest strike in the mining industry's history as it enters into its 10th week.

Platinum is used to make catalytic converters for cars and the world’s stockpile is said to be getting dangerously low, so the continuity of supply to the auto sector could be affected soon if the strike interruptions continued.

Vermuelen suggests one way to stabilize the situation would be that, if strikes continued past a reasonable time frame, the parties involved should be forced to accept binding arbitration by an independent arbitrator.

South Africa’s Chamber of Commerce and Industry CEO Neren Rau says competition between unions for worker support pushes strike demands higher and higher each year, and workers often do not appreciate the wider ramifications of their actions.

“We understand workers want to improve their living standards, but rampant strike action has trade and investment risks that affect everyone negatively,” Rau says. “We are trying to bring about a change in the environment through high-level government engagements around legislation and amendments to the Labor Relations Act.

“We want to ensure the secret-ballot provision for workers is kept in place, for instance, as to remove it opens up the possibility of intimidation.”