Rising vehicle imports from China and India are placing pressure on production volumes at South Africa’s local vehicle manufacturers, with this pressure spilling over to component manufacturers, says Metair CEO Paul O’Flaherty.

Speaking at the component manufacturer’s interim results announcement for the six months ended June 30 on Wednesday, O’Flaherty noted that Metair managed a “very solid performance” despite two of its main customers showing a decline in vehicle production from peak levels.

Metair comprises of two divisions – automotive component manufacturing for original-equipment manufacturers (OEMs, or vehicles manufacturers), which represents 67% of its revenue, and aftermarket parts and retail, at 33% of the JSE-listed group’s revenue.

Metair’s OEM customers include Isuzu, Volkswagen and Mahindra, with the bulk of business, however, flowing from Toyota and Ford.

While vehicle sales had been booming in South Africa in recent months, imports had accounted for most of the growth, noted O’Flaherty, with locally built vehicles now representing under a third of the new-vehicle market – the lowest share on record.

In tandem with this, vehicle exports from South Africa for the first six months of the year had declined by 7.8% compared with the same period last year.

While production in the first half of the year at Toyota had held steady, at 66 074 units, vehicle output at Ford’s Pretoria plant had declined by more than 15 000 units, to 46 193 units.

The outlook for the rest of the year was that production should remain stable at both plants, said O’Flaherty.

He added, however, that it was necessary for government to create a platform that would allow the local automotive industry to return to growth.

Government is currently reviewing its manufacturing support to the local automotive sector in the face of rapidly rising imports.

O’Flaherty noted that Metair had been hard at work to diversify its OEM portfolio.

Talks about a new Stellantis plant in the Eastern Cape had stalled, however, with little movement seen in recent months.

Chery had taken over the Nissan plant, in Pretoria, with Metair engaging the Chinese manufacturer on its parts needs.

It was not clear, however, if production would be semi-knockdown (very few local parts), or completely knockdown (much greater potential for localisation).

O’Flaherty said Metair’s diversification strategy did not involve walking away from OEM parts production.

He said it was clear that the local OEMs were not going to “sit back” and accept the status quo, and that the industry was confident that it could return to firmer ground in the medium term.

As for Metair’s aftermarket business, O’Flaherty believed there were signs of improvement in the general aftermarket, with retailer AutoZone’s trading day sales per day growing ahead of the market.

The retail chain’s progress remained six months behind expectations, however.

Metair on Wednesday reported that group revenue for the six months had increased by 1% to R8.5-billion; with earnings before interest and taxation also growing by 1%, to R444-million.

“Metair is a materially different business from what it was two and a half years ago,” said O’Flaherty.

“Substantial work has been undertaken to improve its flexibility and adaptability to navigate adverse market conditions by closing loss-making businesses, restructuring profitable businesses and capitalising on opportunities as they arise.

“A new refinancing package has also created the runway to execute on the recovery and growth plan, although the debt remains elevated.

“A new team is in place, a new business model has been implemented, and all major restructuring is substantially complete, subject to market conditions.

“The company’s risk profile has been materially enhanced, and there are no further unusual items in its results.”

O’Flaherty said the once-deeply-troubled Metair had now transitioned into a stable operating phase, with the focus on generating earnings before income, taxation, depreciation and amortisation and free cash flow to service the group’s debt.