South Africa's auto industry has been hit hard by the global recession - and the country needs to act fast to ensure its survival, warned Dave Powels, head of VW South Africa and current president of NAAMSA, the South African auto makers' association.

"The current worldwide situation has highlighted how uncompetitive we are," Powels told delegates at the AIDC automotive conference in Port Elizabeth, South Africa.

"Investment and transformation has to happen now. We need to create competitiveness in the next two years. Otherwise in seven to 10 years' time, we might not have an auto manufacturing industry in South Africa."

South African auto output has collapsed from peaks of 497,000 units in 2007 and 527,000 in 2008 to an expected 330,000 or so in 2009. "We'll be back to 1997 levels, though we've invested at 2007 levels," said Stewart Jennings, president of NAACAM, the South African components industry trade body.

Powels believes a number of "silver bullets" are necessary for the South African auto industry to become successful. Firstly, The average number of vehicle produced per platform needs to increase from less than 50,000 units per year to between 75,000 and100,000. VW is switching output at its Port Elizabeth plant to the new Polo, replacing five different models with just one.

Powels also said local content needs to rise from current averages of below 40% to around 70%. And productivity needs to increase from less than 20 cars per employee to more than 30.

Much depends on new auto industry rules currently being prepared. The Automotive Production and Development Programme (APDP) will replace the current Motor Industry Development Plan (MIDP) from 2013, and it sets ambitious targets for the industry, including a total industry volume of 1.25 million vehicles by 2020, and domestic production of 750,000 units.

Powels called on the Government to ensure that the terms of the APDP were made transparent. "The programme must be so clear that everyone has the confidence to invest,"he said.

Nevertheless, some automakers have made strong commitments to South Africa. BMW has committed R2.2bn in its South African operations, though it had to seek clarification about the details of the APDP.  Volkswagen has invested R3.5bn restructuring its Port Elizabeth plant to build the new VW Polo. And Toyota has invested "billions" in the country, said Johan Van Zyl, head of Toyota's South African operations.

But Powels sounded a note of caution. "These investments could be the last spin of the dice for the OEMs. If we have not dramatically improved our competitiveness within 7-10 years, there might not be another spin of the dice."

Van Zyl called on the Government to sort out the details of APDP: "The road map needs to be clear. We need to know what APDP looks like. The principles need to be fixed, and the details need finishing."

For the auto industry to succeed, South Africa needs to provide better economic stability. In particular, speakers pointed to the volatile Rand-Dollar exchange rates. "It's very difficult to plan with the Rand," said Brand Pretorius, head of McCarthy Group, South Africa's biggest auto retailer.

Powels added: "We need a competitive Rand - if we get this, a lot of other issues will look after themselves." He also called on the Government to authorise an immediate short-term 2% cut in interest rates to subsidise manufacturing industries."

Van Zyl said steady economic growth would allow the industry to get close to the APDP targets. "Average growth of 5-6% a year would give domestic sales of 710,000 cars a year," he said. Around 70% of these cars should be domestically produced, he added.

"Local content cannot be pushed to 70% with the current supply base," said Van Zyl. One solution is greater joint sourcing of components by different automakers, which would provide suppliers with greater sale economies. NAAMSA is running a joint sourcing programme, and has so far identified 50 potential projects.

Van Zyl said Toyota currently achieved local content levels of around 63% on the HiLux pick-up, but it was difficult to get much beyond that level as engines and gearboxes had to be imported- gearboxes come from India and engines come from Japan.

Indeed, only Ford of South Africa's 'Big Seven' makes engines locally, and given the relatively low volumes, it seems unlikely that any other automaker will build a powertrain plant in the foreseeable future.