Mercedes-Benz Plans to Increase South Africa Production

Mercedes-Benz, the carmaker owned by Germany’s Daimler AG (DAI), said it would push ahead with a 3 billion rand ($302 million) investment plan in South Africa that will see it increase local output to 100,000 units a year.

The outlook for growth in Africa’s biggest economy is “very positive,” the truck and luxury carmaker’s South Africa Chief Executive Officer Martin Zimmermann said in an interview at the Johannesburg Motor Show today. The company will introduce new technology and a third shift to its local plant, which produces about 60,000 units a year at present, he said.

Mercedes’s commitment to South Africa comes less than two weeks after Bayerische Motoren Werke AG (BMW), the world’s largest maker of luxury vehicles, said it would stop expansion in South Africa after labor strikes that shut down plants in August and September cost it 13,000 cars in lost production. BMW’s revised plans are a “worrying sign”, Finance Minister Pravin Gordhan said on Oct. 7.

Lost production from the strike would be recovered by Mercedes in six to seven weeks, Zimmermann said. “We have quite a significant order book,” he said.

South African vehicle sales will probably stagnate in 2014 as slower economic growth and the weak rand stifle consumer spending, according to the National Association of Automobile Manufacturers of South Africa.

“The economic indicators are just against us at the moment,” Naamsa Chairman Johan van Zyl said in an interview at the Motor Show. Vehicle sales would show “zero growth” next year after an estimated 5 percent advance to 650,000 units in 2013, he said.

Labor Unrest

The rand has weakened 15 percent against the dollar this year, the worst performer of 16 major currencies tracked by Bloomberg. South Africa’s central bank has downgraded its forecast for gross domestic product growth to 2 percent, which would be the slowest pace since a 2009 recession.

South African vehicle sales fell for a second month in September and exports dropped 75 percent as strikes hit carmakers’ operations. Workers at seven manufacturers operating in South Africa, including BMW and Ford Motor Co., went on strike, resulting in an estimated 20 billion rand ($2 billion) loss to the companies.

Labor unrest cut about 0.5 percent from 2013 vehicle sales, according to Van Zyl, who is also South Africa Chief Executive Officer of Toyota Motor Corp. (7203), the country’s biggest manufacturer. The three-year wage deals agreed by employers with the unions to stop the strike were welcome as they brought stability to the industry, he said.

To contact the reporter on this story: Kamlesh Bhuckory in Johannesburg at kbhuckory@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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