Car prices in South Africa could start rapidly rising again in the near future should the nation’s only producer of speciality automotive steel go ahead with plans to close its doors.
ArcelorMittal South Africa (AMSA) in January grabbed headlines when it announced it would be closing its Newcastle and Vereeniging blast furnaces which are the only producers of auto-grade long-steel products in the country.
The primary reason for the closure is an inability to make these plants profitable due to poor rail service, high electricity fees, a flood of low-cost imports, and government policy that keeps the price of steel scrap — used as a raw material by AMSA’s smaller rivals — artificially low.
The company has been at loggerheads with policymakers for the better part of the last decade owing to these difficult trading conditions, but it had little success in changing them, leading it to the decision to close its factories.
In response to the announcement, major automakers including Toyota and VW asked AMSA and the South African government to find plans to avoid the closures or at the very least delay them for another year to enable the entities to find alternative suppliers for the important material so as to avoid production delays.
Government has allegedly considered giving AMSA a R1-billion bailout, however, the company told Daily Maverick that it has no knowledge of this and that it is forging ahead with plans to shutter its local operations.
“ArcelorMittal South Africa wishes to clarify that it has no information regarding a R1-billion bailout. This matter has not been discussed or raised with the company prior to this,” it said.
“The ArcelorMittal group would be open to exploring solutions proposed by the South African government relating to the ‘longs’ business and the company as a whole.”
AMSA’s Newcastle blast furnace
Should no middle ground be found and these steel plants be closed, there is a high likelihood that the nation’s Original Equipment Manufacturers (OEM) will suffer production delays as they scramble to find an alternative supplier.
At present, there are seven OEMs with vehicle assembly operations in South Africa including BMW, Ford, Isuzu, Mercedes-Benz, Nissan, Toyota, and VW.
BMW produces the X3, Ford the Ranger and Amarok, Isuzu the D-Max, Mercedes the C-Class, Nissan the Navara, Toyota a whole horde of vehicles including the Corolla Cross and Hilux, and VW the Polo.
Should supply of these vehicles suddenly be hamstrung they are likely to suffer from price increases, as we saw during the height of the Covid-19 pandemic when parts shortages and supply chain snarls caused new-vehicle scarcity.
While dealers are generally not allowed to mark up new cars as they please, when stock is limited and demand high, they have been known to sell what they can get at market value to contacts and confidants before the autos even arrive in South Africa.
Once they land, these purchasers – usually pre-owned vehicle dealers or wealthy VIP clients – pick them up and a few days later they are listed as “second-hand” vehicles with ultra-low mileage at far above the new price.
We observed this in 2022 when new-car stock was severely limited and “pre-owned” crossovers with only a few thousands kilometres on the clock sold for as much as 61% above sticker price.
History could repeat itself once again should the AMSA closures stimulate Covid-like market conditions.
Even if the OEMs are able to find an alternative supplier before AMSA closes its doors, odds are the new producer will be located outside of South Africa in which case the materials will be imported at a higher cost than sourcing them locally.
The National Association of Automotive Components and Allied Manufacturers (Naacam) has warned that steel importation may raise production costs by up to 25% due to longer lead times, trickier logistics, and forex volatility.
Unless the OEM finds a way to absorb this cost, they will likely have to be shouldered by the end consumer in the form of higher purchase prices.
Car prices just recovered
Used-car prices only just recovered in South Africa following the market froth created by the Covid-19 pandemic.
getWorth’s used-car pricing trends indicate that the market is finally returning to pre-pandemic conditions with considerably lower prices in the pre-owned vehicle sector owing to improved interest rates, lower fuel prices, and a stronger exchange rate.
The below chart, provided by getWorth, shows the rise and fall of like-for-like used-car prices in South Africa from 2019 to 2024:
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