Car makers worried about electricity, steel prices

29 Mar 2010

Car makers warned late last week that high costs threatened SA's position as an automotive manufacturing base, with electricity hikes kicking in from 1 April 2010 and the dispute involving ArcelorMittal SA hanging in the balance.

High costs of production reduce the industry's competitiveness at a time when it is competing with global counterparts for manufacturing contracts. Denise van Huyssteen, spokeswoman for General Motors SA, said high input costs put local companies at a further disadvantage when competing against global competitors for contracts.

“This adds to the continuous rise in input costs of our operations, which in turn negatively [affects] the competitiveness of the vehicle assembly industry.”

Echoing this, Volkswagen SA spokesman Bill Stephens said high input costs put “huge pressure” on vehicle producers to sustain their competitiveness. He said the electricity bill was one of the top three input costs facing the company.

Stefan Haasbroek, GM of purchasing at Nissan SA, said electricity price rises meant a “substantial” increase in input costs for the company and its alliance partner, Renault SA.

From Thursday, Eskom will raise electricity prices by 25% a year over the next three years, placing strain on the industry, which is already grappling with high labour costs.

Haasbroek said the outcome of a dispute involving ArcelorMittal SA could give an indication of what to expect regarding steel prices. The standoff between ArcelorMittal SA and Kumba Iron Ore — which cut off supply of cheap iron ore to ArcelorMittal SA last month — could lead to a rise in steel prices.

Source: Business Day

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