Automotive leather supremacy threatened1 January 2002
The South African automotive leather industry is in decline as car makers shift their leather sourcing to other countries, with serious ramifications for the entire leather industry in the country. 'Internationally, the demand for automotive leather is still growing, but local automotive leather production peaked two years ago, and dropped dramatically after the first quarter of this year', said Manie Booysen, CEO of the SA Meat Industry Company (SAMIC), who gather data on the entire red meat industry chain. 'There are a couple of reasons for this, but the single most important is that exports of complete motor vehicles have grown, earning the OEMs [original equipment manufacturers - ie the car companies] most of the export points they need under the MIDP [Motor Industry Development Programme]. 'Leather, which was a significant contributor to export points, has become correspondingly less important, and is now being judged solely on the economic merits of making it here. Unfortunately, there we don't always measure up - we have to import quite a high percentage of the hides needed for automotive leather, the local hides which are suitable don't offer the same cutting efficiencies, and all the chemicals have to be imported and paid for in hard currencies. Even labour isn't as competitive as it once was.' Booysen estimated that about 20% of the automotive leather previously made in South Africa - mainly aimed at the German car companies - was now being sourced elsewhere, with Uruguay and Australia being the biggest winners. Four tanneries compete for the bulk of the automotive leather business - Bader Bop, Eagle Ottawa, Kolosus and Seton - and Booysen said all had been adversely affected to varying degrees. He said the international companies were under pressure to remain because other divisions of their respective groups were supplying the same motor companies elsewhere. Nonetheless, 'they can't put up with losses forever, and most of them are losing money.' Only the newest automotive leather tannery, Mario Levi SA, who are Italian-owned and who export their production to Italy, had been unaffected. 'If this trend isn't reversed, and I'm not sure it can be reversed, the entire tanning industry in South Africa will be seriously affected', Booysen said. 'Earlier this year, we proposed to the Department of Trade & Industry that imported hides be treated the same as local hides in terms of earning export points for the OEMs. If the DTI agrees, it will certainly help.' He believed that if the automotive tanners were not rescued, South Africa would be reduced to being a wet-blue exporter. That would have a ripple effect on the entire chemical and machinery supply industry, which is built around the automotive leather and ostrich industries. Seton SA sales director Colin Gerrans, who is also a director of SAMIC, said Booysens 'may have been too conservative' in estimating the volume of production lost to South African tanneries. 'We're making 30% of the volume we were producing in the first quarter. Kolosus is well down, Bader remains about the same and only Eagle Ottawa has picked up.' Although neither he nor Booysen would estimate production, it is likely the automotive tanneries are collectively processing 7,000-7,500 hides/day, down from 10,000+. As a manufacturing centre, South Africa had been damaged by the motor industry strike earlier this year. 'It suggested to the European car companies that our labour force is unstable', Gerrans said. 'Coupled with what's happening in Zimbabwe, it really didn't help.' He agreed the international demand for automotive leather was still growing, but for the moment the motor industry internationally was taking a pounding. 'This year the Americans expect to sell 14.5 million cars, down from 19 million last year.'