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Volkswagen South Africa confident despite being in the...

DM168

VROOM WITH A VIEW

VWSA confident despite being in the eye of the motor industry storm

Steffen Knapp, head of Volkswagen Passenger Cars in South Africa. (Photo: Vipen Kumar / Hindustan Times via Getty Images)

The new boss of Volkswagen Passenger Cars seems keen to stick to brand principles despite facing a few obstacles

There has never been a more challenging time to lead a car brand. But Steffen Knapp, head of Volkswagen (VW) Passenger Cars in South Africa, seems pretty relaxed despite being in the eye of a storm. The situation in the global car industry is chaotic, much is beyond his control, and outcomes are not clear.

“It’s crazy,” he says of the motor industry’s challenges. The sector is being pummelled by supply chain disruptions, component shortages, relentlessly demanding and rapidly divergent regulatory spaces and fast-moving consumer trends. And VWSA, as a global manufacturer and sales operation, finds itself managing a level of complexity that is hard to contemplate.

Knapp tells me that current car sales data reveal very little. They are not a measure of consumer health, demand or shifting trends, but a reflection of which car company managed to get a shipment of stock, or were able to supply their plant with components and therefore able to get cars to forecourts.

South African consumers are under pressure, Knapp says. He describes the roll-out of 96-month financing contracts as a “timebomb”. He says that the real challenge for his dealers is to get people out of the cars they’re in, sometimes over-leveraged on that they cannot really afford, with huge outstanding balances and balloon settlements. Knapp says his challenge is keeping some control of the used car market, with certain used car platforms “overpaying” for cars to take these out of the system and thus contributing to used-car inflation.

January’s motor industry sales in South Africa surged more than 26%, leaving the Polo Vivo in fourth place. But Knapp dismisses any suggestion that a last-generation Polo may no longer be a relevant product.

“You have to be very precise about what field you play in. Yes, the SUVs have grown. I congratulate Toyota on the Corolla Cross; it’s an excellent product. But we have also seen record sales of the [equivalent priced small crossover SUV] T-Cross despite the Corolla Cross, and hatchbacks remain 40% of the market, and people are continuing to downsize. The Polo Vivo is absolutely the right product for the market,” he says. He acknowledges that VW AG’s 2015 sale of its 20% stake in Suzuki leaves it without cheaper and more basic platforms and powertrains in burgeoning developing markets.

Knapp, who also controls other sub-Saharan Africa markets, is happy to share the company’s overall strategy to “sustain” the South African market (“where we have record market share globally”), grow in other sub-Saharan Africa markets, and grow the commercial offering.

On VWSA’s difficult position as an exporter of cars to the most highly regulated markets from one of the least, he’s quite clear. “We’re on a journey to carbon neutral by 2050. We’re moving fast, but here we have to be cautious. Residuals are a problem, a real concern, so we plan to distribute EVs [electronic vehicles] in SA via a lease arrangement as one of the options to start with.”

He admits the company could “do more, faster” in South Africa. However, tax and regulatory change needs to occur, which is expected imminently. This will not only incentivise EV production in South Africa, but also push for an EV market of some scale – specifically reducing ad valorem tax on certain components, reducing very high duties on imported EVs, and recalibrating fringe benefits around EVs.

“We’re confident the government will move well on this, and then next year we can really try to reach out and connect with customers before we land the [EVs] in a classical way,” he says.

I ask whether this slowly-slowly approach leaves the company vulnerable to increasingly well-made EVs from China made by companies such as Zeekr, Ora, MG and Wuling. It’s the only time I see a flicker of discomfort cross his face. He acknowledges that the Chinese market has been tough for VW as local competition hots up (“our cars are seen as not connected enough”). Also nobody, apart from perhaps Elon Musk, has been able to successfully forecast the uptake of EVs. Everybody, from Bloomberg New Energy Finance to the International Energy Agency, has been caught short.

But he recovers: “We are far ahead. Herbert Diess was quite a visionary, when you think about where we were a few years ago,” Knapp says, in what was probably a not-sooblique reference to Dieselgate.

VW’s Kariega plant is the only plant that now builds the Polo GTI, and one of five factories that builds the Polo within the VW Group production network. The Polo is the group’s second-best-selling product, meaning that Kariega is an important part of the VW ecosystem.

VW’s senior planners are cagey about the plant’s future product mix, though. Not because it is under particular threat, but because details of the next Polo, due in 2025, have not been released. It’s not been made 100% clear whether there will be one at all, as the cost of electrifying small cars with thin margins makes it hard. We know that the VW Up, Audi A1, Opel Adam and Peugeot 108 have all had to go. Will they build something else in South Africa? If the Polo is continued and electrified as a result of very different components mix and sourcing, the business case for manufacturing in SA will need to be examined in detail. And the Kariega plant will have to make its business case to the big cheeses in Wolfsburg.

Knapp seems relaxed once again, though, comfortable in his role in building a nascent EV market here while pushing commercial sales. Perhaps the fact that the new VW brand’s biggest cheese in Wolfsburg is Thomas Schaefer, one-time CEO of Volkswagen SA, provides comfort. But, in the end, whatever products Kariega plans to pitch for in the future, it will have to make its case on reliability of supply, quality and cost.

Of these three pillars, VW cannot exert control over the chaos and destruction at Transnet. But it is adjacent to a functioning, if overpriced, port. So this is less of an export problem and more of an internal distribution problem (and one that vexes Volkswagen greatly, it is clear to see). Quality at the plant is top notch – they build a really good car. Cost, of course, is the final challenge, especially in a year of collective bargaining with a Numsa-affiliated workforce that exposed the state’s many failures of health, security, education and transport. An important few months lie ahead. DM168

Alexander Parker is a journalist, author and consultant.

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.

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