Insurance industry reacts to doubled windscreen tariffs
A polarising issue that is set to have a direct impact on both the automotive glass industry and the insurance industry is the recent increase in the rate of customers duty on vehicle windscreens. The International Trade Administration Commission (ITAC) i
“We are fighting unfair imports – the Chinese are, in effect, exporting unemployment,” says Stewart Jennings, CEO of PG Group, which manufactures, distributes and sells windscreens under the trade name Shatterprufe.
“Chinese prices are subsidised to the point at which their prices are below raw material cost and there is no way any manufacturer can compete with unfair competition. It is not a level playing field. If we are going to sort out employment, all South Africans must appreciate that we have to stand behind local manufacturers who have invested billions in this economy.
Jennings feels the only way we can grow the economy is to ensure that more people are employed; this will swell the tax base, grow the market and ensure that more people purchase motor cars and insure their vehicles. “It is very short-sighted to support highly subsidised imports and jeopardise our manufacturing base,” he says.
But Viviene Pearson, motoring manager at SAIA, is disappointed by ITAC’s decision. “The insurance industry would obviously support local manufacturers if their prices were lower. It is a business decision, because we have to drive costs down to keep premiums affordable. This decision directly impacts on the affordability of motor insurance,” she says.
The consumer should be able to choose
Windscreens are big business in South Africa and the insurance market receives about 500 000 claims for windscreens a year. “About 70% of road accident claims deal with repairs,” says Pearson. “I would say that between 60%-70% of those repair costs are around parts. In 2010, that amounted to approximately R16bn in claims – that figure is probably higher now.”
Pearson feels that consumers should be able to choose what they are prepared to pay to replace windscreens. “The market must be free to vote with its feet,” she says. “The consumer should not have to pay more simply to help local manufacturers operate at a profit. This is not the consumer’s responsibility.”
The SAIA made a submission to the trade commission stating that competition is healthy and pointing out that insurers are also consumers and should have free choice.
Manufacturing growth sub-par
The ITAC, meanwhile, has indicated that it hopes to “significantly improve” the competitiveness of the domestic windscreen industry by allowing it to fully use its existing production capacity and achieve economies of scale thorough longer production runs, with a reduction in the marginal cost of production.
Jennings says this will alleviate some of the pressures that manufacturers are under with the high cost of electricity and a lack of government subsidisation. “We are going to lose jobs because our products are not selling, which puts us out of business. Manufacturing used to make up 21% of GDP but today it makes up less than 15%. The only way we can bring our prices down is to improve economies of scale.”
Jennings feels that if consumers bought South African windscreens, tires and other parts it would boost manufacturing and bring about economies of scale. Without this buy-in, there is no way to even attempt to compete with China, which undercuts local prices by an average of 40%.
“We cannot grow employment in this way. The Kagiso Index put manufacturing below 50 points for the fifth month in a row,” he says. “The fact of the matter is that wages are coming down because of imports. But nobody wants to look at the big picture – it is always ‘someone else’ who is responsible for creating employment.”
Meeting consumer expectations
“Windscreens are a huge, costly item, and are part of the bigger issue of high cost related to parts,” says Pearson. “There’s no doubt the industry needs to work with more affordable quality products. If we could repair vehicles in a more cost-effective way we would see fewer write-offs and more repairs, which would provide work for more people in the repair (spares) industry.”
Although she says that it is not her or the insurance industry’s place to comment on the way the manufacturers do business, she suggests that manufacturers could revisit their business models in order to become more competitive. “There are different ways to distribute glass, for example,” she says. “Costs do not necessarily lie in the manufacturing process itself. We reiterate that we would love to support local manufacturers but the bottom line is that we want to have access to safe, good-quality products at affordable prices. This is what consumers expect.”
Editor’s thoughts:
South African retailers and wholesalers must take note of the current trade deficit, which widened to R24.5 billion in January due to the influx of significant imports. This is one of the reasons that unemployment has ballooned and Jennings says that unless South Africans support local manufacturing the country is not going to assist in bringing down the over 25% unemployment rate. Because the manufacturing and insurance industries envisage different ways of achieving this, it appears the tariff issue is going to rankle for some time to come. Comment below or email [email protected].
Comments