Mercedes-Benz faces workforce reduction amid declining vehicle exports

Mercedes-Benz South Africa (MBSA) has embarked on a consultation process with its workers and their unions to reduce the workforce in its manufacturing plant in East London by 700 people.

The announcement comes at a time when exports of South African produced vehicles have declined significantly so far this year compared to 2023 and new vehicle sales into the domestic market are also lower, largely due to SA’s poor economic conditions and the currently high interest rates.

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Toyota South Africa Motors (TSAM) has also apparently suspended production twice this year at its manufacturing plant in Prospecton in Durban.

MBSA CEO and executive director manufacturing Andreas Brand told Moneyweb on Thursday it took a decision on Wednesday to enter consultations in accordance with Section 189(A) of the Labour Relations Act.

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Brand said this will involve discussions regarding the restructuring of its manufacturing operations and transitioning from a three-shift to a two-shift model. He added that this decision was communicated to MBSA’s union partners on Thursday morning in line with South Africa’s labour regulations.

Brand said these consultations were prompted by a change in the operating environment and MBSA’s strong dependence on sales volumes.

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He said MBSA had three consecutive years of steady increases in sales volumes from 2021 until 2023 but saw the opposite trend in 2024.

“If you have such a trend, at a certain point in time, you have to make decisions and that is what has happened,” he said.

Brand was not prepared to disclose the percentage of MBSA’s production volumes that go into the export market but confirmed that, similar to other premium brand original equipment manufacturers (OEMs) in South Africa, the majority of the cars it produces are not for the South African market.

He said MBSA exports to more than 80 countries and “the trigger” for the restructuring “is the global macroeconomic reflection on our product”.

“In all the markets we are supplying to, we see a total picture of a decline and that decline forces us to reset our operating model from three to two shifts,” he said.

Brand said MBSA has a fully flexible production network and used these flexibility instruments before embarking on “such harmful processes”.

He said MBSA employs 3 400 people at its manufacturing facilities in East London and anticipates reducing its headcount by 700 people.

Headcount reduction process

Brand stressed MBSA would not be targeting specific people in the headcount reduction process and that retrenchment is only one instrument to reduce headcount numbers and MBSA will be using the full range of tools available to it to achieve the headcount reduction.

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MBSA executive director human resources and corporate affairs Abey Kgotle said other tools it would use to reduce its headcount included early retirement and voluntary severance packages.

“By its very nature, this process involves open, transparent conversations with our consulting partners and we go into the consultations with an open mind to explore and find ways in which we can mitigate that impact of the proposed restructuring,” he said.

“We have a working relationship with our unions and we have no reason to doubt that the process will be underpinned by that working relationship.”

Kgotle said MBSA is aiming to conclude that process within the shortest possible time period.

Brand added that over the years, MBSA has invested significantly in its manufacturing operations to ensure sustained production excellence.

“Our investment extended to the people involved in our operations and the communities that we operate in. The transition to a two-shift operating model has not been an easy decision to make because we understand the impact it will have on our employees, their families, and our community in East London.

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“To this effect, we wish to embark on this process responsibly, transparently, with integrity and empathy while ensuring labour stability and continuing manufacturing operations,” he said.

Numsa ‘dismayed’

National Union of Metalworkers of South Africa (Numsa) general secretary Irvin Jim said the union is dismayed that MBSA is contemplating retrenchments, and the union will do everything possible to provide alternatives, with the hope that it can prevent job losses.

Jim confirmed Numsa has received a notice from MBSA informing the union that it contemplates implementing retrenchments in terms of Section 189 of the Labour Relations Act. He said MBSA is contemplating retrenching a total of 702 employees and the job categories that are likely to be affected are: artisans (67), team managers (23) and 612 hourly employees.

Jim said that the notice issued by MBSA claims that it is operating under difficult conditions and has cited various factors for its decision to retrench, including “prolonged port challenges” as well as “subdued household income” and increased energy costs.

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“Numsa is dismayed by the section 189 notice. We are deeply concerned about workers and their families, who will be affected if the company goes through with the retrenchments,” it reiterated.

“The Eastern Cape province where the majority of MBSA workers are based, will be hardest hit, because of high levels of poverty and unemployment,” said Jim.

“It is unlikely that workers will find alternative employment if MBSA implements the proposed retrenchments,” he noted, adding that Numsa will wait for the Commission for Conciliation, Mediation and Arbitration (CCMA) to issue dates for the first meeting to enable the union to consult with MBSA.

Tough market

Jebb McIntosh, CEO of JSE-listed vehicle retailer Combined Motor Holdings (CMH), said last month during a financial results presentation that all manufacturers are grossly overstocked.

“Toyota for example has closed their plant for a second time to try and balance out the stock and they [OEMs] are all putting pressure on us [dealers]. So it’s a constant fight to keep our inventories at the right levels,” he said.

Toyota South Africa Motors (TSAM) spokesperson Lelo Ndzimela said in response to a number of questions sent to TSAM by Moneyweb that: “Toyota has not suspended production at its manufacturing plant in Prospecton.

“We are experiencing a delay in the certification of new diesel engines for our European exports business, which has impacted production output.

“Normal production levels will resume in the latter half of this year once the engines have been certified,” she said.

Ndzimela declined to clarify if Toyota had at any time to date this year suspended production at its manufacturing plant.

“The previous email correspondence is our response to your query,” she said.

Challenging first half was expected

Figures released by automotive business council Naamsa at the beginning of this month showed that total new vehicle sales year to date (to May 2024) were 6% lower than in the corresponding period in 2023 while exports had declined by 11.6% in the same period.

Naamsa CEO Mikel Mabasa said on Thursday South Africa has seven OEMs that are exporting vehicles into different markets and each and every OEM has a different reason why their international exports declined significantly in the first half of this year.

He declined to comment specifically about MBSA’s restructuring announcement until he received additional information from the company.

Mabasa said Naamsa is unaware of any other OEMs contemplating restructuring their operations to reduce their headcount or suspending production for a period of time.

He stressed the myriad of challenges facing South Africa in stimulating new vehicle demand, including socio-economic challenges and consumer jitters ahead of the general election – but said Naamsa stated at the beginning of 2024 that this was likely to be a year of two halves, with the first half difficult, and this has come to pass.

Naamsa is equally very optimistic about the second half of the year, he added, and firmly believes the difficult period is behind the industry and the market will now turn.

He said vehicle exports have been negatively impacted by, among other things, transport logistics problems and load shedding – but that Transnet’s recovery plan is beginning to yield some very positive results for the auto sector and the country is now moving into the third month without load shedding, which is a very good sign.

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He said vehicle exports into Europe, South Africa’s automotive industry’s biggest market, increased by 23% to 301 000 units in 2023 and Naamsa is still expecting a double-digit increase for 2024.

Mabasa said vehicle exports into Africa increased by 12.5% in 2023 and Naamsa believes exports into the continent will increase significantly in the second half of this year.

He said vehicle exports into Central America grew by 7% off a low base in 2023 and Naamsa believes “those markets will continue to bring South African produced vehicles into their markets in a much stronger way”.

This article was republished from Moneyweb. Read the original here