The perfect storm of populism and competition
Date Released: Mon, 14 October 2013 16:59 +0200
Union, BMW are at odds, but they share a common interest — a successful operation, writes Ray Hartley.
The white BMW 3 Series parked at the end of the production line of the Rosslyn factory looks ordinary enough, but for its raised suspension. It has the “XDrive” powertrain, which makes it all-wheel-drive.
“It’s going to Canada — ice and snow,” says BMW’s communications GM, Guy Kilfoil.
Paperwork attached to the inside of the windscreens of rows of cars tells a story. In addition to Canada, destinations include the US and Japan.
Four out of five cars that roll off the Rosslyn production line are destined for export.
The government has actively encouraged production for export under its Automotive Production and Development Programme. The idea is simple: SA’s consumer market is too small to justify the sort of large-scale production that car makers need to be competitive.
Exports also earn valuable foreign exchange that helps the government deal with its nagging trade deficit. And thousands of jobs have been created as vehicle makers have expanded.
“All of this,” says Mr Kilfoil, “is new”. He is gesturing at the massively expanded factory floor space that was created to ramp up production of the BMW 3 Series from 50,000 units to 85,000. The ramp-up created 660 jobs at the plant and an estimated 1,000 more at suppliers.
The plant was far down the road of persuading BMW to expand its local operation by building an additional future model here.
But over the past eight weeks, everything has changed. Strikes in August and last month have shown just how fragile a position car makers occupy in the local manufacturing landscape.
The first strike, over wages, took out August’s production. Last month’s strike at component makers slowed production to a snail’s pace for weeks.
I have visited the production lines of BMW and MercedesBenz in recent months, intrigued by why luxury car makers have invested so much in SA.
There is a lot that counts against this country as a car manufacturing hub. It is distant from the markets it serves and lacks basic infrastructure, such as sufficient rail capacity to move cars from inland production to the coast. But government subsidies have taken the edge off these disadvantages.
And, until now, the local industry has enjoyed one competitive advantage: Can-do workers who learn quickly and have the nous to function on complex production lines where no two products are the same.
Eight weeks of labour unrest have now soured that competitive advantage.
It was, to use the worn cliché, a game changer. BMW MD Bodo Donauer had had enough and, breaking the tradition of quiet lobbying, he was prepared to say so publicly.
Mr Donauer has the appearance of someone bottling up his frustration. “If you take a very rational approach, then I believe that Marikana — and what happened around Marikana — has changed everything.”
At Marikana, the National Union of Mineworkers (NUM) found itself marginalised on the platinum belt by the demand for radical wage improvements by its upstart rival, the Association of Mineworkers and Construction Union. The once unassailable behemoth of South African labour crumbled with alarming speed and was derecognised by Lonmin earlier this year.
It is not hard to imagine the leadership of the other big union in the Congress of South African Trade Unions, the National Union of Metalworkers of SA (Numsa), watching the NUM’s deterioration with horror. When this year’s negotiations came around, Numsa adopted a different posture. “Now the approach is: ‘I have a demand and the demand must be fulfilled’,” Mr Donauer says. Negotiators found themselves confronted by an insistence on a higher-than-inflation wage increase, one of a “huge list” of union demands.
If all the improvements were converted to cash, it would have amounted a 60% increase, says Mr Donauer. “What is missing is a common understanding of what the formula should be for a proper increase.”
The prospect of costs rising too high is worrying. More worrying is the disappearance of certainty. The whole point of a three-year wage agreement is to make the cost horizon predictable, and to enable manufacturers to plan output to match estimates of global demand.
These days, the agreement does not guarantee three years of labour stability. It is quite possible there will be further strikes before the three years are up. Costs might escalate and output might be disrupted. The rising number of factory-floor disruptions are compounded by disruptions elsewhere. When component manufacturers strike, this slows down the production line.
“And there might be a truckdriver strike, there might be a tyre strike,” Mr Donauer says.
As the strikes entered their eighth week, BMW SA suffered a blow to its hopes of expanding local production. A decision was taken to remove from the table a “business case” for local production of another BMW line.
“Is SA a reliable location, especially if you are producing for export? The competition is tough and tight.”
While expansion is on hold, local production for the 3 series will continue for the model’s life of about seven years.
“We have been here for 40 years and we remain committed to our current investments. We are not threatening anyone or packing up our operation. We are raising our finger that these things need to be addressed,” Mr Donauer says.
Numsa’s response was to fire an artillery barrage of rhetoric at the employers. General secretary Irvin Jim said: “Numsa refuses to be blackmailed by BMW, Naamsa (the National Association of Automobile Manufacturers of SA) or any other neoliberal analyst-economists for our right to strike.
“CEOs of car manufacturers showed no leadership whatsoever during the auto and motor industry strikes. The likes of BMW must remember that it is taxpayers’ money that subsidises the profit they so generously make in SA.”
What is absent is any recognition that Mr Donauer and the union share a common objective: A healthy, successful, expanding local BMW operation. And there is no acknowledgment of the fact that the competition for expansion is, to use Mr Donauer’s words “tough and tight”.
The union’s rising populism is occurring as ruthless new competitors for a slice of the car production pie are rising in Eastern Europe and the East.
One man with extensive experience in the motor components industry is Eddie Keizan of Tiger Wheels. Between 1.3-million and 1.4-million wheels used to be produced by his South African factory. But Mr Keizan also produced wheels at factories in Germany and Poland.
It was an eye-opener. “An illiterate unskilled floor sweeper in SA was earning the same as a university graduate with an engineering degree in Poland,” he says. On top of that, the Polish worked 360 days a year on a shift system. In SA, once holidays, weekends and work stoppages were taken into account, workers managed just 235 days a year.
“We used to employ 50% more people than we employed in Poland to make half the number of wheels.”
The comparison between Poland and SA is academic. Both operations were shut down when the global financial crisis hit six years ago. “These days everything is imported from China,” says Mr Keizan.
Last Monday, the day after the components strike was settled, the BMW production line was still functioning way below its required level as the components lines remained undersupplied. Gleaming cars were undergoing final inspection and a slight breeze was blowing at the factory exit — nothing like the stiff winds of competition which are starting to buffet the industry.
Caption: PRODUCTION LINE: A BMW Z3 being assembled in a plant. Strikes in August and last month caused BMW to rethink its strategy in SA and decide to stop the manufacture of another BMW line. BMW MD Bodo Donauer says the events surrounding Marikana have changed everything.
By Ray Hartley
Article Source: Business Day