While new vehicle sales continue its upward spike and there are reports of substantial growth in exports, another factor is threatening to undermine this growth.

Casting a cloud over the strong local sales is the spectre of sharp growth in the country's trade deficit, with fingers being pointed at the motor industry, which is a huge user of foreign exchange. The SA motor industry's trade deficit exploded to nearly R28 billion in 2005. The difference between the annual imports and exports was up 58 per cent on the previous year, and 168 per cent more than in 2003.

The industry is being singled out for criticism at the same time as the government is conducting its mid-term review of the Motor Industry Development Programme (MIDP), which has become increasingly controversial - both locally and internationally. The deficit is providing ammunition to critics of the 11-year-old support system, who claim that is it bad for the economy, and the committee established by the Department of Trade and Industry (DTI) has supposedly been told that the deficit will have to be reduced.

The important report is expected in the fourth quarter of this year, with the country's motor manufacturers anxiously waiting, not only for the immediate impact any changes could have, but also the impact on them between now and the scheduled end of the current phase in 2012. It should also provide strong indicators for the way forward as far as 2020 as the manufacturers need to do long term planning for the future introduction of new models that will be built for local and international markets. Significant changes to the MIDP could change the face of the industry.

The main reason for the massive growth in the motor industry's deficit, according to figures provided by the National Association of Automotive Component and Allied Manufacturers (Naacam), is the increase in the importation of fully built-up vehicles. Imports have risen 155 per cent between 2003 and 2005, going from 82 000 three years ago to nearly 209 000 units last year.

The total value of 2005 imports - built-up vehicles, disassembled vehicles for local assembly and components - totalled R73,3 billion, while exports of vehicles and components amounted to R45,5 billion. (When the MIDP was implemented, in 1995, total exports had totalled only R5 billion).

When the MIDP was formulated, some growth in imports was expected, but it was felt that this would peak at about 30 per cent of the market. However, the high growth rage in the local vehicle market has been somewhat unexpected, leaving local manufacturers unable to cater for this increased demand.

Current legislation only takes the MIDP to 2009, so authorities will first need to find a way of regulating the current programme for the three years until 2012, before considering the long term (up to 2020) as requested by the motor manufacturers.

Whatever happens, it's unlikely that the MIDP as we know it, will still exist when the DTI's mid-term report is released.

Another flashing red light for the industry is the increase in the number of cars - a product of the country's spending splurge - that are being repossessed by finance houses. Wesbank, which finances the purchase of one in every three cars in South Africa, is repossessing about 1 200 cars per month. This is compared with the 30 000 units they finance each month.