At the same time, VWSA has won a vote of confidence from its German parent with the awarding of a five-year, R12bn contract to export diesel particulate filters, which help catalytic converters clean soot from diesel engines.

VWSA has built a succession of Golfs - including the original which is now sold locally as CitiGolf - for more than 30 years. The last two versions, including the current Golf V, have earned the company many billions of rand from export contracts since 1998.

Powels confirms VWSA will build neither the next Golf nor Jetta, which VWSA also exports. However, the current Jetta - for which VWSA announced a new export contract last month - has two years of its life to run. "We hope the added Jetta volumes will more than offset the immediate loss of Golf export earnings," he says.

In addition to Golf and Jetta - which will continue to be sold in SA, but as imports - VWSA exports the smaller Polo car range. In total, the company will export more than 40 000 vehicles in 2008. It also builds CitiGolf for the domestic market.

VWSA will build and export Golf V until the model runs out next year. That is infinitely preferable to the idea, suggested in 2007, that all production should immediately be switched to Germany to protect jobs there.

The decision not to build Golf VI is part of a strategy to reduce the number of VW vehicle platforms built in SA. The medium- to long-term plan, says Powels, is to build only two: Polo and an entry-level replacement for CitiGolf.

The next version of government's motor industry development programme (MIDP) is due to be announced in August by trade & industry minister Mandisi Mpahlwa. It is expected to include a new incentive programme rewarding annual SA manufacture of at least 50 000 units of separate vehicle platforms.

Within SA, the market sector in which Golf and Jetta compete is shrinking, so it makes sense to concentrate on smaller, high-volume ranges.

This means the Polo and Citi replacement. However, Powels stresses there is no immediate plan to end production of the ever-popular Citi.

"It would be naive to think it can continue indefinitely. It will be replaced eventually but remains in our medium-term plans." Model range enhancements are planned for at least the next two years. "We are working aggressively to protect the Citi in the market," says Powels.

The decision to concentrate on small cars may spell an end to the prospect, raised by Powels' predecessor, Andreas Tostmann, that SA could be one of the production sites for a global VW pick-up.

Such a vehicle will certainly be sold in SA as part of VWSA's long-term plan to become a leader in all segments of the SA new-vehicle market. But Powels says: "Over the past three years the light commercial vehicle market has not grown as quickly as everyone expected. In addition, the aggressive entry of Indian and Chinese brands has eroded margins. So though local production is an option, it's unlikely."

Fears that the imminent loss of the Golf means VWSA is becoming less important within the global VW family - particularly after the single-minded Porsche group recently gained control - should be eased by the fact that the SA subsidiary is preparing for a R1,5bn expansion plan that will increase daily production capacity from 600 to 800.

"We are finalising the details of the investment programme for new models and rearrangements of platforms with our German head office," says Powels.

Then there's the R12bn contract to supply the VW group with diesel particulate filters. Powels says the deal - a partnership with local catalytic converter and exhaust systems manufacturer Eberspächer SA - is one of the biggest export contracts for a single part ever awarded to the company.

Together, VWSA and Eberspächer will invest about R55m in tooling and equipment, and another R26m in suppliers. Production will start in November.

Deals like this are an important part of the long-term plans for VWSA, which has also embarked on a programme to increase local content in its vehicles. The only way the SA motor industry can prosper long term is with a strong local supply base. Powels hopes announcements on the MIDP will include strong supplier incentives that will encourage such a situation.

The fact that VWSA is investing heavily at a time when the domestic new-vehicle market is in sharp decline should be taken as a sign of confidence in the market, says Powels, who returned to SA last year after five years at VW Brazil.

There's no denying that the market slump, which began in early 2007 and shows every sign of continuing into 2009, has severely damaged the industry. Dozens of motor dealers have gone out of business and more will follow. Some imported brands are losing money.

Even local manufacturers - almost all of whom are net importers - are suffering through a combination of circumstances that include vanishing margins, rising interest rates, a severely weakened rand and generally low economic confidence.

Powels suggests it's only a matter of time before motor companies start increasing prices to restore margins.

However, he insists there's no need for industry to panic. The market boom that led to annual new-vehicle sales almost doubling between 2003 and 2006 was unsustainable. "Watching from Brazil, I found it amazing," says Powels. "It went up far too quickly. It was bound to come down again."

Even if sales continue to fall in 2009, five- and 10-year graphs will show market growth over a sustained period. "You have to take a long-term view. We've lived through market slumps before and though there are bound to be casualties, we will live through this one, too."

If South Africans want reassurance, they should look no further than Brazil. When Powels went there in 2002, the market was "in meltdown". The currency had collapsed, interest rates were sky-high, there was political unease and the market fell by 30% in little over a year. Some vehicle factories were earmarked for potential closure.

Six years on, sales have doubled, there is extensive investment and those same factories are struggling to meet demand.

"If you can't cope with cycles, you shouldn't be in this industry," says Powels.