New Car Manufacturing in Australia: Is the ship sinking?
The Australian new car manufacturing industry is on its knees. If we were discussing a horse race, the likelihood of the industry surviving the next decade – in particular the survival of two of the three players – would be, to put it mildly, a long shot. If the Australian new car manufacturing industry were a patient in a hospital, sooner or later a rational discussion about maintaining ongoing life support, and having the priest on speed-dial, would need to be made.
Let’s have that discussion now.
Above: Autopolis managing partner John Wormald
Just over a year ago, John Wormald, the principal of respected international automotive think tank and government advisor, Autopolis, declared that Ford Australia would be “the next Mitsubishi”, a reference to Mitsubishi Motors Australia Limited’s withdrawal from local manufacturing a few years earlier. Mr Wormald said this would occur because Ford Australia, among the three local manufacturers, was the most isolated from its parent company’s operations.
Since Mr Wormald’s assessment, things have gotten a lot worse at Ford Australia. Fast forward to the end of 2010, and annual Falcon sales slumped to their lowest level in more than a decade. Just 29,516 Falcons were sold that year, a reduction of a staggering 60 per cent since 2003 when 73,220 Falcons rolled off showroom floors. This year, in January, Falcon sales experienced their worst month in at least 15 years. In May, a fairly typical month for car sales in Australia, Falcon sales were 1331 units – a 59 per cent drop, compared with May 2010. This is a massive drop on the back of a sustained massive drop in sales – the double-whammy of exactly how you don’t want your sales chart to look if you’re in business. Hundreds of unsold Falcons crowded the grass surrounding the Broadmeadows factory, and working hours at the plant were cut back.
When you’re a factory, production has to equal sales. Otherwise: massive problem. Death by oversupply.
Those 1300 May Falcons is an annualised total of just 16,000 units. It hardly seems worth the effort of putting the lights on three days a week. The production capacity of the Broadmeadows factory (which also makes Falcon utes and newly facelifted Territorys) is something like 120,000 units annually. Production is currently being scaled back to “maintain production in line with market demand” from 260 vehicles per day to 209 – a 20 per cent reduction on the previous (reduced) status quo.
Above: Ford engine assembly plant, Geelong
In 2008, 800 Ford manufacturing operations workers lost their jobs at the Geelong casting plant and the Broadmeadows assembly plant. The Ford engine operation in Geelong was saved late in play by the government’s emergency injection of $ 21 million in taxpayer funds. Last April, it was announced a further 240 Ford manufacturing jobs would go in July – dropping Ford’s manufacturing workforce to just 1560 people. This announcement came just two weeks before the re-launch of the Territory, off the back of $ 42 million in Green Car Investment Fund (taxpayer funded) payments.
It’s no longer possible to buy a Falcon wagon, although to some extent the Territory fills this hole. Nor is it possible to buy a V8 (except for the brilliant supercharged one from FPV). The inline six is due for review this year, and the jury is out on that – especially in light of the recent proclamation by minister Anthony Albanese that Australia will comply with Euro 5 emissions regulations by 2013. R&D budget will need to underpin any attempt to tune the I6 for Euro 5 compliance, and doubtless some taxpayer co-funding will be requested…
Above: New Territory – the de facto Falcon wagon
Light at the end of the tunnel? There is a glimmer – the LPI Falcon, which features the hi-tech liquid LPG injection system, and the turbo four Ecoboost are due. LPI is imminent, and Ecoboost is about six months away. Do these developments comprise a sufficiently large rudder to about-face the shift, in your opinion? Have your say in the comments section below.
A new Falcon is due in 2015, and (apparently) the call will be made on this internally very soon. A strong series of signals from Detroit suggest the days of the ‘Aussie’ Falcon – that is, a model engineered from the ground up for our market, which has been a mainstay on Australian roads since 1960 – are over.
Ford design boss J Mays, who let the cat out of the bag on Falcon, early
Ford has enacted its ‘One Ford’ policy, mandating a single platform in each size for global markets – no more bespoke models like the Falcon, basically. At the last Detroit Auto Show, Ford’s global vice-president of deisgn, J Mays, told Australian reporters “I wouldn’t be holding my breath for rear-wheel drive”. (Although this was hurriedly hosed down by a PR minder with the caveat that a decision on this was “yet to be made”. PRs hate it when senior executives take the truth off its leash like that.)
Above: Your next Falcon will probably be a badge-engineered Taurus – but where will it be built?
The smart money is that the next Falcon will be a right-hook adaptation of the Ford Taurus – a vehicle available only in front-wheel drive and AWD configurations. The $ 64,000 question is: where will it be made – at a struggling operation just north of Melbourne, or elsewhere in the world – perhaps Thailand, where there is a free trade agreement with Australia, and a booming automotive manufacturing sector? It’s only a short boat ride away.
Australians don’t typically like big FWD cars. Mitsubishi’s locally made Magna was always a much better car than many gave it credit for. So was the 380 – people just didn’t want either, inconveniently. In 2000, 26,271 Magnas and Veradas were sold here. By 2007 – the last full year on sale for the 380 – less than 11,000 were sold. Mitsubishi divested itself of local manufacturing and hasn’t looked healthier, financially.
Above: A good, large, front-drive car … that no Aussies wanted, the ill-fated Mitsubishi 380
Do you think that Mr Wormald was right when he looked into his crystal ball back in early 2010 and predicted a Mitsubishi-like conclusion to Ford’s local manufacturing operations? Tell us what you think by commenting below.
Over at Holden, a five-year run of incurring financial losses in the process of being ‘Australia’s Own’ officially came to an end last year. In those five years, Holden lost a staggering total of $ 579 million engaged in, among other things, making Australia’s most popular car. That’s a half-billion-dollar-plus black hole, wallpapered with taxpayer funds.
Above: Historical shot of Holden’s earlier assembly operations
Last year Holden’s finances turned around, and GM’s antipodean outpost made a profit of $ 112 million ($ 138 million before tax). Shortly afterwards, in happier times, Julia Gillard strapped herself into the usual hi-viz hair and a yellow fluoro vest, for extra safety, and emitted CO2 all the way to Elizabeth in South Oz to attend the made-for-TV photo-op opening of the Holden Cruze production line.
Above: Ms Gillard, looking as statesperson-like as ever, at the opening of the Cruze production line in Adelaide
Things appear to be looking up for Holden, which is nice.
Post-GFC, after the rubber-stamping ‘Chapter 11’ bankruptcy of its parent in the USA, Holden describes itself as “leaner” and “more flexible”. It runs a tidy business exporting both engines and engineering talent globally. (In this respect, Ford is also a powerful exporter of Australian engineering talent to the global Ford empire. Both undertakings demonstrate how highly skilled and sought after Australian automotive engineering talent is – a major side benefit of actually making cars here.) Holden is certainly leaner than it was previously, with its workforce cut from over 6000 to just over 4500 in 2009. (Both Holden and Ford managed their job losses in a highly ethical way.)
Above: Holden boss, Mike Devereux
Holden Chairman Mike Devereux is on the record declaring: “every market has to be self sustaining” and has told reporters he’s aiming for 100,000 units to achieve the right economies of scale to achieve this. He will need to stop the long-term bloodshed in Commodore sales and sell 30,000 locally built Cruzes to do this. Several thousand Caprice-based US police car exports wouldn’t hurt, either.
Commodore sales have crashed from a high of 88,478 in 2002 to a low of 44,387 in 2009 – with drops every year in between. Holden’s market share has been slashed in under a decade. Additionally, Pontiac G8 export sales (essentially left-hook Commodores with different badges) evaporated overnight after the notorious corporate jet/Congress-begging fiasco that tipped the final domino over, and the once-mighty GM fell over. Big Fritz Henderson declared Pontiac suddenly superfluous to requirements, despite the G8/Commodore itself being a great car that out-performed its sales estimates in the US.
Above: Pontiac GTO
Commodore sales have dropped 48 per cent since 2002 despite various developments designed to up its contemporary ante – developments like AFM, the Sportwagon and Flex-fuel capability for the 3.0- and 6.0-litre engines. Commodore has a proud record of being Australia’s most popular car, and has been a hallowed nameplate in Australia since its introduction with the VB in 1978 (back when the Commodore was the same size as the Cruze, and the V8 made the same power as today’s Cruze four). Last year, 45,956 Commodores were sold here.
At least the Cruze is a locally built Commodore mini-me that you can downsize into if you decide big cars are suddenly on the nose – exactly decision many corporate and fleet customers are now making. (As many as two-thirds of Commodore and Falcon sales were historically corporate and fleet customers, who enjoyed significant discounts compared with mums and dads.)
Above: Holden’s Elizabeth factory
Digging deep into Holden’s annual report involves knocking some of the gloss off that promising 2010 profit announcement. In that same year, Holden received $ 99.6 million in taxpayer funds from the Automotive Competitiveness and Investment Scheme (ACIS). These funds are in addition to another $ 149 million in taxpayer funds over three years granted under the now defunct Green Car Innovation Fund. South Australian taxpayers also lent Holden a further $ 3 million.
Holden was also significantly assisted in its bottom line in 2010 by currency movements – foreign exchange. In fact, Taxpayer-funded government grants plus foreign exchange plus miscellaneous revenue totalled almost $ 160 million in the black part of Holden’s balance sheet last year. Foreign exchange and taxpayer funding were the key to the company’s 2010 profitability.
If you were to remove the Government grants and the foreign exchange windfall, that $ 138 million pre-tax profit turns into a $ 20+ million pre-tax black hole.
Above: Holden Robots at work in Elizabeth
Holden sold 132,923 vehicles in Australia in 2010. In doing so it secured almost 13 per cent of all new vehicles sold in the country. When you consider the logistics and the people: all of the ships, all of the trucks and the thousands of staff members, the thousands of people who go to work in hundreds of dealerships nationwide, there has to be something monumentally wrong with this picture. How can all this endeavour by all those people turn into a $ 20+ million loss in the absence of taxpayer funding and currency movements?
Should the Government continue to prop up (in the long-term) multi-national car company loss-making? Do taxpayers like you really have a vested interest in keeping multinational fires burning in car companies Down Under? Isn’t government funding, at best, a short-term industry bail-out strategy? Do the funds paid deliver more net economic benefit to Australian society than the amount they cost taxpayers to tip in? Should taxpayer funds be used in this way? A better question might be: Where could this money of ours be used better? Here, there’s no shortage of choice – roads, health, immigration policy, border security, infrastructure…
These are all fundamentally important questions for Australian society, so please give us your views by commenting below.
Toyota is the one local car make that appears to have its eye well on the ball, or at least be strategically placed near the local manufacturing ‘sweet spot’. Despite the stigma of recalls globally in the multi-millions, and a speed bump in local production as part of the fallout from Fukashima, Toyota’s monumental local momentum is something you could set your watch by. It’s like the sun coming up in the east.
Above: Locally built Hybrid Camry
People love their Camrys (to a car enthusiast, only God knows why – but they do). In the past decade, annual Camry sales have been as high as 26,336 (2007) and as low as 16,711 (2001). Last year, more than 25,000 Camrys were sold. There is no downward trend in play.
That Camry sales result in 2007 corresponded with the debut of the all-new Camry. The then-new Aurion (V6 Camry by any other name) also leapt out of the blocks in ’07, securing a tidy 22,036 sales. If they’d called it a Camry, total Camry sales would have instantly eclipsed Falcon sales and been comfortably within 10,000 units of Australia’s most popular car in 2007.
People are running away from six-cylinder cars, however, and Aurion sales have not been immune to this exodus. Aurion sales in Australia have almost halved since the stellar 2007 result. Last year only 11,764 Aurions were sold (22,036 in 2007).
Above: On the Toyota assembly line in Altona, Vic
Frankly, though, Camry and Aurion local sales are maybe not a sideshow for Toyota – but they’re certainly not the main game. Retailing Camrys and Aurions in Australia is a tidy ancilliary business that helps support a major export operation.
Toyota’s Altona plant produced about 120,000 cars in 2010, and more than 80,000 of those were exported. Two years ago, Commodore exports evaporated, GM was insolvent and Ford US was pedalling hard to emerge un-bankrupted by its own high-level mis-management and the effects of the GFC. (Ford was the only US big three car maker to manage to remain solvent by getting rid of Volvo … and other radical surgery.) In the midst of this automotive maelstrom, Toyota Australia was in the eye of the hurricane and managed a record 101,668 exports worth a total of $ 1.3 billion. What crisis?
Above: Saudi’s most popular passenger car
Toyota’s export program kicked off in 1986.A decade later, in 1996, exports to the Middle East began. (Camry is the top-selling car in the Middle East.) By 2000, Toyota had exported its 100,000th car to Saudi Arabia. By 2010 that number had grown to 500,000 Saudi exports. Ballpark figure for Toyota’s export program? Call it 60 per cent of Altona’s production.
Above: Welcome to Saudi Arabia, $ 1.3 billion worth or expatriate Aussie Camrys
In isolation, Toyota seems rock solid in local manufacturing. However, Ford’s and Holden’s problems are also Toyota’s problems. Each of the three local manufacturers is dependent on the supply of thousands of component parts, some of which come from local suppliers. And the local suppliers are under tremendous pressure. When one goes under as a result of, say, reduced orders from Ford being the straw that breaks the camel’s back – it’s also a problem for Toyota.
Camry and Aurion are global products, as opposed to Falcon and Commodore, which are bespoke to Oz, and as such demand much higher R&D input before someone presses the big, green button on the production line. Even so, Toyota Australia is not immune to accepting taxpayer-funded government contributions. The Hybrid Camry project (assembling it here, not designing it) took place only after $ 70 million in taxpayer funds was forthcoming – $ 35 million each from the Federal Government and Victorian Government.
Above: Would the Hybrid Camry have been built here in the absence of a $ 70 million taxpayer tin-kick?
At the time it was alleged that Toyota would have made the Hybrid Camry here, whether or not the taxpayer funds were forthcoming, but Toyota (after accepting the funds) denied it.
Are you happy to see taxpayer funds delivered to the world’s largest car company to make an ageing hybrid car that has hardly sold its socks off – even to the governments that approved the funding?
Making cars in Australia costs almost everyone who buys an imported vehicle just that little bit extra. (Every car maker in Australia is also an importer, with many more import sales on the books than locally-made sales.) The import tariff of five per cent applies to the landed price of vehicles imported from most countries (but not Thailand, with which we have a free-trade agreement). So, if you bought a Mazda3, or a Honda Accord Euro, or a Volkswagen, Audi, BMW or Benz, or a Nissan, a Mitsubishi, a Peugeot, Citroen, Hyundai, Kia, Ssangyong or even a Great Wall or Chery lately, you paid five per cent. Actually, the importing car company paid it. They passed it on to their dealer network, who then passed it onto you.
If the average landed price of a vehicle is $ 20,000, and if there are 750,000 of them subject to the import tariff, that’s a $ 750 million industry-protecting treasury windfall. Are you happy with paying that, or would you simply rather your imported car just be that little bit cheaper? You are effectively subsidising the local car industry every time you buy an imported car (provided it’s not one made in Thailand). Let us know what you think about that below.
When local car makers feel pain, so do their suppliers, many of whom in Australia are haemorrhaging.
Take Drivetrain Systems International (DSI), which a couple of years ago was Australia’s last and only manufacturer of automatic transmissions. It supplied the four-speed auto on the base-model Falcons. It even developed a six-speed auto for the Falcon, but Ford Oz decided to run with the ZF instead. (No argument with that choice – the ZF is a great gearbox. The decision was hardly an example of bilateral industry support, however. Or even ‘buy Australian’.)
DSI sought another market for its six speed. It found Ssangyong, which promptly went into liquidation and left DSI holding rather a large bag. The debt was forgiven, a euphemism for ‘unpaid’, and the process sanctioned by the South Korean government. DSI consequently went out the back door. It’s now owned by Chinese automotive conglomerate, Geely, the same mob that bought Volvo from Ford.
Some viable and high-profile Australian automotive components suppliers have seen the writing on the wall. In the interests of self-preservation, those who are able to do so are making like rats on a ship for which Archimedes’ principle is no longer working out.
Earlier this year, Autoliv Australia, a subsidiary of a large Swedish-US OE manufacturer (seatbelts, airbags, etc.), which also operated a crash-testing facility near the Ford factory in Broadmeadows, moved its local manufacturing operation offshore, to Thailand. It also put the crash-testing centre on the market. Its manufacturing, engineering and admin employees hit the unemployment queue. In the mid-2000s, at its height, Autoliv employed more than 1000 staff.
Robert Bosch Australia has done exactly the same thing – almost 400 local jobs in Clayton, Victoria, have been axed as 75 per cent of the company’s local operations are relocated offshore to other Bosch facilities in Asia and Europe. The company manufactured state-of-the-art electronic control units, ABS systems, ESC systems, steering wheel angle sensors, etc. More than 90 per cent of its output was exported. Just 120 local employees will be retained in its manufacturing operations.
The Bosch OS exodus will be phased in during 2012 and 2013. Reason? The cost of doing business in Australia no longer added up. The company has been manufacturing in Australia since the 1950s. Bosch says it will continue to supply parts to Australian car makers – however, more of these in the future will be imported.
Bosch also has viable Australian business operations in the building, consumer goods and industrial sectors – and these will remain unaffected.
Each big, Aussie car that fails to sell puts reverse ‘economies of scale’ pressure on component suppliers. The price of each unit goes up as volumes contract – at a time when the car company customer can ill afford to pay extra.
Mike Devereux from Holden wants to produce 100,000 cars – like Toyota. It sounds like a sufficiently large number. Like, if you had 100,000 cars, where would you put them? But last year I was in Seoul for an interview with Steve Yang, Hyundai-Kia’s head honcho. To put the filter of global perspective on the desire to build 100,000 cars, Mr Yang said that, in his view, the minimum economically viable output for a car factory was 300,000 annual units. (So you can relax if you were worried about a Hyundai car factory going up any time soon, on that vacant lot over the road from your place.) The combined output of Australia’s automotive manufacturing sector is well below that – and spread across three plants in two states.
Above: Will we still be seeing photos like this in 2030?
What’s your take? A renaissance of the local Aussie car maker by 2020 – or a fire sale of cheap land at Broadmeadows and Elizabeth? Is it worth the government tipping your seed money into something that seems disinclined to sprout and then grow on its own? How can we turn the local car manufacturing operation around? Do we even need to? Tell us what you think by commenting below.
Australia is one of only 13 countries in the developed world with the skill and ability to engineer and build a car from the ground up. We also have the lowest tariff barriers. What will we lose if it all comes to a screeching halt over the next decade? Can the decline be stopped, or is it already too late?
We welcome your comments below. What’s your take on the future of automotive manufacturing in Australia?