Productivity Commission’s Preliminary Findings on Auto Industry

Report on Australia’s Automotive Industry Examines Global Context & Trends.

With Holden announcing their departure soon after Ford, this report seems a little pointless now, with Toyota being the only player (Oh, What a Feeling!), but it does highlight what has shaped the Auto landscaped in Australia. Some things we knew already, like energy, labour and the dollar are high, exports are low and it’s ultra competitive in the marketplace.

Here’s some other factors:

Production Scale: For an assembly plant to remain cost competitive it needs to produce between 200,000 – 300,000 cars and the plants here are producing well below that figure.

In 2012, Australia bought 1.12Million cars, so half to two thirds needed to be a locally built Holden, Ford or Toyota. Toyota built 218,176, Holden $114,665 and Ford 90, 048, which is around 40%. People buy around 40,000 of the top selling models annually.

At a Global level, production capacity currently exceeds demand.

Global Component Suppliers: Vehicle producers increasingly require their key component suppliers to have a global presence and be located near major production regions.

So if the plants are not producing enough and global vehicle producers want to align with global component suppliers, was announced closure of Holden and Ford inevitable? Price is a key driver when buying a car and when you can build it overseas cheaper and the tariffs are low or non-existent, our Automotive manufacturers and component suppliers never stood a chance.

Could our industry have responded better with consumer trends, been more innovative and provided unsurpassed technology to stave off the 40 odd competitors? Maybe, that would have required an injection of RnD capital and have a level of risk associated with it, when culturally, we like to play it safe. Would the government have supported their plans? Would that have been enough to lift the combined production capacity from 422,000 to 600,000? I can’t say yes, the only answer I can think of is maybe.

The Productivity Commission will release a position paper on January 31st with the full report out in March.