Automotive Manufacturing

Automotive Manufacturing in Australia

Automotive Manufacturing in Australia has had a proud and vibrant history. Initially it was our distance from the rest of the world that meant we made most of the goods used in Australia right here. It wasn’t until 1965 that the creation of raw value through agriculture or manufacturing fell to below 50% of the total economy. And today those two sectors account for roughly 12% of the economy between them. So a 75% drop in share of GDP in just under 40 years.


There are still reasons to Make Products In Australia even if some of the original reasons are no longer valid.


And that is thing I wanted to highlight here. These are long term trends and need a long term perspective if we are to position ourselves to remain competitive.


Whereas in Automotive Manufacturing we see a lot of short term thinking being applied. In spite of the fact that we already had the lowest rate of publicly funded support for local automotive assembly, we have just cut it further and to the point where every remaining car assembler has made the decision to exit the Australian Economy as a manufacturer. There has been a lot of rhetoric about Car Manufacturing Numbers Not Stacking Up, a post where most of the important numbers are ignored, or talk of the Auto Industry Is Doomed, which looks quite rightly at the innovation and disruption forces involved, but I don’t see anyone looking at how we got here.


System Integration Drives Value

While it is true that workers in off shore industries can disrupt local industries by providing a cost advantage to outweigh the skills disadvantage, the better economies in the world are not showing this trend.


Collaboration = Working Together

Collaboration = Working Together

See The Global Competitiveness Report 2013-2014.

Page 11 shows where economies are positioned in terms of their stage of development and page 15 starts the ranking process.


Looking at the top ranked economies you get:


  1. Switzerland
  2. Singapore
  3. Finland
  4. Germany

This is a trend that continues throughout the report. The USA ranks high as it should because it is both a technology leader and has the advantage of a large domestic market but many far smaller countries also rank high.


So how does Switzerland with:


  • less people
  • less land mass
  • less natural resources
  • high per capita income
  • highly developed economy


among other things, all of which should hamper its competitiveness against an agile developing low labour cost nation, get to be #1?


The answer is that it does not sit around waiting for developing nations to usurp its position. It has a progressive government, industry policy (they sell machine tools to Japan for instance), strong positioning and take a global view. They also understand the value chain and that integrators make more money that component suppliers. This is actually one of the strongest argument for why we should have had a more proactive approach to Car Assembly and why military build projects should still happen here. Not purely for the money in any one deal, but for the total package of benefits that ensue.


So it needs an integrated approach with both Government Leadership and also Industry Collaboration. Both seem sadly lacking at present.


Germany seem to know a thing or two about running a modern economy with manufacturing in the mix. They support their local car assemblers at a rate of over four times per head of population compared to what we were doing before we cut support. They have 4 times our population and so that is over 16 times the total value of support. They have BMW, Porsche, Volkswagon, Audi, Mercedes Benz… And we have? If you want to know what works, look at countries making it work and find out what they do.


Last measure I saw, the USA was supporting its local car assemblers to the tune of over USD$200 per head of population, and they aren’t the highest. But the one thing that is clear is that we have been the lowest for a long time. Some references:



The killer has been the low production rate and the fact that we have primarily looked to service the Australian domestic market. Only Toyota have been primarily exporting with the Camry. If you redo the figures per car produced then we are no longer the lowest coming in a little above Germany. So we lost this battle when we decided subsidies were bad for Australia while everyone else concluded the reverse for their own economies.


Why Don’t The Numbers Stack Up

One of the things Car Manufacturing Numbers Not Stacking Up misses is the indirect jobs that are affected. This was recently calculated at 5:1 by the Victorian Government. So we might lose nearly 60,00 jobs (6% of all manufacturing jobs) in car assembly and car part manufacturing, but there are quite a few other jobs affected and this article ignores that completely. If it really is 5:1, that is 300,000 jobs across all sectors affected.


Some other reasons why we should have had a more reasoned approach to this are:


  • it keeps a world class product development capability in place which also has benefits for related industries
  • access to world supply chains – Toyota and Holden were already doing this
  • did I mention jobs – surely the replacement policy should come before the exit policy?
  • we have world class design capability now – but without vehicle assembly, this is likely to dwindle reducing opportunities for jobs in the future in this high leverage sector
  • the playing field consists of nations who put public funding into maintaining their local car manufacturing. So to be in it, we have to recognise that investment must flow at least partly from the public purse


I do agree with the buy Australia problem that is outlined. Australians don’t seem to value buying Australian. That being said, the offerings were out of alignment with market trends. In particular, Ford was producing a car range in large vehicles that were no longer being purchased in significant numbers. And the Toyota Corolla outsold the locally produced Camry which was a larger vehicle. The Holden Commodore is also a larger vehicle.


I have no idea why we didn’t decide to make smaller vehicles here earlier!
You can’t ignore a market trend for 10 years and expect to not have consequences.


It is also likely that reducing car industry assistance will be an overall deficit generating move. Yes we have three years before that starts to bite. But it you take 300,000 jobs out of the market and don’t replace them with anything, plus the profits made and taxed by at least some of the companies in the sector, plus the personal income tax of the employed. It is likely that this is a very short term prop up to the budget for a net long term loss.


The plus side is the three years. I don’t see the typical automotive worker moving into health care and aged care which are current growth sectors.


Australia’s Growth Potential

So is there a future in Australia? I certainly think there is. And this crisis might be the stimulus we need to begin to take some steps forward on a proactive basis. There is no doubt we have some world leading industries in Australia and there is also no doubt that rising unemployment is a problem we can’t afford.


For me, the biggest issue to tackle first is collaboration. You can’t have Open Innovation, industry co-operation and sustainable industry policy without it. The Japanese showed us how you could build an economy by collaborating after World War II. The USA economy looks at leverage and has much better models for inter-business collaboration. Europe is inherently more collaborative. Whatever else you might think about the European Union, only the USA and Europe have managed that level of freely entered into Collaboration.


Collaboration is Everything

Collaboration is Everything

Australia has been measured as having one of the lowest levels of Collaboration in the world. This is a Reverse Salient, the thing that is holding us back. And it will be one of our focus points as a business for 2014.


Another articles you might find of interest on this topic of Collaboration:



Successful Endeavours specialise in Electronics Design and Embedded Software Development. Ray Keefe has developed market leading electronics products in Australia for nearly 30 years. This post is Copyright © 2014 Successful Endeavours Pty Ltd.