The sad reality is we can expect many more closures similar to the collapse this morning of Australian car manufacturing supplier Autodom.

Artist's impression of the Australian car industry

And in an industry that thrives on having parts delivered “just in time”, the impacts of such closures are going to get worse, not better.

As the number of Australian-made cars declines, so too do the chances for local suppliers to survive. Most of the 300 or so companies that make the 5000 or so parts that make up a new car must sell to all three local makers – Holden, Ford and Toyota – just to stay in business.

For example, did you know the seat rail in each car comes from the same factory, and the chrome badges from another who sells to all three?

That’s because a factory that makes 200,000 parts for all three brands is more viable than one that makes 80,000 parts for just one car maker.

It’s also why, unofficially, Toyota and Holden don’t want Ford – the most precarious of the three given its weakest output – to go under, because it will mean a new round of supplier negotiations. Here and overseas.

As sales of locally-made cars decline, locally-made parts effectively become dearer because the suppliers need to raise their prices, per part, to recoup their significant investment.

But that makes them dearer than overseas suppliers – which in turn puts Australian car makers at a price disadvantage, because their cars are then more costly to build. And so the downward spiral continues.

It’s why critical mass is crucial – and Australia is struggling. Australia now has one of the smallest manufacturing bases in the developed world. Ford is on track to produce 33,000 vehicles this year, Holden 80,000 and Toyota 90,000.

Most efficient car factories globally work on a bare minimum, break-even point of 200,000 units a year. Even Porsche builds more than that – and its cars are much more profitable.

As local suppliers fall over, a cash register rings in Thailand, China or anywhere else in the world for that matter.

Australian supplier factories might be pleased about making 200,000 widgets – but there are any number of other factories around the world that can make the same widgets to the same quality for the same or less money because they’re making them by the millions.

Calls by some in government and the industry to encourage local suppliers to export to remain viable are naïve when the Australian dollar is so strong. They don’t have a chance.

Which is why the Federal Government has set aside $5 billion to assist local car makers and their suppliers over 10 years.

While many question the return on the taxpayer’s investment, the $5 billion question remains: will the Australian car industry ever be able to survive without handouts – especially while the dollar is at record highs?

Twitter: @JoshuaDowling

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22 comments

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    • Steve says:

      02:20pm | 01/11/12

      Time to pull the pin on the Australian car industry.
      Just like we stopped making TVs years ago, never ever started making laptops, and wouldn’t even contemplate an iPad factory today.

      Stop the subsidies to companies, and use that money to re-train the workers if they want it.

    • A Concerned Citizen says:

      03:45pm | 01/11/12

      I agree- though I will say that Australia has seen many interesting inventions, technologies and domestic products that are getting little support despite possibility for international interest.

      Certainly it is fair to end subsidies of struggling businesses and instead put that money to helping new emerging technologies or industries to start up and get off the ground?

    • Steve says:

      04:46pm | 01/11/12

      @ A concerned cisitzen
      one of thngs those companies might want is well-trained and reliable workers freed up from the car and parts manufacturing.

    • AdamC says:

      02:22pm | 01/11/12

      Australia’s automotive sector is hopelessly uncompetitive and has done practically nothing to reverse that situation. It was marginal, at best, when the Aussie dollar was at 60 US cents ten years ago. At around parity, it is terminal.

      Governments should just allow it to die. By continually chucking money down the car industry sinkhole, they are conning people into entering unsustainable careers in sector that nobody seriously thinks will exist in even five years, let alone the decades to come.

    • JoniM says:

      04:19pm | 01/11/12

      The problem is a generic one for all Australian manufacturing !
      Our own demands for our high standard of living and commensurate pay and conditions, immediately means we are uncompetitive with much of the whole world, and certainly all of the developing countries.
      We have priced our selves out of competetive manufacturing, and those that still exist, only exist because of tax payer subsidisation or some unique offering that the rest haven’t caught up with as yet !
      The car industry has been kept alive now for decades, basically by the self interest pacts between the Unions and the overseas car companies. They have milked the taxpayers for years in an ever decreasing output of product, and got away with it by solving politically charged issues of job protection and Union happiness.
      So what do we really want ?
      No manufacturing jobs ? Well we can’t afford any if we want to maintain current wages and conditions, as we can’t compete with Asian manufacturers. Or do we drop our wages, conditions and quality to compete ! Unlikely !
      Or do we subsidise local industry at the cost of the taxpayers to keep the manufacturing sector viable ?
      It really all comes down to your ideology !

    • Fiddler says:

      02:38pm | 01/11/12

      let it die. Then we can all start paying what the rest of the world does for far better cars (hopefully, I’m sure we’ll still get ripped off)

    • Tubesteak says:

      06:46pm | 01/11/12

      and allow parallel imports. Local retailers know Australians have been conditioned to pay a premium so we need to remove this by breaking their monopoly

    • Pattem says:

      02:41pm | 01/11/12

      It doesn’t help when, comparatively speaking, Ford and Holden build inferior quality cars at non-competitive prices. 

      Why buy a current model Ford Falcon with a body design from 2000 or earlier, with an engine build quality worse than any Japanese make and/or model (same size or smaller), and which price wise, cannot compete?

      You get so much more “bang for your buck” by buying Japanese.

    • David V. says:

      02:44pm | 01/11/12

      I think a more thoughtful analysis is needed as to why this is the case. The UK and USA badly screwed up their car industries after 1970 and it was all of their own doing, due to lousy product put out in the 70s and 80s and foreign competition which was far superior to them. In Australia, our local cars were NEVER as bad as those, so we were lucky. However, our industry once catered to an autochthonous protected market (as did many other countries’ industries now dismantled or globalised), which is increasingly (sadly) anachronistic in our globalised world.

      Holden will be better off mostly because it plays a role in the GM empire and can fill a gap in global product lines (exports to the Middle East, where Arabs love American-style big cars that can cope with their conditions). Ford has declined notably in profile. In retrospect, despite at times offering better product than Holden, Ford has never recovered from the EA debacle of 1988. It’s like they’ve given up trying to compete with Holden.

      Even Japan isn’t what it used to be, for cars. Their automotive prowess has declined notably in the last decade and a half, while Korea’s has risen. Seen a Hyundai Genesis or Equus, or Ssangyong Chairman lately? Nice cars.

    • expat says:

      02:44pm | 01/11/12

      You have to let the industry either compete on its own merits or fail.

      Australian car’s (commodore & falcons) are so poor in quality and design that everyone considers a basic BMW 3 as a “luxury” car…. Everywhere else in the world a BMW 3 is as common place as the commodore for an every day sedan. (priced accordingly as well).

    • willie says:

      05:41pm | 01/11/12

      In Europe a 3 series may be commonplace but in the US they are still considered luxury cars despite being much cheaper in the US.

      There is a huge amount of cultural cringe toward the Falcon and Commodore. Any rational assessment would conclude that they are the best cars at the best price for the job they do. That is the price to the consumer not including subsidies. The problem is they do the wrong job. People want smaller cars or taller cars. This trend is seen across all brands.

      And to the quality of the cars. The Pontiac G8 has one of the highest resale values of any car in the US. This has prompted GM to resume importing the Commodore under the Chevrolet SS nameplate.

      The Commodore has the same problem in the US as it does here. Namely the small market for large sedans. The difference is Americans don’t have the snobbery towards the car and see it for what it is, a large car that competes on price and performance.

      Now that that’s cleared up i still don’t want to give my taxes to uncompetitive industries.

    • Yorkey says:

      02:48pm | 01/11/12

      I got a start in my working life doing an apprenticeship at Holden in the 1980’s. Even then school mates were warning me “it’s a dying industry”. Ive since worked in whitegoods, defense, and mining industries. I’ve also had to dismantle factories and machinery, packed them into shipping containers and sent them offshore with the workers jobs disappearing.
      It always amazes me that the same people driving their European cars going home to their European appliances are the first ones to scream at the working class to “GET A JOB”!

    • AdamC says:

      03:34pm | 01/11/12

      What is the alternative? We cannot keep these unsustainable industries on taxpayer life support indefinitely.

    • world's best treasurer says:

      03:08pm | 01/11/12

      Carbon pricing in Australia will be the death knell not just for car industries but for all manufacturing Australia wide because they are already battling to stay above debt because of higher wagers and overheads compared to the entire world, universe and the milky way galaxy.

      Uncompetitive taxes make manufacturing in Australia impossible and until this current Gillard government realises this there is no hope.

    • AFR says:

      03:29pm | 01/11/12

      Ahh yes, that evil carbon tax. My electricity supplier even called me yesterday to explain that the increases in rates (NSW) were caused by the carbon tax. When I pulled him up on it, he just stammered and kept going with his script.

    • Jane Goodluck says:

      04:06pm | 01/11/12

      Fairly recent arrival to our country perhaps? Or didn’t actually read the article?

      Whatever, you know next to nothing about the long, and very heavily taxpayer subsidised,  history of post-war car manufacturing in Australia.

      Uncompetitive taxes? In the car industry? Umm, no.

      There’s no carbon tax on the car industry for starters. Nor on fuel.  And its just a few short months since the very latest round of taxpayer funded assistance began.

      Aus car makers do remain under pressure.  As much as anything else, because export sales are under pressure. From the high Australian dollar - the result of overseas financial conditions, not the policies of the present government.

    • stephen says:

      04:16pm | 01/11/12

      Carbon pricing has no real effect on the auto industry.
      But productivity gains have, and I am not only talking about the extra effort and sacrifice the Worker is meant to endure, but the gains we could enjoy with a better quality product.
      ‘Productivity gains’ are a catchcry for Industry to blame others for their shortsightedness ; in fact, it is the improvements which can be mastered at the design and testing level that are most efficacious.
      Management in this country is to blame for the eventual demise of our once glorious car industry, and it is the australian family that will pay the price.

    • stephen says:

      04:02pm | 01/11/12

      It is not the dollar which is hurting our cars, but the cars themselves.
      The sedans such as the commodore and falcon were designed to get a family of 4 from Melbourne to Sydney, but now they could fly there, and for half the cost, (assuming motels were used).
      Families do not even travel together, mostly, yet Ford and Holden have continued with these behemoths that use too much fuel, are cumbersome around town, look ugly and are distinctly old-fashioned.
      Even 3 years Ford got a sniff that the SUV was the future,(after they canned their wagon) then decided to make the Territory but dithered over model configurations until the buying public took their money elsewhere to Korea and Japan.
      Holden has done better, but I’m not so sure about the new Opels.
      We need many more Opel models to choose from, and australian drivers will not suffer less than 150KW in a sporty car, so that renault look-a-like they have for sale has best get some horns.

      The family wagon and sedan is dead, but you would think that with our sunshine, a convertible would sell like pies - so where are they ?
      Only the Astra is available, but with a bigger backside than Julia at the piano, I reckon it would, if given a glass hood, make a very good aquarium.
      I used to defend local cars as an example of local design and culture, but all I see are examples of poor design, stupid marketing, and a sometimes shoddy manufacturing process.
      I’ve seen the new Hondas, and they seem fine.
      Same with the Mazda 3, the Volvo c30 has to be the best car under 40 grand, and the Subaru is excellent, allround.
      If only better CEOs’ were sent here from Detroit, but with a mission.

    • Don says:

      05:08pm | 01/11/12

      Thanks for your article Joshua .

      Subsidies are killing our industries - not saving them. We are paying for absence of innovation, the complete opposite ingredient for successful car manufacture, design and market.

      The ‘home grown car’ mentality was a valid one, and needed gov support in the early days- it was a symbol of nationalism and pride. But everyone else has moved on, we realised government intervention was a restricting factor, rather than a conducive one.

      Government subsidies = dinosaur industries.

    • Tom says:

      05:19pm | 01/11/12

      Just buy the cars and the industry survives. Simple. There’s nothing wrong with them, they actually compete with the imports much better than ever before and suit us like they always have. But fine, if you don’t want to support thousands of local jobs and local design, then let it die. But I’m not.

    • Tubesteak says:

      06:58pm | 01/11/12

      They are woeful. Poor features, poor accessories, poor performance and poor technology

    • Jimmy says:

      06:46pm | 01/11/12

      Exactly Tom.
      Our local made vehicles are defintely competetitive these days.
      Unfortunately in follows years of being behind Europe and Japan’s best efforts..and after relaxed trade agreeements and tarrifs opened up our doors and shores to cheap vehicles AND components.
      For too long ‘Australian Made’ has been allowed to represent ‘Australian Assembled’.
      Where are government controls to restrict amount of imported components to build an Australian product or “Aussie Icon’.

      Sorry for the rant…I’m an(is/was)  AutoDom worker and today has been fairly tough.

 

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