Our auto industry is falling apart piece by piece
The sad reality is we can expect many more closures similar to the collapse this morning of Australian car manufacturing supplier Autodom.
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?
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