Australia's automotive manufacturing sector looks doomed.
Australia's automotive manufacturing sector looks doomed.

Future of Australian-made cars looks doomed

FORD and Holden could close its doors early if the Federal Government winds back funding.

The Productivity Commission yesterday released its 215-page preliminary report and painted a bleak picture for Australian automotive manufacturing.

The report says "…ongoing industry-specific assistance to the automotive manufacturing industry is not warranted" and recommends winding back taxpayer support.

However, the commission has warned about "transitional costs" if the funding was reduced which forced the early closure of Ford and Holden.

Ford will shut its Broadmeadows and Geelong manufacturing plants by October 2016 while Holden will close its Elizabeth and Port Melbourne facilities by the end of 2017. 

Key points from the Commission's preliminary findings report

• Global forces are driving (and are likely to continue to drive) dramatic changes in both the demand for motor vehicles and the size, scale and location of production.

• At a global level, production capacity exceeds demand for motor vehicles.

- Demand in a number of developed economies has been slow to rebound from the global financial crisis, and many assembly plants are operating below capacity.

- Significant rationalisation of production capacity has occurred in the US, and further assembly plant closures have been announced in the UK and Belgium.

- Vehicle manufacturing capacity is shifting to regions with lower labour costs and high demand growth such as China, Eastern Europe, India, Mexico and Thailand.

- Many governments provide financial or other support to attract (or retain) an automotive manufacturing industry.

• There is relentless pressure on vehicle producers worldwide to reduce manufacturing costs, particularly in the small to medium size car, high volume, market segments.

- The selling prices for vehicles in such segments of the new car market are held down by fierce competition from local suppliers and importers.

- Affiliates within international firms compete for the right to produce models built on global platforms - for supply to both domestic and export markets.

- Cost pressures extend to component manufacturers throughout the supply chain.

• Production scale and labour costs are key drivers of automotive manufacturing costs.

- All vehicle manufacturers in Australia are producing well below the 200 000 to 300 000 vehicles needed annually for an assembly plant to be cost competitive.

- Labour costs in automotive manufacturing are substantially higher in Australia than in countries such as China and Thailand.

- Despite continuing efforts by vehicle producers and their employees, a substantial cost gap between Australian and many overseas assembly plants remains.

• Increasing vehicle production in Australia, for local supply or export, is challenging.

Vehicle producers in Australia have been losing local market share.

- The Australian new car market is small by global standards. It is highly competitive, to the benefit of Australian consumers, but is fragmented. Top selling models enjoy sales of only a little over 40 000 vehicles a year.

- Export opportunities are limited by the high costs of production, the sustained high Australian dollar, competition, and continuing barriers to trade.

• Global trends place ongoing pressure on Australian automotive component suppliers.

- Component manufacturing in Australia is high cost compared to countries such as China and India. Motor vehicle producers in Australia are increasingly sourcing automotive components from overseas.

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

- The greater use of global platforms may lead to opportunities for some Australian component suppliers, but may lead to the closure of others.

• Australian governments have provided capital grants and subsidies to automotive manufacturers, and transitional assistance intended to facilitate industry adjustment.


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