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Tim O'Brien | Jan, 26 2012 | 19 Comments

Why history is against our local vehicle manufacturers, and why Government assistance packages are all-but useless.

One of the more interesting stories to emerge from the Whitlam years concerned the demise of the Leyland P76, and, with it, the demise of British Leyland vehicle manufacturing in Australia.

It was October 1974 when the sword fell, and the P76 bit the dust bringing down BLMC in Australia.

The P76 was a terrible car – it may have been brilliant in conception (it won Wheels Car Of The Year for 1973; and they still can’t pick ‘em), but was so shoddily assembled it simply fell apart.

And people, sensibly, stopped buying it.

Its passing, and the departure of its British parent, heralded what would become four decades of challenge to vehicle manufacturing in Australia.

Since then, we’ve seen Renault, Volvo, Volkswagen, Peugeot, Nissan, Hillman, and Chrysler/Mitsubishi cease manufacture or CKD assembly operations in Australia, having lost Rambler, Studebaker, Pontiac and Chevrolet assembly in the previous ten years.

Then, in those tumultuous early seventies, the Australian car industry was staring down the twin barrels of the first global oil shock and a galloping tsunami of Japanese imports.

The parent company, British Leyland, was in trouble everywhere, but most in trouble at home with massive debt and a hopelessly outdated product inventory.

The closure and sale of its Australian manufacturing plant (at Waterloo, ironically) along with a long list of property assets nationwide, was to return much-needed cash to BLMC company coffers.

Do you discern anything familiar in this tale? And we haven’t yet got to the interesting story.

It’s apocryphal (and may not be true), but, so the story goes, when faced with the political disaster of the loss of Leyland, the Minister for Trade and Secondary Industry at the time, the Honorable Jim Cairns, decided to try to drag something salvageable from the ashes of Leyland.

So he offered, apparently, Leyland’s Waterloo manufacturing plant, holus-bolus, to China – every die, every metal press, every jig and every forge. China, then Red China, and nothing like the ordered capitalist economy we see today, knocked the offer back. They weren’t stupid then either.

But it’s an interesting side note.

In fact, the story of the demise of BLMC is especially interesting for illuminating the hopeless inadequacy of Government in trying to divert the boardrooms of global companies from the decisions they make in the interests of survival and profitability.

Fast-forward to today; our remaining vehicle manufacturers - Holden, Ford and Toyota - are in trouble in Australia. But not in crisis, not yet.

The Australian manufacturing operations of each are tiny – barely significant, in fact – in comparison to the scale of the global manufacturing activities of their mega-giant parent companies.

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The shedding of 350 jobs by Toyota Australia is unfortunate for the people concerned but, with a workforce at Altona in excess of 3000, it is not the precursor to Toyota picking up its bat and ball and leaving the field.

Quite the contrary. It’s to do with Toyota Australia getting its headcount aligned with current sales volumes – at home and export.

Toyota Australia President and CEO Mr Max Yasuda said that these actions were part of the company’s strategy to transform its Australian operations. “Manufacturing is a vital element of our overall operations in Australia,” he said.

Toyota’s production levels have fallen from 149,000 Camrys and Aurions in 2007, to 94,000 in 2011. But this year Toyota expects production to increase slightly to 95,000 cars.

In point of fact, the Federation of Automotive Products Manufacturers (FAPM) does not expect a negative ‘knock-on’ from this announcement among parts manufactures.

Toyota is also well-advanced on its $300million new engine plant at Altona (with $63million in Federal Government assistance under the now-dumped Green Car Innovation Fund, as well as a significant contribution from the notoriously secretive Brumby Government).

But the current difficulties for Toyota Australia are part of a broad change in the market and do not simply turn, as some would have you believe, on the high Aussie dollar.

Sure, a high currency affects export earnings, but, for Toyota in the Australian market, the slide in the Camry and Aurion’s fortunes is also to do with having two models stuck in the rapidly declining medium car segment – one that is losing ground in sales every month to the compact SUV and small car segments.

It doesn’t matter what level of support the Government gives Toyota, it can’t force people to buy cars they appear to be losing interest in.

Ditto for Ford Australia.

Like Toyota, Ford engineers and builds superior cars in this country. The Falcon and Territory are among Ford’s best products anywhere.

But they’re orphans. And Australians are not buying them with the fervour and loyalty they once did.

In this context, Ford Australia’s parent, the global Ford manufacturing colossus headquartered at Dearborn, Michigan USA, will do whatever it thinks fiscally prudent with its Australian manufacturing operation.

Of course, it will happily accept whatever tens of millions the Australian Government would like to slide into its pockets to assist its operations here; but, from a global operating perspective, it has bigger fish to fry.

Like the billions - in multiples - it is investing in product development under its ‘One Ford’ global product strategy.

And anything that doesn’t fit within that strategy can start counting down its days – no room for sentimentality here, and none of this “but Aussies love their rear-drive family cars” nonsense.

Above: the US-market Ford Taurus." class="small img-responsive"/>
Above: the US-market Ford Taurus.

The next Falcon may be manufactured here, or it may not. It may be a re-engineered US Taurus, or it may not. But it will be what Ford US decides fits best under its One Ford strategy.

And it will be what will best deliver a profitable return on investment for its global operation.

And where do the wishes of the Australian Government fit into that scenario? They don’t fit. Simple as that.

Ford’s rear-drive indigenous Aussie platform is as good as gone. Despite assurances that region-specific platforms will continue to have a place under the One Ford strategy, it is too easily replaced by similar products from the Ford stable.

Its announcement of a stay of execution for the i6 engine was the first sign – there was thus to be no re-engineering of the Falcon platform for a V6.

The second sign came just last week when Ford US announced that it would accelerate the culling of its global platforms with only nine platforms to remain in its catalogue by 2013.

That doesn’t necessarily mean Ford Australia will stop manufacturing a ‘Falcon’, or a Taurus. But it might.

Ford Australia’s return to profit, a skinny AU$25million for the 2010-2011 financial year, followed four years of very red ink.

It might still be in profit, doubtful certainly, but there is little likelihood it has the development funds to design and re-engineer a new Falcon. That’s why it’s waving to the Government for assistance – not drowning, yet, but it’s getting rougher out there.

Ditto again for Holden.

Despite the $149million it received from the Green Car Innovation Fund to assist it in readying its Adelaide facility for the production of the Cruze; despite the $38.9million it received for the development of a ‘cleaner’ greener Commodore, and despite all the other buckets of money it has received under assistance packages going back to 1948 and the Chifley Government’s anointing of the Holden FX, the 48-215, as “Australia’s own car”, Holden will remain a manufacturer in this market for as long as General Motors US wants it to be.

And not a minute, not a second, not a heartbeat longer.

Despite returning to profit in 2010-2011, in the black to the tune of $112million, for the previous five years from 2005 to 2009, GM Holden had operated at a loss. Cumulatively of nearly $600million.

Holden may still be in the black, but with little good news in prospect for exports, with a declining large car sector, declining fleet sales, and a market now being driven by lifestyle brands and proliferating model choices, the Commodore has some hard yards ahead of it.

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The Cruze, selling well, and which utilises a high percentage of imported componentry, is likely to be quite a profitable addition to GM Holden’s local manufacturing.

The issue for Holden however, and for its GM parent, will be the development for the replacement for the Commodore. The development of the VE, you’ll remember, cost the better part of $1billion.

GM US, like Ford, is working hard to consolidate its model platforms across its global operations to reduce development, tooling and production costs. Its only consideration with regard to its Australian operation will be a fiscal one.

And it’s very unlikely that any Australian Government has a pocket deep enough to divert the GM Board from the model strategy it outlined in emerging from bankruptcy - in a nutshell: fewer brands, and less models, sharing more platforms and technologies across more markets.

When British Leyland collapsed in Australia, and then across its global operations, the world was changing faster than companies could respond.

Right now, the problem for the Australian Government is that the structure of the economy has changed faster than the Government has been able to respond.

The mining boom has altered the paradigm and fed high wages, a high dollar, and exacerbated a growing skills shortage – all contributing to worsening conditions for a manufacturing sector.

The answer however will not be found in handouts alone. At best, assistance project by project only provides a solution until the end of the project.

What is needed is a more flexible economy and a transformed manufacturing sector. Unfortunately, that’s not something we’re likely to find just around the corner.

For our local car industry, as we’ve commented before, there is a very big red circle around 2016.

Tim O’Brien
- TMR Managing Editor & Industry Analyst

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