Final Inspection

Pulse Fading for Auto Manufacturing in Australia

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Decades ago, when the world was a much bigger place and six-digit annual vehicle sales were considered a boom market, local production made sense in the country. But, as Ford and Mitsubishi already have concluded, the economics no longer add up.

It looks more and more as if the world has gotten far too small for Australia, and the handwriting on the wall signaling the bleak future for the country’s local auto industry is all-too legible.

Ford announced in May it would abandon manufacturing in the country, winding down its Broadmeadows car factory and Geelong engine facility by the end of 2016. The U.S.-based automaker cited consumer demands for a wider range of products and the high cost of local production as the main reasons for its manufacturing exit.

Now local politicians are scrambling to make sure General Motors doesn’t follow suit, and the automaker is doing its best to ensure it wrings out every last government dollar it can get to keep its Holden manufacturing operations humming beyond 2015.

But no matter what happens with Holden short term, it’s hard to envision Australia remaining a viable manufacturing base much longer.

Decades ago, when the world seemed a bigger place and six-digit annual vehicle sales were considered a boom market, it made sense to maintain local production in the country. Oz was one of the biggest Detroit-friendly confines in the Asia-Pacific region, so for GM and Ford, embedding there was a no-brainer.

Still, it was never easy for Australia to maintain its manufacturing base. With the help of a watchful eye from the government, automakers limited the number of models built in order to maximize economies of scale and searched diligently for every last export market that made sense. Sometimes, as was the case with GM and Toyota, they found ways to work together on vehicle programs to maintain production at more profitable levels.

But eased import tariffs and free-trade deals that have opened the door to imports have made it tougher to justify building vehicles locally, particularly when even Western automakers now have bigger, more cost-effective manufacturing bases nearby from which to draw on, including China.

At its peak in 1974, Australia knocked out just 398,558 cars, according to WardsAuto data. Only 285,590 were built in 2008, when Mitsubishi bailed under financial pressure and declining volumes, leaving GM, Ford and Toyota as the sole manufacturing survivors. Through August, the industry has produced 138,825 cars, down 11.3% from like-2012’s pace.

Ford’s departure will further strain the local supply chain, and a GM exit would pound the final nail in the coffin. It’s hard to envision Toyota going it alone, particularly when it would have to import most of the components needed to continue manufacturing vehicles and powertrains. It already is slashing production and jobs and asking its union for concessions.

So far Ford is vowing to maintain its design and engineering operations in Oz, and it is likely GM would continue to do so as well. But while both will benefit from that extra intellectual capacity for years to come, it’s hard to imagine Australia remaining as influential in the vehicle-development process as it once was.

Long a rear-wheel-drive, fullsize-sedan engineering and market stronghold, buyers have been turning toward higher-mileage vehicles – many of them imports – in increasing numbers, and automakers have been backing away from big, rear-drive models worldwide in an effort to meet tougher fuel-economy and emissions targets.

In a global market topping 80 million new vehicles annually, it’s unlikely Australia, accounting for less than 2% of the total, will be able to remain a key driver in vehicle styling and engineering.

A valiant effort is under way to keep the country’s auto-manufacturing sector breathing a little longer. But the world has closed in on Australia, and the near-term prognosis isn’t very promising.

Industry Minister Ian Macfarlane agrees, telling The Australian newspaper this week, “There's a possibility that the industry is not able to be saved.”

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WardsAuto editors share insights and observations on the global auto industry.

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David E. Zoia

As Editorial Director, I oversee much of what goes into WardsAuto.com, enjoying a ringside seat that lets me observe up close just about every facet of the industry worldwide. I have covered the...

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