Upping the Ante Down Under

For Australian industry watchers, the plunges and vaults of the auto business has proved to be an even better spectator sport than the Sydney Olympics.

The year's automotive landscape hinged on the July 1 implementation of a new tax structure. A 22% wholesale tax replaced by a new 10% Goods and Services Tax, causing car prices to drop an average of 6%. Results were immediate, with a record 68,500 new cars sold in July, up from 38,696 in June.

The soaring sales may boost the morale of Australia's domestic makers, which implemented massive price cuts in the year's first half and are feeling pressure from an increasingly viable import market. The domestic players, which already comprise less than half the market, uneasily await increased competition in 2005, when tariffs fall to 10% from 15%.

Toyota Australia President Ken Asano warns his company may not survive much past the 2005 tariff cut.

In fact, of the four companies building cars in Australia - General Motors Corp.'s Holden's Ltd., Ford Motor Co. of Australia Ltd., Toyota Motor Corp. Australia Ltd. and Mitsubishi Motors Australia Ltd. - all but GM find their futures in the balance.

Domestic makers also suffer from currency woes. Mr. Asano says the Australian dollar, which recently plummeted, now is so weak that exports don't cover the higher costs of imported parts. Toyota, which may not turn a profit this year, is giving itself three years to get on track before rethinking its manufacturing presence.

Mitsubishi may not last long enough to see the impact of tariff cuts. Money-losing Mitsubishi Australia this year slashed 600 white-collar jobs following an edict from Japan calling for its two plants to break even by year's end or face possible closure.

DaimlerChrysler AG, which is putting the finishing touches on a deal to take a 34% stake in Mitsubishi, may turn the screws even further in its demands for a stronger financial performance. But so far indications are that the company's cash injection is easing Mitsubishi's problems and extending its Australian life span.

Ford, with a 75-year history Down Under, denies rumors that it will pull out, despite continuing drops in revenue and sales, and a flagship product - the AU Falcon - that flopped and needed a quick revamp.

But Holden's, with a 21% market share, is simultaneously increasing volumes and revenues, and has plans to design and sell 25,000 4-wheel-drive Commodore crossover vehicles annually. A new V-6 engine plant also is in the works.

Holden's market-leading success shows that currency issues and the import challenge are not unbeatable forces. Not unbeatable, but for the domestics, the battle won't be easy.