Why Australia needs to restart car manufacturing

When the last Holden Commodore, a manual SS-V Redline sedan, rolled off the production line in Elizabeth, South Australia on October 20, 2017, it marked the end of nearly a century of local car manufacturing. At its peak in 2004, Holden built 165,000 cars. Record production levels from the other big two were not far behind at 155,000 for Ford (1984) and 148,000 for Toyota (2007). In 2002, the Holden Commodore was Australia’s most popular car with sales of almost 90,000.

For context, the total sales for Holden’s entire range in 2018 (now fully imported) were just 61,000. To emphasise, total sales of Holden cars were 30% lower in 2018 than that of a single Holden model back in 2002.

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Above: The VFII Holden Commodore - the last car to be mass produced in Australia

Various reasons have been cited from industry sources, both sides of politics and a whole host of other experts for the demise of local automotive manufacturing. To surmise, these have included:

  • A small domestic market. Although Australians tend to have high rates of car ownership, our small population made the industry heavily export dependent, as domestic sales were insufficient to profitably sustain the industry.

  • Geographic isolation. With Australia far away from major automotive markets such as the EU, America and China, exporting vehicles to these regions was expensive, with high shipping and freight costs.

  • High wages & government-union relations. Compared to areas such as Thailand and India, the Australian car manufacturing workforce had much higher wages. Combined with the two reasons above, this made Australian made vehicles expensive to sell elsewhere.

  • Protectionist tariffs. These tariffs were important in making domestic car production viable by enticing fleets and government to buy Australian-made vehicles. Nevertheless, a counter-argument can be made that by reducing competition and becoming dependent on fleet sales, they made domestic manufacturers sluggish, and less willing or able to innovate and adapt to changing market conditions, especially in light of FTAs (free-trade agreements) signed with other countries.

  • Trade deals and ‘more suitable’ cars from overseas. Free trade agreements signed with countries such as Thailand made certain imported vehicles just as inexpensive to buy as locally made vehicles. Often, these cars were more fuel-efficient and cheaper to run than their domestic counterparts, or available in popular body-styles such as SUVs (Ford Territory excepted) that weren’t available through local production. On the other hand, whilst FTAs ostensibly made it cheaper to export Australian made vehicles overseas, these were substituted by ‘hidden’ tariffs that made it difficult to sell Australian vehicles. For example, whilst the Australia-Thailand FTA removed import tariffs from the Thai perspective, Thailand retained tariffs on vehicles with large engines. As Australian made vehicles fell foul of this ‘large engine capacity’ barrier, they practically remained expensive to sell in Thailand.

  • Exchange rates and oil prices. This issue became especially prevalent in the early 2010s as the Australian dollar was close to (and sometimes above) parity with the US dollar, thus further increasing the cost of exporting vehicles. Coupled with high oil prices, this made domestically produced cars, with their typically large engines and high fuel consumption, expensive to run.

Above all, perhaps what can be said is that the decisions by Ford, Holden and Toyota to cease local manufacturing were justifiable decisions. They weren’t absurd or irrational, they could be explained by logically examining the reasons summarised above.

The skills perspective - the car as the ultimate mobile device

Much of the rationale described above is still applicable today. However it’s important to note that fundamentally, the car of 5 or 10 years into the future will be vastly different from the Holden Commodore that rolled off the line back in 2017.

Cars of the past could be categorised as discrete mechanical engineering projects, with the focus squarely on designing, building and testing parts such as the chassis, engine and body. The car of tomorrow will use this as a basis, but - as summarised by Daimler - will also be connected, autonomous, shared and electric.

What does this mean? The automotive industry will increasingly require not just mechanical engineers, but also skill-sets in software and robotics, as vehicles become increasingly digital and autonomous, and developing software becomes integral to a model’s success rather than an afterthought. Just as important will the skills of designers in making this technology accessible, and marketers in working out how people will use their cars through services such as ride-sharing in the future.

Australia is known over all over the world for punching well above its weight in terms of education. Despite our small population, we have eight universities ranked in the world’s top 150. We clearly have the talent to bring significant innovation to each of these fields mentioned above. As described by an executive from a prominent technology company, restarting production of the ‘ultimate mobile device’ will significantly increase opportunities for STEM careers in Australia, and much like a reverse chicken-and-egg situation, greatly improve this skill-set amongst young Australians.

Although the prevailing short term economic conditions (as discussed above) mean that car manufacturing in Australia will likely remain unprofitable, I think we need to shift our perspective to a long-term, skills based mindset. Our society is on an unstoppable march to becoming digital, and that means the importance of STEM skill-sets, together with business acumen, will only increase in proportion. The car is the ultimate mobile device - a marriage of cutting edge digital software and robotics technology together with traditional mechanical engineering nous. More than anything, it is a true demonstrator of a country’s technological prowess. Germany is known as an engineering giant due to the quality of their vehicles. Similarly, work by Tesla, GM and Google on computer vision and robotics has led America to be known as the leader in autonomous driving technology. With the talent and skills that we have, Australia too can make its mark if we realise that a domestic car manufacturing program can be a lens through which our STEM skill-set can be developed.

British Vauxhall factories at risk of closure under PSA

Jim Holder, writing for Autocar:

“If a plant closure is the favoured option, it is likely the axe will be brought down on Ellesmere Port. PSA has already highlighted deficiencies at the Cheshire facility, while Vauxhall's Luton factory had its fate secured for ten years back in April due to demand for capacity to build the Vivaro van. 

Previously, PSA Group CEO Carlos Tavarez stated that the Ellesmere Port plant must close the cost and quality gap between it and its European equivalents if it's to survive.”

This news continues as a flow-on effect following Groupe PSA’s 2017 acquisition of Opel and Vauxhall. The Ellesmere Port factory solely builds the Vauxhall Astra in right hand drive (RHD) for the UK, a car which for Australia, is built at PSA’s factory in Poland. Ultimately, the closure of this factory would not be unexpected - it’s already surprising that an identical model needs to be built in two separate locations despite only the UK and Australia being key markets for the RHD Astra. Surely savings would be realised by shifting production of UK models to the same Polish factory where Australian vehicles are currently sourced from.

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Above: Vauxhall Astra, sold in Australia as the Holden Astra

Holden Test Drive Challenge

Holden has launched a new 'Test Drive Challenge' where the customer receives a $500 prepaid Visa card if they test drive a Holden, but end up purchasing a competitor vehicle. Here's why I think such a scheme is flawed:

  • The key tagline behind this 'Test Drive Challenge' is that Holden engineers have ensured their cars 'perform just like a Holden should.' The problem with this is that Holden's portfolio over the last 20 years has been a cacophony of products sourced from all over the global GM empire. For example, Holden's small car offering has ranged from the Opel (GM's former European arm) sourced Astra, to the Daewoo (GM Korea) sourced Viva, then the originally Korean (and later 'Australianised') Cruze, and now back to the European Astra hatch and North American sourced Astra sedan. Although Holden has recently developed a tuning program to adapt imported vehicles to Australian conditions, these vehicles have fundamentally been developed for different markets, with different driving tastes, and thus do not share 'family-wide' driving characteristics in the same vein that vehicles from Mazda, or even BMW, do.    
  • The campaign in general simply reeks of a desperate attempt to move dealership stock as quickly as possible. Rather then sell cars on their inherent quality, this campaign paves the way for dealerships to convince customers to go for a test drive, and then try to sell the vehicle through heavy discounting, to the extent the customer would be silly to buy a competitor car, even with a $500 benefit. Moreover, such heavy discounting has a detrimental flow-on effect to the residual value of Holden vehicles.