The Australian automotive industry and its performance

Abstraction

This paper discusses the Australian automotive industry in deepness, get downing with developing an apprehension on the construction of the industry and familiarising with the cardinal market participants. It further elucidates the industry ‘s public presentation over the decennary, discoursing at depth the positive and negative impacts of globalisation from the benefits to the Australian consumers and increase in exports to the worsening portion in the domestic vehicle gross revenues, runing from factors like alteration in client gustatory sensations, GDP per capita and the exchange rate.

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Overview of Australian Automotive Industry

The Australian Automotive Industry consists of three major oligo polistic vehicle manufacturers ; Ford Motor Company of Australia, GM Holden and Toyota Motor Corporation, Australia. One of the motor vehicle manufacturers in Australia, Mitsubishi terminated its operations in Australia in March 2008 ; nevertheless it continues to import the cars. Furthermore, 200 manufacturers in Australia supply constituents and 500 houses provide tooling expertness for the facilitation of the Australian Automotive Industry. ( Australian Government: Department of invention, industry, scientific discipline and research, 2008 )

In add-on to that, Australia is one of the 15 states in the universe holding the accomplishment to take the auto from perceptual experience to completion. With the proficiency in countries such as engines, panels, braking and clasp systems, suspension systems, fumess, transmittals and rear axles, air conditioning, occupant safety, vehicle instrumentality, electronics, illuming, mirrors, wheels and tyres to the expertness in R & A ; D, technology, design, merchandise development and promotion, Australia has the possible to prolong and spread out its Automotive Industry. ( “ Australia ‘s Automotive Industry ” , 2004 )

Due to the technological promotions and the international competitory environment, the automotive industry is invariably reshaping and reconstituting. The employment in the Australian Automotive industry is divided amongst the four major groups.

The major part of employment is in the Automotive Industry representing 40 % of the industry ‘s employment portion followed closely by the Component industries at 32 % , and so the motor vehicle organic structure fabrication and the last to be the electric and instrument fabrication representing 23 % and 5 % severally.

( Beginning: Australian Bureau of Statistics, 2007 )

Consequence of Globalization

One of the cardinal benefits of globalisation is the decrease in Tariffs throughout the universe to increase the publicity of trade between states.

Below is a saloon chart ( Table 1 ) which reflects states and their decrease in duties on the import of Passenger Motor Vehicles. Japan has Zero per centum duty on imports, followed by United States ( 2.5 per centum ) , so UAE ( five per centum ) and 10 per centum duties in European Union and Australia.

However 25 old ages back in 1984, Australia ‘s duty on Passenger Motor Vehicles was 57.5 per centum. Now, the duty of Passenger Motor Vehicles has reduced to 10 per centum, and the Australian Government has programs to diminish them to five per centum by January 2010. ( Australian Government: Department of invention, industry, scientific discipline and research, 2008 ) .

Table 1

( Beginning: Australian Government: Department of invention, industry, scientific discipline and research, 2008 ) .

Due to globalisation, Australian Automotive Industry has had many positive every bit good as negative impacts, which we will comprehensively cover with

POSITIVE IMPACTS

Increased exports

The decreases in protectionism throughout the universe have benefited Australian automotive export. Due to the lower duties, the constituent manufacturers have been able to export to different states, these exports chiefly constitute engines, braking systems, mirrors, propellor shafts, warming, airing and air conditioners which are imported by some of the largest of universe ‘s importers including US, North America, South Korea and even China. While Australia ‘s anti-theft systems are demanded globally. ( Year Book Australia, 2005 ) .

The Australian exports of the wholly built up Passenger Motor Vehicles, its derived functions and the Sports Utility Vehicles have besides increased from 83,205 units in 1999 to 140,243 in 2007, an addition in exports of up to 68 per centum which is besides reflected in the saloon chart ( Table 2 ) below.

Table 2

( Beginning: Cardinal Automotive Statistics, 2007 )

Free-trade ventures and Australian Automotive Industry

One of the grounds why Australia can non perforate its exports into every state because of the state ‘s higher duties. The chart ( Table 4 ) below compares the consequence of duties on Exports between Middle East and ASEAN ( Association of South East Asian Nations ) . UAE for illustration, which is a portion of Middle East, has a 5 per centum duty on import whereas states in ASEAN such as Malaysia and Philippines has 30 per centum duty on imports.

Table 4

( Beginning: Cardinal Automotive Statistics, 2007 )

The exports in Middle East have increased bit by bit whereas the Exports in ASEAN have been comparatively less and stagnant. One of the major grounds that the Australian Automobile Manufacturers could perforate in the Middle Eastern Market is the lower duties.

In order to increase its incursion in the ASEAN and states holding high duties, Australia started to subscribe Free Trade understandings. Free trade understanding is a pact between two or more states which are meant to cut down or wholly take duties to merchandise.

On 27 February 2009, Australia ventured a trade with ASEAN ( All South East Asian Nations ) and ANFTA ( Australian New Zealand Free Trade Agreement ) , with its understanding being effectual no subsequently than January 2010.The trade will help Australia in increasing the figure of exports, for this part as the import duties will lessen bit by bit reflected in Table 5.

Table 5

( Beginning: Australian Government: Department of Foreign Affairs and Trade, 2009 )

The tabular array gives an illustration of Malaysia and Indonesia amongst the several states in ASEAN and the decrease of duties due to FTA in the old ages following. Indonesia in 2008 had a duty of 65 per centum on new autos which after this understanding would bit by bit cut down to zero per centum by 2019 whereas in Malaysia, the duties would diminish from 30 per centum in 2008 to 5 per centum by 2018.

AUSFTA ( Australia United States Free Trade Agreement ) and Australia Chile Free Trade Agreement went into force on 1 January 2005 and 6 March 2009 severally which has farther enabled the Australian Automotive industry to increase exports as duties on all bing ware will be eliminated by 2015 ( Australian Government: Department of Foreign Affairs and Trade, 2009 ) .

Negotiations are afoot with China, Gulf Co-operation, Japan, Korea, Malaysia and the TPP ( Trans Pacific Partnership ) to join forces and subscribe the Free Trade Agreement ( Australian Government: Department of Foreign Affairs and Trade, 2009 )

Free Trade Agreement so is a important measure taken for the Automotive Industry to increase the gross revenues in the foreign market and hence achieve big graduated tables of economic system and guaranting fight in the World Automobile Market.

Retail, Service and Repair Sectors

There are many sectors in the Australian Automotive Industry one of which is the Retail, Service and Repair Sector.

52,000 people are employed in this sector and its maps include:

Distribution and gross revenues of New Vehicles

Distributions and gross revenues of Old Vehicles

Dumping and recycling of old vehicles.

Distribution and gross revenues of accoutrements and parts.

Repairing and Servicing ( National Industry Career Specialist Manufacturing, 2008 ) .

The mentioned sector is turning as due to globalisation, the gross revenues of car/year have been increasing steadily every bit mentioned in Table 3 due to increasing GDP per capita and the low-cost auto monetary values domestically.

Table 3

( Beginning: Cardinal Automotive Statistics, 2007 )

Demographics of skilled work force

Due to globalisation, the trade and gross revenues of every merchandise is going highly competitory. In the present every bit good as the hereafter epoch “ productiveness is of import because the higher it is, the lower the monetary values, the greater the end product, the higher the return on capital, the higher the rewards, and the greater the opportunity a concern has of lasting ” ( Penn, neodymium ) .

The Australian automotive industry acknowledges this fact and is endeavoring to better productiveness of employees as signified in Table 6.

Table 6

( Beginning: Cardinal Automotive Statistics, 2007 )

The mean vehicles produced by an employee have improved from 15.5 per centum in 1997 to 18.9 per centum in 2007 as illustrated by the above chart ; a rise of around 22 per centum. The positive side, the productiveness of employees is lifting, as analyzed in the Ford ‘s study of its 5000 employees from 1995 to 2007 is a consequence of turning figure of educated professionals ; 62.4 per centum employees being TAFE qualified in comparing to 22.7 per centum in 1995 ( Australian Government: Department of invention, industry, scientific discipline and research, 2008 ) .

This is so an optimistic mark for Australia as the present and hereafter will has new and advanced engineering, design, processing and hence the up step of accomplishments will be a cardinal factor in supplying the right human resource to the industry. The industries itself are taking acute involvement to develop and educate human resource by on the occupation preparation, concern and investings in the Technical and farther instruction ( Automotive Training Australia, 2007 ) .

With globalisation comes a watercourse of negative impacts for the Australian Automotive market which will be discussed below.

Negative IMPACTS

Unemployment

The fabrication cost in Australia has become comparatively high because of the higher rewards, which are reflected from the GDP per capita of Australia 37,299 GDP, ( IMF, 2009 ) .Therefore due to the cost of fabricating being high, the constituent manufacturers are bit by bit floating towards states holding lower labour cost such as Asia. ( Super Cheap Auto Pty Ltd,2008 ) This in fact, is one of the factors diminishing the employment in the Australian automotive industry and is further illustrated by the saloon chart below:

( Beginning: Cardinal Automotive Statistics, 2007 )

The chart depicts the gradual lessening in employment after 2003/04. After making its extremum of using 69,800 people in the automotive industry, the employment has bit by bit declined to 67,100 in 2005/06.

Scales of economic systems

( Beginning: Federal chamber of Automotive Industries, 2009 )

As per the chart above, Australian automotive industry produced 324,118 autos as compared to 408,186 autos being produced in 2003.

The entire autos manufactured worldwide in 2008 are 52,940,559 ( Worldometers, 2009 ) .

This degree of production is comparatively little, accounting for less than 0.01 per centum of universe production.

Therefore, viing with states which have larger graduated table of production advantage poses a large menace to the Australian automotive industry.

In order to prolong the planetary market competition, enlargement into abroad market is critical to accomplish graduated tables of production.

Exchange Rate Issue

Exchange Rate has had a major consequence on the domestic gross revenues every bit good as the exports for the Australian Automotive Industry. The tabular array below suggests that US dollar has depreciated in the past few old ages against the US Dollar. Therefore, this rise in Australian dollar has had a major impact on the fight of the Australian cars.

( Beginning: Forecast chart.com, 2009 )

The rise in Australian dollar agencies that the monetary values of domestic autos get comparatively more expensive than the monetary value of the imported auto. Since the currency for most of the exports in is in US Dollars, therefore the monetary value of the Australian auto in the international market has besides increased.

The volatility in the exchange rates can besides impact the worsening of the net income borders. For illustration, if Toyota wants to establish a auto in US in July 2009. The full cost of the auto in AU $ is 25,000. Toyota took a net income border of 15 % , on a full-cost footing with an Australian Monetary value of AU $ 28,750. The exchange rate was 1.29 AUD/USD, hence Toyota and a mark US Price of US $ 22,287.

But in August, the exchange rate declined to 1.19 AUD/USD. This led to two jobs:

If Toyota Australia increases the monetary values of the auto as per the exchange rate, the auto will go competitively expensive which will present a menace to worsening volumes of gross revenues.

If Toyota Australia fixes the monetary value to US $ 22,287, the net income borders of the auto will diminish from 15 per centum to 6 per centum as signified in the tabular array below.

Toyota

A

A

A

11-Jul-09

4-Aug-09

Full Cost in AUD

AUD 25,000

AUD 25,000

Net income Margin ( @ 15 % )

AUD 3,750

AUD 3,750

Australian Monetary value

AUD 28,750

AUD 28,750

Topographic point Rate ( AUD / US $ )

1.29

1.19

Base Price in US $

$ 22,287

$ 24,160

A

A

Fixed Target Price in US $ ( no consequence of exchange rate )

$ 22,287

$ 22,287

Topographic point Rate ( AUD / US $ )

1.29

1.19

Price Received in AUD

AUD 28,750

AUD 26,521

Less Full cost

AUD 25,000

AUD 25,000

Residual Margin

AUD 3,750

AUD 1,521

Net income Margin ( % )

15.00

6.09

( Source: Exchange rates.org, 2009 )

The above illustration reflects that the strengthening of dollar has had a cardinal impact on the exports. Since the major exports is in the Gulf and the US are linked in the US Dollar.

Since the US Dollar has weakened, hence the monetary value index of the imported autos has dropped by 2 % , and hence imported autos in the domestic markets are comparatively inexpensive than the Australian autos ( Beginning: Australian Government: Department of invention, industry, scientific discipline and research, 2008 ) .

However, on the other manus, the grasp of Australian dollar has reduced the cost of importing capital equipment required for upgrading and spread outing capacity.Impact on client penchant

Since there is less protectionism for imports in Australia, more states have a gateway to export autos to Australia. This in bend, benefits the local consumer as they have a broad assortment of autos to take from and since there are more participants in the car market, the competition between the motor vehicle manufacturers increases, doing autos comparatively inexpensive to pull the consumer.

The saloon chart below illustrates the alteration in client penchants from 1998 to 2007.

( Beginning: Australian Government: Department of invention, industry, scientific discipline and research, 2008 )

In the yesteryear, Australian consumers had penchant for big autos ; in 2000, the portion of the big autos in the Australian market was 35.9 per centum with the gross revenues bit by bit worsening to 21.9 per centum by 2007. The major domestic big autos in Australia are Holden Commodore, Falcon, Fairmont, Camry 6, Vienta, Avalon, Aurion, Magna 6 and Verada. While it is interesting to observe that the portion of imported big autos have increased somewhat ; from 1.1 per centum of gross revenues in 2000 to 2.4 per centum of gross revenues in 2007, once more demoing the addition in purchasing potency of Australian consumers ( Key Automotive Statistics, 2007 ) .

The bulk of gross revenues in the Australian Automotive Market now comprise of Light/Small Cars ; 56.6 per centum of the entire autos sold in Australia in 2007 were light / little autos as compared to a 44.1 per centum portion in 2000. Australian car industry do non fabricate light/small autos, therefore 100 per centum of the light/small vehicles in the Australian market are imported ( Key Automotive Statistics, 2007 ) .

The medium section of the autos had a 7.3 per centum portion in 2000 which has increased to 14.5 per centum in 2007. The portion of the local manufacturers in this market has decreased somewhat from 4.5 per centum in 2000 to 4.1 per centum in 2007 while the gross revenues of imported autos have increased 4 crease from 2.8 per centum in 2000 to 10.4 per centum in 2007 ( Key Automotive Statistics, 2007 ) . .

The sale of the SUVs ( Sports Utility Vehicles ) has besides increased from 13.4 per centum in 2000 to 18.9 per centum in 2007 ( Key Automotive Statistics, 2007 ) .

There has been a important alteration in the demand for autos bought by the consumers in the Australian market.The information reflects that the clients are switching their penchants from purchasing a Large Car to purchasing a Light / Small Car and, followed by SUV ‘s and Medium Cars in a descending order.

A research by Wilson ( 1995 ) stated that the Australian consumer ‘s disposition depends upon factors such as safety of the vehicle, fuel monetary values, environmental impact of autos and the route system. Hence, the addition in the gross revenues of the little autos is due to their fuel efficiency and environment friendliness. However the clients ‘ penchant for luxury autos such as SUV ‘s has besides increased although they are less fuel efficient but the clients are fond of differentiated imported theoretical accounts.

Wilson ( 1995 ) conducted a study 14 old ages back in 1995 indicating that 63 per centum of Australian consumers would prefer to purchase a local auto instead than an imported auto. However, bulk of the people who were in favour of protecting Australian Automotive Industry had non completed station school makings – 70 per centum, while the per centum of consumers holding university grades who responded in favour of protecting the Australian Automotive Industry were merely 29 per centum. Hence, we can believe that those people who had completed higher instruction were in favour of cut downing duties for international fight and efficiency. The people holding completed an undergraduate grade have increased from 15 per centum in 1996 to 24 per centum in 2008. ( Australian Government: Department of Education, Employment and workplace dealingss, 2008 ) . Hence, it can be deduced that today more people in Australia are bit by bit floating from national sovereignty to planetary fight ; being one of the factors for the addition in gross revenues of imported autos.

The negative effects which include the strengthening of the Australian dollar, the decrease in duties, the higher fabrication cost due to expensive labour and lesser graduated tables of economic systems, and the alterations in consumer wonts have led to the gross revenues of the domestic autos within Australia to diminish which is besides mentioned in the Table below.

( Beginning: Cardinal Automotive Statistics, 2007 )

In 2007, the domestic autos sold in Australia were 157,262units, whereas the entire imported autos sold were 479,757 units. Out of every 4 autos sold in Australia, merely one was a domestic motor vehicle. The cardinal statistic to observe is that out of the 479,757 units of imported autos sold, 360,279 units were light/small autos and zero units of locally produced light little autos.

Battling Measures

Australian automotive industry did non capitalise on the section for small/light autos which generated the bulk of gross revenues in the Australian automotive industry. Tcha and Kuriyama ( 2003 ) suggest that after Toyota ‘s withdrew its production in 1999, no company produced little autos in Australia.

Best Practices of elephantine participants

Sing the popularity of smaller/lighter vehicles in the domestic market due to the fuel efficiency and the altering life styles of consumer, Ford is be aftering to get down the production of its new theoretical account named Ford Focus ( a little, fuel efficient and pro environment auto ) . The production of Ford Focus will get down in 2011 which besides is expected to make 300 occupations in the Australian market and supply chances for concern to the constituent manufacturers. Ford focal point will chiefly be engaged in selling its autos locally and besides exporting them chiefly to New Zealand and South Africa ( “ Ford to fabricate little autos in Australia ” , 2007 ) .

Like Ford, Holden, another automotive fabrication concern, has similar programs to construct a little auto due to switching paradigms of client penchant in Australia. Holden is technology its engineering for better fuel economic system, with a possibility of supplying alternate fuels such as Compressed Natural Gas, LPG and E85 ( Kuby, 2006 ) .

Research and Development

Australia is one of the 15 states in the universe which can construct a auto from the abrasion till the terminal. Due to the technological and expertise advantage, Australia has started to put more on the Research and Development. Along with R & A ; D, Australia is besides taking steps technological promotions in the tooling industry. It is besides improvizing on supply concatenation and the productiveness of employees ( Australian Government: Department of Foreign Affairs and Trade, 2009 ) . The chart below suggests a steady addition in investing on R & A ; D yearly in the 10 twelvemonth period from 1996 boulder clay 2006 ( AusIndustry, 2007 ) .

A living illustration of the benefits of investing into R & A ; D is Toyota Australia which made record net incomes for the twelvemonth 2007 to 2008 and the ground of their success in determined investing on human capital and cost effectivity despite the inauspicious market tendencies as illustrated in the remarks of their President, Mr. Max Yasuda ( 2008 ) in a Press conference said that “ In our market, I expect the local car-makers will go on to see increased force per unit area on profitableness from fabricating operations, in malice of strong grosss from imported vehicles. ” ( Pettendy, 2008 ) Hence the competition will increase as the old ages pass along with the boundaries of protectionism bit by bit fade outing cut downing the profitableness of the makers. The ground for success can be best described by his statement “ Since 2002 we have invested about $ 900 million on investings aimed at cost and efficiency betterments. In add-on, we have invested in bettering employee accomplishments and initiated a company-wide plan aimed at bettering efficiency and cut downing costs across all parts of the concern ” ( Pettendy, 2008 ) .

Australian authorities acknowledges that the Automotive Industry is of strategic importance to the economic system and hence, Australia Competitiveness and Investment Scheme ( ACIS ) is puting immense financess on R & A ; D, in order to better and research the skylines for new technological break-throughs in green and fuel-efficient autos. Due to the high rewards and high skilled labour, the endurance of the automotive market is dependent upon new engineerings which can so increase the figure of exports and competitory advantage ensuing in super normal net incomes ( AusIndustry, 2007 ) .

Decision

We have dilapidated that the Australian automotive Industry is confronting increased competition due to the stronger exchange rates, comparatively expensive labour cost and lower international tariffs. , The research presented by this Paper supports that the market portion of Australian motor vehicle manufacturers have declined significantly over the last decennary. Furthermore, this treatment reveals causes for this slack, chiefly foregrounding the industry ‘s failure to place and react to the pulsation of it consumers therefore lose its portion to competition.

Towards the solutions forepart, the Paper discusses some success narratives deducing from them disciplinary recommendations to turn to the complaints of the industry, reasoning through illustrations of Holden and Ford that best disciplinary step lies in the re-engineering of production towards tendency of little, environment friendly and fuel efficient vehicles. Furthermore, it besides suggests acceptance of patterns to drive the cost of production down by re-structuring the fabrication operations and effectual supply concatenation management- all in all place the concern to harvest maximal benefits of globalisation and pay lower limit costs.

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