The Automotive Industry in Australia - Case Study Example

The automotive industry in Australia (Institution) (Student’s Name) (Student’s number) (Course) (Module number) (Instructor’s name) 14th April 2010 Background information The automotive industry in Australia which is worth A$7.7 billion produces cars, light commercial vehicles, buses, vans, sports utility vehicles (SUVs), heavy duty trucks and specialized vehicles such as fire trucks. However, the industry is recognised large passenger vehicles (Department of Foreign Affairs and Trade, 2008). There are over 200 firms producing automotives and their components with the main players being British Leyland, Toyota, Mitsubishi, Ford and Chrysler. The automotive industry is a key contributor to the country’s economy representing 6% of the manufacturing industry (Reuters 2008; ABS 2004). On average, the industry produces 320,000 vehicles annually both for the domestic market and foreign market. Unfortunately, the industry faces high competition from the foreign market given that over one million vehicle sales were recorded in 2007 alone (Review of Australia’s automotive industry 2008). Prior to the global recession which forced massive industry wide job cuts, the industry had a total workforce of over 65,000 people (Reuters, 2008; Blanpain, Lanbury, & Wailes 2008). The government industry fact sheet on the industry gives a clearer view indicating that that employment levels in the industry has been falling gradually from a high of 81,205 employees as on November 2005 to 50,188 as November 2009. The industry produces motor vehicles in whole in spare parts but is reviewed as one industry. The industry has surpassed is also a top foreign exchange earner and has surpassed traditional industries such as wine, wheat and wool in revenue where for instance automotive product exports for 2007 were worth A$4.7 billion (Review of Australia’s automotive industry 2008). In 2009, 72,503 units were sold in the local market while 147,680 were exported. Export destinations include China, India and the US. However, recently focus has shifted towards emerging markets such as China and India (WARC, 2008) The industry has experienced phenomenal growth in the last few years despite a number of challenges such as the recent global recession. Its growth has been powered by innovation and the industry’s ability to produce vehicles in whole; from sheets to the dealer shop. Innovation which has focused on the production of more environmentally safer cars through fuel efficiency and green production has seen the industry contribute almost 17% of the total amount invested by the manufacturing sector in research and development. In essence, the automotive industry’s investment in R&D is nine times higher than the rest of the economy and three times higher than the manufacturing industry at large (Review of Australia’s automotive industry 2008). Leading companies Toyota Toyota Australia is a subsidiary of the Japan based Toyota Motors. Its presence in Australia began through Theiss Brothers who imported and sold the first LandCruiser models for work on the Snowy Mountains Hydro-electric scheme in 1959 (Blanpain et al 2008). The first assembly of Toyota cars commences in Melbourne under Australian Motor Industries (later AMI-Toyota) in 1963. A decade later, two more models, Corolla and Corona, were being assembled. Theiss Toyota concentrated on heavy commercial vehicles while the AMI Toyota made simple personal cars. In 1988, both units were unified to form Toyota Motor Corporation Australia. The pooling of resources and expertise gave the company a platform to propel its activities a notch higher as a crucial industry player. Further consolidation in 1994-95 saw the establishments of a world-ranking Altona plant in Melbourne that handled all the assembling and manufacturing (Toyota, 2010). Currently Toyota enjoys a consistent 23% share of the Australian market. The dominance of the brand in the market is a result of its association with fuel efficiency, low cost, wide range of vehicles and high quality (Laungaue & Williams, 2008). In 2008, the company emerged as the number one brand where it sold 238,983 units in Australia excluding the Lexus model. The car maker recorded the highest sales in commercial and passenger car categories (Toyota, 2010). Chrysler/Mitsubishi Currently, Chrysler has not manufacturing plant in Australia but imports 300c Sedan, PT Cruiser, Grand Voyager and Sebring Cabrio for the Australian market. The company had established a manufacturing plant in Tonsey Park in 1966 after acquiring Chrysler Dodge Desoto Distributors in 1951. The Australian Chrysler gained popularity as the preferred automaker of right handed Chrysler models which were exported to Japan, New Zealand and South Africa. However, due to intense competition from Ford, the company would later come to rely on assemblage of Mitsubishi motors from Japan. Finally in 1981, the company wound shop in Australia and sold its assets to Mitsubishi motors (Blanpain et al 2008). Mitsubishi Motors Australia specialised in manufacturing passenger vehicles and importing road vehicles. The new firm continued producing Chrysler Colt until 1980 when the company stuck to the sigma model. However, due to the recent global financial crisis, the firm closed its operations in the country in March 2008. Early in the 1990’s Chrysler re-entered the Australian market importing the Jeep Wagoneer and the Chrysler Neon up to 2002. Currently, the firm is represented by a number of models all of which are imported with none manufactured locally. Nonetheless, the jeep model which is perceived as tough and suited for the local roads has a considerable market share. Ford This has to be one of the oldest models in Australia, first spotted in 1904 on Australian roads. The first manufacturing plant specialising in the Ford Model T was established in1925 at Geelong. Another factory was set up in 1959 which manufactured the Falcon. Competition was still high as consumes demanded tough vehicles for Australian roads with the Kingswood being viewed as tougher than Falcon. Ford therefore launched another version of Flacon, the XB Falcon. The Commodore was also introduced in 1978 and together with XB Falcon they challenged the General Motors’ Holden in market share. In the following years, Ford responded well to consumer needs and competition. After a number of manufacturing blunders attributed to limited testing before release, test driving is one of the key values of the company which has won it many valued customers. The company has been rewarded with numerous Australian awards for design and manufacturing. External environmental factors Political factors The Australian automotive industry is very open allowing new entry of new players in the market. For instance it is indicated that the country has lowest production to sales ratio among the leading auto-manufacturing countries. While the industry produces around 320,000 units annually, around units are sold in the domestic market. In the 1980’s during the Button Plan, the industry was protected by quotas and a tariff of 57.5% which has been removed (Review of Australia’s automotive industry 2008: Blanpain et al 2008). The automotive industry has been one of the greatest beneficiaries of the economic stimulus package. In November 2008, the government pledged to inject an additional A$3.4 billion into the industry to salvage it. This totalled to a total of A$6.2 billion forcing political forces to question the value of having an automotive industry which is worth A$7.7 billion (Reuters 2008). Economic factors As a major employer in Australia, the automotive industry’s exposure to global recession has caused many firms to lay off workers or force them to work part time and in the process increase unemployment. As of July 2009, the number of people in full-time employment fell by 21,900 to 7.61 million in June, from 7.63 million in May, while the number of people in part-time work rose 400 to 3.15 million (Holmes, 2010). Nonetheless, people are more willing to work longer hours only that employers cannot allow. Greber and Zachariahs (2010) write that the month of March recorded the highest average number of working hours among Australians since 1998. This according to Reserve bank analysts marks the recovery of the economy where the month of February unemployment was only 5.3% (Review of Australia’s automotive industry (2008). They attribute this change to recession troubles labelling it a wake up call for the labour market. Greber and Zachariahs (2010) say that before the recession, the number of average working hours was declining but the recession provided a turning point for workers who were forced by security worries and inflation to work more to meet daily needs. Although there is reportedly relatively high unemployment level in the country, 5.3%, the figure is inconsistent with the job opportunities offered by Australian employers. The total job vacancies in February 2010 were 169,000, an increase of 12.1% from November 2009. The private sector offered152, 200 vacancies in February 2010 marking a13.7% rise from November 2009. The public sector reports a different case with the number of job vacancies being 16,800 in the same month which is a 0.6% from November 2009. Greber and Zachariahs (2010) argue that the decrease in public jobs is a result of the government wounding up economic stimuli projects which had been put in place to spur growth and prevent the economy from falling into full recession. High global fuel costs which have increased by 400% in the last decade have lowered the demand for muscle cars which tend to consume high amounts of fuel. However, the increase has not been that high in Australia only registering 33% increases in prices (Review of Australia’s automotive industry 2008). For instance as a result of 11.4% fall in sales in October 2008, Ford Australia announced planned to cut 450 jobs in October 2008 amid financial market jitters. In general, the manufacturing output fell by 4.8% in the last quarter of 2008. On the overall, the automotive industry lost 50,600 jobs in the first nine months of 2008 (Martin, 2009) Technological factors Technologic growth has ensured the establishment of more efficient lines of production in the assembly plants. Consequently, manufactures are able to enjoy the benefits of scale as a result of large scale production with minimal labour costs. Howard (2002) says “Multi-model lines offer greater flexibility and cope better with shorter model life cycles, where new model ramp-ups can be introduced into mainstream assembly operations quicker and more frequently” (p. 27). Manufacturers have adopted computerised services such as wheel balancing and trouble shooting programs which have improved the delivery of after-sales service to their customers. The delivery of after-sales is an important customer retention factor more for automakers. This service has also been made available over the internet where customers can also write review on specified vehicle models. Increased investment in the development of clean fuels and environmental conservation has given a new direction in technology development in the automotive industry. The Australian government has been supporting R&D initiatives in developing electric powered vehicles. Again, the government has dedicated research funds in the development and production of bio fuels in large quantities to serve the Australian market and mitigate the effects of fuel emissions from automobiles. Social-cultural Australian consumers have been described as being specific and sensitive. This has altered the manufacturing and the marketing of automobiles in an attempt to meet consumer needs. The green production wave has caught up with consumers who are conscious of the amount of emissions from their vehicles. Again, consumers are gradually shifting into hybrid vehicles which conserve the environment and consume less fuel thereby saving them some coins. Loyalty issues and changes in family size have an impact on the model of vehicles demanded. The Australian government has been supporting but local attitudes from consumers. On the other hand, families seem to shifting from vans, minivans and utility vas to sports and smaller sized vehicles (Martin, 2009). Legal issues The issue of environmental conservation is widely captured by the law. The Motor Vehicle Standards Regulations 1989 and The Motor Vehicle Standards Act 1989 covers various interpretations relevant to the motor vehicle industry. This act gives provisions on the prescribed limits for vehicle emissions. For example it recognizes the need to place limit of emissions from petrol and diesel engines as per UN statutory on environmental conservation. The luxury car tax is charged on luxury cars whether bought locally or imported on top of the goods and services tax. In 2008 this tax was increased from 28% to 33% in order to encourage more demand for fuel efficient vehicles (Review of Australia’s automotive industry 2008 The Australia-United States Free Trade Agreement (AUSFTA) binds force the country to open up its market to competition form the US. This has as a result increased competition in the auto industry in Australia and poses a threat to local manufacturers on market share (Blanpain et al 2008). References ABS. Retrieved online on 14th April from http://www.abs.gov.au/AUSSTATS/abs@.nsf/2f762f95845417aeca25706c00834efa/b7f52642c92ff11cca2570ec0073f6a7!OpenDocument Blanpain, R. Lanbury, R. and Wailes, N. Globalization and employment relations in the auto assembly industry: a study of seven countries. Perth: Kluwer Law International Department of Foreign Affairs and Trade 2008. Submission to the Review of Australia’s Automotive Industry 2008. Retrieved online on 14th April from http://www.innovation.gov.au/automotivereview/Documents/113%20DFAT%20220508.pdf Greber and Zachariahs (2010). Australians Working Longer May Prompt Higher Peak in RBA Rate. http://www.businessweek.com/news/2010-03-11/australians-working-longer-may-prompt-higher-peak-in-rba-rate.html Holmes, S. 2009. Australia's Unemployment Worsens. Retrieved online on 14th April from http://online.wsj.com/article/SB124710684556816209.html Howard, C. (2006) 3DayCar Production Flexibility Solving the Barriers to Build-to- Order with Production and Process Technology/ Retrieved online on 14th April from http://www.3daycar.com/mainframe/publications/library/prodflex.pdf Laungaue, A. and Williams (2008) Toyota Australia - When newer isn't enough: The launch of the Lc70. Retrieved online on 14th April from http://www.warc.com/ArticleCenter/Default.asp?CType=A&AID=90343&Tab=A Martin, A. 2009. The Global recession and Australian manufacturing. Retrieved online on 14th April from http://directaction.org.au/issue12/the_global_recession_and_australian_manufacturing Motor vehicle standards act 1989. 2006. Vehicle Standard (Australian Design Rule 80/02-Emission Control for Heavy Vehicles) Minister for Local Government, Territories and Roads. Retrieved online on 14th April from http://legislation.gov.au/ComLaw/Legislation/LegislativeInstrument1.nsf/0/34E635C55F4B2726CA25724200028CB6/$file/ADR8002ExplanatoryStatement.pdf Outlook for the Automotive Manufacturing Industry Fact Sheet. 2010. Retrieved online on 14th April from http://www.industry.gov.au/Section/AboutDIISR/FactSheets/Pages/OutlookfortheAutomotiveManufacturingIndustryFactSheet.aspx Review of Australia’s automotive industry (2008). Retrieved online on 14th April from http://www.innovation.gov.au/automotivereview/Documents/aug08%20final%20report_secure.pdf Read More