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Reinventing the wheel: Australia’s automotive future

Cars of the Future conference sparks robust roundtable debate over the future of Australia’s automotive industry
Despite a wide array of solid keynote speakers, perhaps the most ‘real’ discussion on the precarious state of Australia’s automotive industry was disseminated as part of the five-strong roundtable discussion that concluded the Victorian government-supported ‘Cars of the Future’ conference in Melbourne this week.

Chaired by Neville Jackson, Chief Technology and Innovation Officer of the UK’s Ricardo Group, the speakers included Volker Richter, Vice-President of Total Vehicle Architecture at BMW Group, Ford Asia Pacific Vice-President of Product Development, Trevor Worthington, Head of Business Development, Passenger Car Transmissions at AVL, Richard Tamba, and Federation of Automotive Products Manufacturers CEO, Richard Reilly.

On reinventing the industry, Tamba, an entrepreneurial thinker who built his Australian business NTC Powertrain into a global player before selling it to AVL in 2011, felt that while a lack of government protectionism and sheer geographic location are hurdles to overcome, many small Australian automotive businesses have remained reactive despite the news of local car manufacturing shutting down.

“It is time for such businesses to get on the front foot and reinvest, looking to the Asia Pacific markets predominantly but also casting the net wider, to see if products have application in other industries, for example the marine or military sectors,” he said.

Worthington cited tariff protection as a key reason for the cessation of localised vehicle production.

“Tariff protection was at 57.5 per cent when I started [at Ford Australia] in 1985,” he said, noting that the current rate of five per cent is too hard for local car-maker to compete with.

“Australia has the engineering quality and we need to look at creating an environment to take local suppliers to a global market while retaining IP [intellectual property],” he added.

But if the lack of government assistance is one hindrance, a far simpler reason for the failure is a lack of scale, said Worthington.

“The most popular car in Australia sells around 40,000 units annually [Toyota sold 43,498 Corollas in 2013] so scale is hard to achieve.”

With a population of 23 million and 60 brands present on these shores, larger scale is difficult to achieve. Since Mitsubishi closed its manufacturing operations here in 2006, Australian car production has slipped from around 300,000 to 200,000 in 2013.

Toyota, which accounted for roughly half of that and exported more vehicles than it sold here, exited local production because it could not be viable at 80,000 vehicles per annum.

That’s well below the 200,000 to 300,000 annual vehicles needed for an assembly plant to be cost competitive, according to the Productivity Commission, which also pointed out that Australian labour rates are higher than those in countries like China and Thailand (and even the US).

For further perspective, Worthington added that his team is currently working on a global project with a target of 400,000 sales per year, indicating the volume large manufacturers require for a return on investment.

Richter suggested that global growth had overcome logistical barriers. “Eighty per cent of BMW production is shipped to China and the United States... It is all about product, production and price,” he said.

Richter added that a potential focus could be on electric vehicle development for China, though he did concede that investing in Australia is difficult for a foreign manufacturer, thanks largely to the exchange rate.

Reilly suggested that “perhaps BMW should look at building right-hand drive i3s in Australia”, to which Volker replied that “i3 built here would be successful”, though his smile indicated a lack of seriousness in his response.

The banter did segue into the next topic, when Jackson raised the question of building a niche vehicle with China a target. Worthington’s experience in China immediately told: “China has a demand for high-end vehicles to import. A niche would need brand recognition and prestige to overcome established brands,” he explained.

The panel was unanimous that Asian markets needed to be targeted, developing a link such as the one the United Kingdom enjoys with Europe.

Moving on to our most saleable attributes, Reilly referred to Australia’s “embedded skills and history of our manufacturing capabilities which can be a big advantage when pitching to emerging countries such as Malaysia and Indonesia”, adding that vital scale could be achieved through joint-ventures and enhanced technologies.

Tamba felt that our strength was simply in innovation. “We have a great capacity to question past processes and find other ways to do things,” he said.

As a left-field example of the latter, Tamba questioned why local manufacturers couldn’t share major expenses in an attempt to survive, perhaps adopting brand-specific body panels to a common driveline.

“There’s plenty of places that build engines here. Plenty of places that build transmissions. Why not share the high costs and clip on Toyota panels, Ford panels, Holden panels at the end?” 

Worthington added that “Australian engineers are among the most flexible in the world, being able to adapt to local, regional and global projects with innovative solutions…perhaps without the [benefits in] funding and time [available to counterparts].”

Richter acknowledged our cultural melting pot, which “enables ideas to flow more freely than in Germany”, while Reilly felt that now is the time to acknowledge we’ve dropped the ball.

He suggested that if Ford, Holden and Toyota went to the government with a unified approach, perhaps a more favourable outcome could have been achieved for the Australian automotive industry.

Source: motoring.com.au

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