Last week, Toyota's last car rolled off the assembly line at its Melbourne plant © Marks and Spencers
Last week, Toyota's last car rolled off the assembly line at its Melbourne plant © Marks and Spencers

The supply chain impact of Australia’s dying auto industry

9 October 2017

After more than a century, Australia’s car manufacturing industry has reached the end of the road.

Last week, thousands of Toyota’s workers gathered to watch the last car roll off the assembly line at the Japanese firm’s plant in Melbourne before permanently closing its doors.

Soon to follow will be the closure of General Motors-owned Holden’s South Australian plant—the nation’s last assembly plant—on 20 October, effectively ending the industry.

Other manufacturers, including Ford and Mitsubishi, have already pulled out of the country in recent years.

Since reports first surfaced of the planned closures back in 2013, many analysts have tried to quantify the subsequent fallout. For the majority, there can be no glossing over the impact that the closures will have on the Australian economy.

A report by the University of Adelaide estimates the industry collapse will put up to 200,000 jobs at risk across the nation and take $29bn out of Australia’s GDP annually.  

John Spoehr, co-author of the university’s report, said the plant closings and resulting loss of supply chains would have a wide impact.

“We haven’t seen in recent history the collapse of an entire industry, but that’s what is happening,” he said.

The numbers are a reflection that the car manufacturing industry does not operate in isolation. In 2009-10 there were approximately 73,772 full-time employees in the motor vehicle industry, which includes the production of other transport equipment as well as parts, producing a total gross output of $20bn, according to the Australian Manufacturing Workers Union.   

A Senate inquiry into the future of Australia’s industry said Toyota’s closure alone would see at least 16 component-making businesses across Victoria close and 25 downsized, affecting the employment of more than 3,000 supply chain workers.

It estimated the overall exit of Ford, Holden and Toyota however, would create a vacuum for 260 businesses that supply accessories and components to the Australian automotive sector. 

The failure to prop up local manufacturing has generated plenty of finger pointing, with the blame largely falling on the government’s decision in late 2013 to discontinue costly incentives, which critics say led the last automakers in Australia to pull out. Before then, the federal government supported the car industry through a range of assistance measures to the tune of $7bn since 2001, according to government figures.

However, responding to Toyota's closure, prime minister Malcolm Turnbull rebuffed the claims.

“The manufacturers who have progressively closed their operations in Australia have made it clear it is not because of a failure of government subsidies, it’s because of changes in market taste,” he said. 

“People stopped buying the sedans that were being made in Australia, or stopped buying them in sufficient numbers to support the industry.”

Spoehr’s report points to untenable domestic market conditions in Australia, including the lowering of tariffs on imported vehicles and the signing of free trade agreements with other countries causing a flood of cheaper foreign vehicles. Higher wages and better work conditions demanded by the unions and the appreciation of the Australian dollar were also contributing factors to the industry’s downfall. 

In explaining its decision to shut its South Australian assembly plant in 2013, General Motors international president Steve Jacoby said that rising costs, a fluctuating dollar and increased competition in Australia meant the sums “simply didn’t add up”.

Global management consulting firm Boston Consulting Group now ranks Australia the worst performer among 25 nations assessed in its worldwide manufacturing cost-competitiveness index. Costs are higher than in Germany, the Netherlands and Switzerland and Australian manufacturing wages rose 48% in the past decade while productivity fell, it said.

The good news however, is that Toyota, Holden and Ford have all said they recognise the excellence of Australian vehicle designers and engineers.

Ford retained its production development centre and testing facility after it ceased manufacturing in 2016. Holden has hinted that it will retain its global design studio after it closes its plant later this month, but has not commented on the fate of its product engineering work. 

For Spoehr, the key to attracting new investment in the industry lies in preserving the capabilities in advanced manufacturing.

During Siemen’s Digitalise 2017 conference in Sydney last month, Chris Vains, Siemen’s head of digital enterprise, said the country could revive its automotive industry but warned it would look very different.

“In Australia, we still have a lot of engineering expertise that is being utilised in the automotive industry,” he said.

He added that Queensland manufacturer PWR also has a hand in the automotive sector by delivering cooling components for radiators in Red Bull’s Formula One racing car.

In June, senator Kim Carr addressed a summit at Parliament House in Canberra, saying the industry would still exist but under a new identity.

“What we won’t be doing is making fully-produced vehicles, but we do have a significant number of manufacturers making a major contribution to the supply chain.”

However, that will depend on what happens to the main form of government assistance to the industry, the Automotive Transformation Scheme (ATS), which is scheduled to end in 2020.

The Senate inquiry recommended that the ATS be extended beyond that date and restructured to become a broader, engineering and design programme for automotive-related advanced manufacturing.

However, thus far, the Turnbull government has declined to accept the recommendations.

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