Auto suppliers must put the pedal to the metal

Many automotive suppliers have adopted a 'business as usual' approach even as the car industry crumbles. What are they doing?

The release of the Productivity Commission report into the automotive industry last week coincides with almost a year passing since the major decisions were taken regarding the closure of automotive manufacturing in Australia. It is timely to ask: what has happened since?

While the short answer is 'not much', the fear is that we are enduring a lengthy calm before the storm.

It is a surreal situation on a number of fronts. As a country we are continuing to manufacture cars, albeit in modest numbers, and the 160 companies in the automotive supply that are so heavily dependent on local automotive manufacturing are churning away.

However, as outlined in the Productivity Commission report, we are still facing a scenario where around 40,000 employees are likely to lose their jobs, and diversification and export opportunities are not going to be adequate to fill the void.

The commission also makes the valid point that while the car manufacturers have announced medium-term closure plans through to 2016, component suppliers are likely to be faced with a closure or voluntary administration scenario with much less notice.

These factors have led to a scenario where there are not enough companies being proactive in regard to their situation. A false sense of security, elements of denial and an odd ‘business as usual’ feel seem to be driving a lack of activity from many individual companies.

While success in diversification is often a long-term play, the automotive supply chain needs to find answers quickly. But one wonders where they can be found.

Often the barriers to these opportunities or diversification strategies taking root are based around relatively straightforward issues with the flow of information.

In Australia, the flow of information around industrial opportunities is patchy at best.

There are comprehensive databases of information available through state and federal government-funded sources, industry associations and other areas. Governments over the years have championed the roles of ‘supplier advocates’ that are positioned to assist in building linkages to support local content from Australian manufacturing into other sectors such as rail, mining services and water infrastructure.

However, packaging this information to match commercial opportunities for individual manufacturers has always been the rub.

Many automotive suppliers have had decades of effectively being a build-to-print organisation, with no need to develop focused marketing or sales capabilities. Additionally, they have often developed a manufacturing footprint that it fit-for-purpose in regard to their position in the automotive tier structure.

On the plus side, they have managed to forge businesses in one of the most demanding industry sectors, and one of the most competitive geographical markets on the global stage. The key question is how they can effectively and efficiently determine where else these skills and capabilities can be profitably deployed.

This assistance is available and it is vital that automotive suppliers seek it out.

The ability to walk the production floor and match capability with opportunities beyond the automotive industry is a key part of the equation. It can fast-track the determination of whether there are viable opportunities for an individual manufacturer, and equally assist the company to prepare for a closure process if that is an inevitable result of the investigation.

This aspect of the diversification process and the subsequent matching with commercial opportunities from the huge range of information available can be the missing link that amplifies their effectiveness. It can provide a relatively quick response to suppliers regarding their ability to establish new markets over the medium term.

The federal government rightly points to Australia’s infrastructure pipeline, mining services and other opportunities as part of the process of transforming the manufacturing industry. For Australia’s 160 automotive suppliers, the race is on to isolate the commercial opportunities that could drive their viability.

Damon Cantwell leads the Deloitte Automotive & Manufacturing Team.