The future of Australia's auto industry

With the auto industry stuck in the doldrums are the likes of Ford and Holden better off doing R&D instead of manufacturing in Australia?

With the Australian auto industry stuck in the doldrums the future of Ford, Holden and Toyota in Australia still looks shaky. With thousands of jobs on the line the local manufacturers have been fed a steady stream of government hand-outs and despite the promise of more fiscal assistance question marks remain.

The main problem for the automakers is that consumers are voting with their wallets and buying smaller imported cars, this in turn has forced the local manufacturers to continue the cycle of cutting factory output and jobs to match the lower demand for their vehicles. 

With some critics labelling the local manufacturers a pampered lot, perhaps the promise of further government assistance is the wrong remedy?

Are federal and state governments kicking the can the road, merely delaying the inevitable? Would affected workers be better off if governments addressed the reality that unless the remaining car manufacturing plants find new buyers or their vehicles become wildly popular, within 5-10 years the remnants of Australia's car manufacturing industry and associated parts makers might be a few thousand people employed to do R&D. 

The idea that the future of the auto industry in Australia relies on how quickly we can become a hub for technical innovation is a pertinent one and with that in mind Technology Spectator recently visited Ford Australia’s Victorian headquarters to be briefed about their connected services such as Ford Sync and tour their newly revamped centre of excellence for design and engineering.

Overall, there was plenty of technology display to bear out the Ford Australia president Bob Graziano’s optimism that Australia still has what it takes to design and build a car from the ‘ground up.’

We were particularly impressed by their Virtual Reality Centre which allows designers and engineers to view inside a car design in 3D from a perspective of being seated in either the driver/passenger seat or walking around literally poking your head into the doorframe, suspension etc to see how the components are put together.

The safety improvements offered by initiatives such as Autonomous Emergency Braking and Park Assist should also be applauded, with the caveat that Ford emphasised they are most effective within certain parameters and should be used as extra assistance rather than expecting them to work in all driving scenarios.

The smartphone connection 

It has become clear during the last few years that Ford, along with the other major car manufacturers, has realised that smartphones and other mobile devices have captured the attention of young adults in a manner which cars used to do as a status symbol and mobility enabler in the past.

 

Technologies like Ford SYNC which connect the car to your music collection on a USB drive and enable your car to make hands-free voice activated dial calls on your smartphone are an attempt to make cars cool again.

Joe Vitale, an automotive consultant with Deloitte recently told Bloomberg that “for most Gen Y buyers, also known as Millennials, skipping a vehicle purchase is preferable to forgoing technology. Smartphones, laptops and tablet devices compete for their dollars and are higher priorities than vehicle purchases”.

In the USA an academic paper recently released by University of Michigan Transport Research Institute states that “in several countries, including the United States, the percentage of young persons with a driver's license has recently decreased substantially. Results indicate that [in the USA]… the percentages of persons 19 years of age with a driver's license in 1983, 2008, and 2010 were 87.3, 75.5, and 69.5, respectively”. 

Similarly in Australia, the NSW Bureau of Transport Statistics (BTS) released a research paper in late 2010 titled Why are young people driving less? 

Trends in licence-holding and travel behaviour. The paper focuses on what may be the beginning of a new trend, presenting evidence that people aged under 35 are becoming less likely to hold a driver’s licence and therefore not buy a car.

The more recent BTS 2010/2011 Household Travel Survey Key Indicators for Sydney found that trips for work related business and personal business both declined by at least seven per cent since the previous period.

The BTS believes that this “sixth consecutive year of decline for personal business trips … is consistent with the growing uptake of mobile internet and communication technologies, which allows for the convenience of online transactions”, and therefore lessens the need for a car.

Demand for cars isn’t exactly falling off a cliff but the statistics indicate a slow but steady shift in consumer behaviour and market dynamics that an automaker needs to prepare for.

The road ahead

Ford’s push for innovation has actually caused a few headaches and Graziano’s emphasis on research and development has led some to surmise that the automaker doesn’t see a future in manufacturing in Australia.

Graziano told the media last week that ''we believe you can have research and development without manufacturing. It clearly helps to have manufacturing and we're very fortunate in that we have manufacturing, research and development and a stunning test facility”.

While the recent almost 200 per cent increase in design staff employed at Ford Australia HQ certainly shows that it is more than a manufacturing centre, just what the future holds is still up in the air.

Ford spokeswoman Sinead Phipps told Technology Spectator that Graziano was quoted out of context and Ford was still considering "what comes after" 2016 when their current industry assistance deal with the federal government expires. 

The end of government assistance will undoubtedly cause a seismic shift in the industry but perhaps it could also be an opportunity to forge a new direction for the sector.

Instead of doling out regular amounts of cash to the car makers until they almost inevitably pull out between 2016-2021, there could be an orderly shutdown and majority of assistance in the meanwhile be given to car industry employees to retrain them or provide help so they can start a small business.

The money saved from car industry handouts could be used to fund transport projects that will result in long term infrastructure eg: offering state governments matching funding for public transport projects.

It should not be forgotten that industry assistance to the car manufacturing industry is funded by taxpayers and the cost is therefore embedded in each car that rolls off these government subsidised production lines, as pointed out recently by News Ltd cartoonist  Jon Kudelka.

Secretary to the Treasury Dr Martin Parkinson recently stated that “If you replace quotas and tariffs with other interventions, no matter whether to create ‘national champions’ or to support so-called strategic industries, you are placing producer interests ahead of those of consumers, and it is still akin to protection. And if intervention isn't focused, defined and term limited any chance of ‘creating’ comparative advantage will disappear, and it is the poor who typically pay the ultimate bill”.

Nicholas Gruen is CEO of Lateral Economics and has been intimately involved in car industry policy from various different positions since his involvement in developing the Button Car Plan as Advisor to Senator John Button in 1984.

According to Gruen, it’s about time that a definitive decision was made on where the sector should be headed.

“Global downturns are the fault lines around which our automotive industry has always reinvented itself. In theory, managers should restructure their businesses and businesses should change hands whenever it improves productivity. Alas human nature intervenes. Corporate dreams are dreamt and restructuring is delayed … until the alternative is collapse,” Gruen says.

He emphasises that this current round of Australian car manufacturer job cuts and pleas for industry assistance is different from the past because “we have one more - probably our last - chance to get this right.”

“Ford or GM’s Australian assets would strongly bolster the design and engineering capability of China or India’s emerging auto giants. So if such firms had a stake in our auto assets they’d have the incentive to invest and find a valued place for them in their global supply chain. Right now those firms are cranking up their export of small and medium sized cars for global markets, making Australia hard to beat as a source of larger cars to fill out their global offering”.

Gruen is also adamant that unless the sector is willing to undergo a radical transformation it is perhaps better off dead.

“Australia’s automotive assets can never aspire to more than back office status whilst owned by the American auto companies. Personally I’d rather the industry closed than limp along devouring billions of our dollars in assistance, with our politicians begging and bribing the clapped out, cash strapped, bailed out auto manufacturers of a once great - indeed still great - power now bent on its own decline for a stay of execution”.

Neerav Bhatt travelled to Victoria as a guest of Ford Australia.