Chapter 2
Automotive manufacturing and government support
2.1
This chapter provides an overview of Australia's automotive
manufacturing industry and some of the main government assistance programs,
particularly the Automotive Transformation Scheme (ATS). It also explores some
of the challenges facing automotive components manufacturers and considers the
future of the sector.
The Australian automotive manufacturing industry
2.2
Australia has a long and proud history of automotive manufacturing and
has built a capability that is the envy of many nations. According to the Federal
Chamber of Automotive Industries:
Australia is one of only a relatively small number of nations
in the world with the capability to produce a car from concept to delivery.
The Australian automotive industry is able to take a vehicle,
its component systems and sub-systems from a design concept through prototype
safety and durability testing, to production, final delivery, whole of life
service and materials recycling.[1]
2.3
At its peak in 1974, local vehicle manufacturers produced almost a half
a million vehicles. However a long-term decline ensued until the early 1990s, when
production fell to under 300,000 vehicles per year. Following this there was
modest revival until just before the full effects of the global financial
crisis were experienced in 2009 from which demand for locally produced motor
vehicles has not recovered.[2]
2.4
Automotive vehicle production in Australia is undertaken by three
subsidiaries of global multinationals—Toyota, Ford and Holden. These companies
assemble six models in two states (Victoria and South Australia),
manufacture engines, and undertake vehicle design and engineering in specialty
centres in Victoria.
2.5
Vehicle production is supported by a complex logistical supply chain of
about 160 businesses involved in the engineering, design, tooling and
manufacturing of automotive components. Many of these businesses are located
close to assembly plants in Victoria and South Australia; however, component
production also occurs in other states and territories (particularly in New
South Wales and Queensland).
2.6
The interconnected nature of automotive production relies on component
manufacturers being able to continue to supply parts to vehicle producers while
they are engaged in domestic production. If any of these businesses were to
stop trading before vehicle production ceases, it could be a catalyst for the
premature cessation of vehicle production and early closure for other component
manufacturers. In turn, this would severely compromise an orderly transition to
a manufacturing sector without vehicle production activity. The Federation of
Automotive Products Manufacturers highlighted that:
As the industry operates on a just-in-time basis, continuity
of production fundamentally depends upon all members of the supply chain
continuing to operate right up to the finalisation of local vehicle production,
so certainty of funding provides a fundamental cornerstone of this requirement.[3]
2.7
Component manufacturers also supply parts to vehicle producers
internationally, the automotive aftermarket and other manufacturing industries.
There are at least 260 businesses located in Australia that manufacture
automotive components and accessories.[4]
2.8
The automotive manufacturing industry (including component manufacture)
represents approximately 5 per cent of the total Australian manufacturing
industry in terms of value added, employment, hours worked, and capital
expenditure.[5]
2.9
Over 48,000 people in Australia are employed in automotive manufacturing—including
assembly of cars, trucks and buses and component manufacture for vehicle
production and the automotive aftermarket—and employment has been falling in
line with the wind-down in vehicle production.[6]
Government assistance to automotive
manufacturing
2.10
There are a number of government policies (at both the Commonwealth and
state and territory level) designed to support the continuation of automotive
manufacturing in Australia and assist component manufacturers to diversify
their activities and continue to operate beyond the cessation of vehicle
production in 2017.
2.11
The automotive industry has been receiving government assistance in one
form or another since 1907, when tariffs were introduced in order to foster
automotive manufacturing capacity.[7]
2.12
Like many local manufacturing industries, the automotive industry continued
to be protected through tariff and non-tariff barriers (including import
quotas) until the 1980s. As tariffs were progressively reduced, assistance
was provided through co-investment measures, production subsidies and grants. The
automotive industry has also benefitted from government purchasing policies and,
to some extent, from taxation arrangements such as the luxury car tax.
2.13
Australian governments at both the federal and state level—like
governments in other automotive manufacturing nations—have supported the
automotive industry in recognition of the spillover benefits it delivers in
technological and manufacturing know-how and its significance to regional
economies. In addition to the industry-specific measures described above, many
companies have also been able to access skills and employment programs, export
market facilitation, support for investment in research and development, and targeted
regional assistance measures.
The Australian Competitiveness
Investment Scheme
2.14
The Australian Competitiveness and Investment Scheme (ACIS) was
initially introduced in 2001 for a period of 5 years as part of the
government's post-2000 assistance package for the automotive industry. The aim
of the ACIS was to provide transitional assistance to the automotive
manufacturing industry to open the market through the provision of import
credits linked to investment levels, production and research and development.[8]
The import credits could be used to offset the duty payable on certain imports
or traded with other ACIS participants.
2.15
The ACIS was open to motor vehicle producers and to businesses in the
automotive supply chain, including component manufacturers, automotive machine
tooling producers and automotive service producers.[9]
2.16
In anticipation of further tariff reductions, the ACIS was extended in
2005 to run until 2015 so that the industry could 'achieve sustainable growth
as tariffs are reduced'.[10]
Up to $7 billion worth of import credits were expected to be provided over the
life of the ACIS.[11]
A New Car Plan for a Greener Future
2.17
In 2008, the Australian Government announced a $6.2 billion suite of
programs ('A New Car Plan for a Greener Future') intended to 'make the
automotive industry more economically and environmentally sustainable by 2020'.[12]
As part of this plan, the ACIS was replaced by the Automotive Transformation
Scheme (ATS), with assistance worth $3.4 billion.[13]
Other key initiatives included:
-
an expanded $1.3 billion Green Car Innovation Fund to provide
co-investment grants for the production of environmentally friendly cars;
-
the Automotive Industry Structural Adjustment Program, which
included both a structural adjustment component and a labour adjustment
component to provide training and assistance to redundant workers;
-
the Automotive Supply Chain Development Program, which provided
$20 million to strengthen the component manufacturing sector in the four
years to 30 June 2013;
-
the Automotive Market Access Program, which provided $6.3 million
from July 2009 to 30 June 2012 to boost component manufacturers' access to
global supply chains; and
-
the LPG vehicle scheme enhancement, which was a $10.5 million
expansion to the existing LPG vehicle scheme, doubling payments to purchasers
of private use vehicles factory fitted with LPG technology.[14]
2.18
The Automotive Transformation Scheme (ATS) is the largest single support
measure for automotive manufacturing by total value and is designed to 'encourage
competitive investment and innovation in the Australian automotive industry and
place it on an economically sustainable footing'.[15]
2.19
The ATS commenced on 1 January 2011 and is legislated to operate through
to 31 December 2021. Participants can claim payments for eligible investments
in research and development activities, plant and equipment and vehicle
production (including engines and engine components).[16]
2.20
The ATS is open to motor vehicle producers and to businesses in the
automotive supply chain, including component manufacturers, automotive machine tooling
producers and automotive service producers. To be eligible, component
manufacturers, machine tool producers and automotive service providers must
demonstrate that their components, tools and services are related to producing
motor vehicles or engines in Australia.[17]
2.21
The ATS is composed of both capped and uncapped funding; motor vehicle
producers can claim up to 55 per cent of each annual cap, with the remaining
45 per cent available to other ATS participants.[18]
2.22
More information about potential reforms to the ATS to better support automotive
manufacturers, including component makers, is explored in the next chapter.
The Automotive New Markets
Initiative
2.23
The Automotive New Markets Initiative (ANMI) provided $35 million for
four years from 2012–13 to Australian automotive supply chain companies to
broaden their customer and product base, both domestically and through exports.
The ANMI was a joint initiative of the Australian Government, Victorian Government
and South Australian Government. Additional Australian Government and Victorian
Government funding of $12 million was provided in May 2013 in response to
Ford's announcement that it would cease manufacturing motor vehicles in
Australia in 2016.[19]
The ANMI included:
-
the $30 million Automotive New Markets Program, which provided
merit‑based grants to businesses to enhance their ability to access new
markets;
-
the Business Capability Support Program, which funded a
capability development organisation to support automotive businesses to develop
new capabilities;
-
the Automotive Envoy, who helped automotive businesses to connect
to new markets in the automotive and non-automotive sectors, including global
automotive supply chains; and
-
the Automotive Supplier Advocate, who helped provide strategic
leadership to assist automotive firms in identifying new customers, including
through fleet purchases.[20]
2.24
In launching the ANMI, the Victorian Minister for Manufacturing, Exports
and Trade, Mr Richard Dalla-Riva observed that:
At a time of significant structural pressures on the car
industry, local components suppliers must look to transform themselves into
companies that can compete not only in selling parts into local production but
also into global auto industry markets and into other sectors like defence,
rail, aerospace and mining. We will stand by the industry during this period of
transformation.[21]
2.25
Under the Automotive New Markets Program, of 30 approved projects (with
investment totalling $18,100,189): 15 have been completed, 12 are in progress,
two have been withdrawn and one has been voluntarily terminated (as at
31 March 2015).[22]
2.26
The $30 million Automotive New Markets Program was replaced by the $20 million
Automotive Diversification Program, announced in May 2014, as one of the elements
under the current government's Growth Fund program.
Growth Fund program
2.27
In December 2013, following the announcement by Holden that it would
cease local manufacturing in 2017, the federal government announced that it
would establish a $100 million growth fund to help mitigate the economic
fallout in South Australia and Victoria. This comprises $60 million in
Commonwealth funding, with remaining funds being contributed by the South
Australian and Victorian state governments and Holden.
2.28
In May 2014, following the announcement that Toyota would also cease
local manufacturing in 2017, the government announced it would increase its
contribution to the Growth Fund by $40 million. With contributions from Toyota,
Holden and the South Australian and Victorian state governments, this brings
the total value of the fund to $155 million.
2.29
The Growth Fund comprises five elements:
-
A $15 million increase to the Automotive Industry Structural
Adjustment Programme (AISAP) to extend the programme until 30 June 2018. This
program provides retrenched automotive workers with immediate access to
intensive employment support.
-
A $30 million Skills and Training Initiative to assist Holden and
Toyota workers recognise their skills and train for new jobs, while they are
still employed. The $30 million is composed solely of contributions from Holden
and Toyota, which each contributed $15 million to this initiative.
-
A $20 million Automotive Diversification Programme to help
automotive supply chain firms capable of diversifying to find new markets
(replacing the previous government's $30 million Automotive New Markets
Program).
-
A $60 million Next Generation Manufacturing and Investment
Programme to accelerate private sector investment in high value manufacturing
sectors in Victoria and South Australia.
-
A $30 million Regional Investment Programme to support investment
in non‑manufacturing opportunities in regions affected by the closure of
the car manufacturing industry.[23]
Component manufacturers face the biggest challenges
2.30
The component sector of the automotive manufacturing industry has been,
and will continue to be, most affected by the wind-down in vehicle production.
2.31
In recent years, Australia's automotive component manufacturers have
faced significant challenges due to relatively high production costs, increased
global competition and (until recently) a relatively high exchange rate. Global
car manufacturing trends, which seek to integrate component suppliers through
rationalisation and co-location, have added to these challenges.
2.32
The cessation of automotive vehicle production in Australia will place
the local component manufacturing industry under extreme pressure, potentially
leading to the closure of many local component manufacturers.
2.33
Given the advance notice provided by the vehicle producers, it is likely
that most, if not all, component manufacturers will have explored their options
and determined whether they are able to continue to operate following the
cessation of domestic vehicle production.
2.34
Many local subsidiaries of global car manufacturers and component
suppliers were explicitly set up to service local automotive production and are
likely no longer to have operations in Australia after 2017.
2.35
That is not to say that all local subsidiaries will cease manufacturing
in Australia. For example, even though Nissan has not been manufacturing
vehicles in Australia for a number of years, its Australian operations continue
to provide components for 39 models of vehicles which are assembled around the
world.[24]
2.36
Some component manufacturers have successfully managed to diversify
their activities to be less reliant on supplying local vehicle production.
These businesses are less susceptible to the cessation of local vehicle
production but may benefit from government assistance to further broaden their
product offering and markets, and maximise any opportunities that may arise.
2.37
In addition, aftermarket component manufacturers will continue to build
on their success and have the potential to expand quickly if opportunities
arise and assistance were to be made available.[25]
Opportunities for automotive
component manufacturers to adapt
2.38
While the cessation of production was announced in 2013, domestic
automotive production volumes have been declining for some time. Recognising
this trend, many component manufacturers have been actively exploring options
to develop sustainable business models that do not rely solely on domestic motor
vehicle production.
2.39
In the absence of domestic motor vehicle production, the future for local
component manufacturing depends on the ability of businesses to be able to:
-
supply components (including pre-assembled parts) to production
facilities internationally;
-
supply components to the automotive aftermarket; and/or
-
diversify their activities to supply other non-automotive
industries.
2.40
In addition, there may be opportunities to attract new investment and establish
low-volume, niche vehicle producers in Australia. New vehicle producers could
work with existing component manufacturers to ensure that, where possible,
components are sourced locally.
Supplying components for global
automotive production
2.41
Opportunities for supplying global automotive producers depend on the
capacity of component manufacturers to address trends in rationalisation and co‑location.
Producers are seeking to limit the number of tier 1 suppliers and develop
facilities that co-locate component manufacturers and production lines to
improve efficiency.[26]
2.42
Some component suppliers could continue manufacturing within Australia
as part of supplying international tier 1 operations or vehicle production
plants directly. The relatively recent fall in the exchange rate may assist
domestic component manufacturers to become more internationally competitive.
2.43
Robert Bosch Australia indicated that it is one of the few diversified
Australian manufacturers supplying the automotive industry and produces
92 million automotive diodes for the Bosch group globally.[27]
2.44
Australian component manufacturers may also be able to supply niche
markets where other component suppliers do not want to produce. For example,
SMR Automotive has recently started shipping a highly technical product to
Honda in Japan. Not only has this opened up a new export market but has also
developed an innovative design approach and significant intellectual property.[28]
2.45
Where Australia retains a role in automotive design, there may also be
opportunities during the new vehicle design phase for early collaboration
between designers and domestic component manufacturers. For example, the development
of the Holden Zeta global platform in Australia allowed Diver Consolidated
Industries to design and manufacture export door hinges and a transmission
tunnel insulator.
Supplying components to the
automotive aftermarket
2.46
Given the mature nature of the automotive aftermarket in Australia, it
may be challenging for original equipment components manufacturers to
restructure their operations to competitively supply the domestic aftermarket. And,
indeed, such an outcome may not be in the best interests of the economy if
assistance undermines existing manufacturers.
2.47
However, there may be opportunities for existing aftermarket component
manufacturers to increase production to serve additional export markets. According
to the Australian Automotive Aftermarket Association (AAAA):
The global demand for specialty components is growing in line
with higher SUV sales and the ageing of the population is supporting demand for
specialised vehicle retrofit components. The rise of global platforms, while
representing a threat to local OE component producers, is generating
opportunities for the development of accessories and modification products,
first developed for local use and then exported.[29]
2.48
The AAAA considers that the future of the sector in Australia will
depend on moving up the value chain by developing and manufacturing high-value
speciality products with a technological advantage. These types of products are
sought after and purchased on innovation, performance and features, rather than
price.[30]
Diversifying activities to supply
non-automotive industries
2.49
Opportunities may also exist for some component manufacturers to use
their expertise and equipment to manufacture components for use in other
industries and/or non-automotive final products. For example, MHG Asia Pacific
is using the knowledge and techniques it has developed in supplying the
domestic automotive industry to expand its manufacturing operations into
non-automotive industries. It designs and produces specialised demisting glass
for the local bus manufacturing industry and is also seeking new opportunities
to supply specialised glass for train windows. In addition, MHG's expertise in
manufacturing light weight plastic components may have relevance in the rail
industry and electric vehicle industry.
2.50
There may also be opportunities for existing aftermarket manufacturers
to expand their diversification activities. The AAAA reported that:
The Australian aftermarket has
also been successful in branching out into non-automotive industry sectors,
such as rail, defence, mining, marine and industrial, creating further
opportunities for volume growth through diversification.[31]
2.51
A combination of these strategies may be necessary to create a viable
business model. For example, MtM Automotive has been manufacturing in Australia
for the past 50 years and in 1992 started looking at the export market. While
it was not until 1997 that the company actually won business in the export
market, today 40 per cent of the company's manufactured products are produced
either for the export market or aftermarket. MtM Automotive has continued to
look for new opportunities to diversify into non-automotive sectors across a
variety of products, including manufacturing the all-terrain, off-road Tomcar
vehicle and the SteelSafe Immobilizer for trucks and trailers.[32]
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