May 10 2016
It is no secret that the Australian motor vehicle manufacturing industry is facing difficult times. Increased import penetration and a lack of local economies of scale have prompted Toyota, GM Holden and Ford to announce their exits from the industry. Ford is scheduled to cease local production in October 2016, while Toyota and GM Holden will exit in 2017. But where does this leave the local motor vehicle manufacturing industry?
These exits do not signify the end of local motor vehicle manufacturing. The industry will still be represented by PACCAR Australia, which locally manufactures Kenworth trucks. Volvo Group is also present, through its assembly plant for Mack trucks. Additionally, Iveco Trucks still locally manufactures light, medium and heavy commercial vehicles. Although Toyota, GM Holden and Ford will cease local production, these brands will still be available in Australia. These companies already import a range of brands, despite manufacturing cars locally.
While Australian motor vehicle manufacturing will continue, albeit in a greatly reduced form, such a major industry shift will undoubtedly have significant ramifications. Motor vehicle parts and accessories manufacturers face significant revenue declines over the next five years as a major source of demand is removed. While operators with export markets will be more resilient, industry players will find it difficult to remain viable supplying exclusively to the motor vehicle aftermarket. Automotive electrical component manufacturers will face similar challenges as the motor vehicle supply chain collapses. These industries will likely need to focus on export markets to survive.
However, not all industries will suffer from the decline of local motor vehicle manufacturing. Vehicle dealers are not expected to face any serious challenges, as imports already account for over half of all Australian vehicle sales. The vehicle wholesalers industry will benefit from the change, as Toyota, GM Holden and Ford are all set to become pure importers and wholesalers. This will result in an increasing number of car imports into the country.
The closure of local manufacturing could see changes to the prices that dealers and consumers pay for motor vehicles. Indeed, the effects of tariffs have already started diminishing due to the free trade agreements signed with South Korea and Japan. Furthermore, with the cessation of local passenger car manufacturing, there is little need for the protection of a non-existent industry. This raises the question of what will happen to import tariffs, and has the potential to make car imports significantly cheaper. The Federal Government has already announced plans to make it easier to import new and used vehicles, including scrapping the $12,000 special duty on imported vehicles, from 2018.
To signify the end of Australian production, GM Holden and Ford have announced special production runs of locally produced cars. GM Holden will be releasing the VF Series II Commodore, which includes a V8 variant said to be the fastest Commodore in the model’s history. Ford has announced it will be producing 1,400 Ford Falcon Sprint models, including XR6 and XR8 variants, to be produced at its local plant. It is perhaps a testament to Australian sentiment regarding local manufacturing that the announced Sprint series sold out in a single day, before production had even started. Although a spirited end to local car manufacturing, this will not be enough to prevent the industry’s steep decline over the next five years.