22 Aug 18

The end of Car Manufacturing in Australia

In October 2017, Australia witnessed the closure of its last manufacturing plant. After 100 years of building cars in Australia, Holden closed its doors, leaving 2500 people without a job.

The end of an era

Before Holden, Ford, Toyota and Mitsubishi had already stopped producing cars in Australia. Mitsubishi was the first OEM to close factories in Australia. A first factory in Adelaide was closed in 2004, the second assembly line was closed in 2008, resulting again in thousands of jobless workers. Ford announced in 2013 that it would leave the market by 2016. The Blue Oval had been downsizing staff from the announcement onwards (1200 staff), but when the last Ford Falcon XR6 rolled off the assembly lines, 600 people were still working at the factory. Also in October 2017, only a couple of weeks before Holden, Toyota closed its Melbourne plant that used to make the popular Camry, leaving 2500 people without a job. At the time of the announcement, January 2017, Toyota blamed the unfavourable Australian dollar, high cost of manufacturing and low economies of scale for the closure.

Let’s highlight 4 of the reasons that led to the end of Australia’s car manufacturing.

Chronicle of a Death Foretold

Even if Toyota was not entirely wrong in its rationale, trouble inside the Australian car manufacturing industry had been going on for a while. Measures could have been taken, but were not. At the time of the closing of the Holden factory, the Australian tax payer had been funding the industry for at least 10 years and it’s a well-known fact that the industry itself has invested generous amounts in its survival. Economically, car manufacturing was no longer sustainable.

Bad deals

Australia had maintained zero/low tariffs for the larger part of its car imports. According to GoAuto, an Australian online car magazine, 77% of all new vehicles sold in 2017, were tariff free. A painful example of the free trade agreements is the 2005 deal with Thailand. Vehicle exchange between both countries was supposed to become tariff-free, but Thailand maintained its high registration fees for vehicles with large engines, such as the Australian produced Fords and Holdens. As Thailand produces its own Toyota Camry, there was no potential for export to Thailand either for the Melbourne produced equivalent. The result? Over 2 million Thai vehicles were imported in Australia, versus… 100 Ford Territory SUVs imported in Thailand.

End of the Sedan time

For a long time, the Australian consumer preferred V6 and V8 sedan cars, such as the Holden Commodore with a Corvette V8 and the V8/V6 Turbo Ford Falcon. It seems almost unbelievable, but the manufacturers didn’t see the change in buyer profile coming… the SUV and the small engine economic vehicle gained popularity – leaving the local manufacturer and its roaring engines off the buyer’s shopping list.

Labor cost

Australia is surrounded by developing countries with much cheaper labor cost. A local manufacturing worker costs in average AU$ 69,000 (EUR 44K / US$ 50K). A Thai worker receives an annual salary of AU$ 12,500 (EUR 8K/US$ 9K). The vehicle list prices were kept relatively low in order to remain competitive with the price setting of the Japanese and Korean brands, and much lower than equivalent vehicles (in terms of engine and vehicle size) produced by EU manufacturers.

Out of sight, out of mind

At the height of their success, Holden built 165,000 cars in a calendar year (2004), Ford built 155,000 (1984) and Toyota built 148,000 (2007). But in 2016, all three sold a combined total of just 87,000 locally made cars. Right now, most of the cars come from Japan, Thailand and Korea. The consumer is fully converted to the small engine and the SUV.

Voices are being raised in Australia to abolish import tariffs altogether in order to accelerate the renewal cycle of older vehicles. Road safety is being put forward as one of the main arguments. The 20% of vehicles on the Australian roads that are built during the golden era (before 2000) were involved in 33% of the road deaths. Reducing the cost of a new car will incentivise a faster disposal of these “dangerous” vehicles.

In other words, there’s a trend in favour of reducing the vehicle lifecycle. In a couple of years, the regretted Australia-built Holdens, Fords and Toyotas will have completely disappeared from the roads. Even the New-South Wales police has exchanged its Fords and Holdens for Kia’s Stinger.

Authored by: Yves Helven