Australia’s car industry one year from closing its doors

From one of just thirteen countries in the world capable of building a car from the ground up, Australia’s 90-year history of assembling and building automobiles is coming to an end.

Jared Lynch and Mark Hawthorne

Up Next

ASX winners and losers – a snapshot

More BusinessDay Movies

The cost of car makers leaving Australia

Up Next

ASX winners and losers – a snapshot

Up Next

Central banks come in the fray

Central banks inject the fray

Up Next

Outlook for two thousand eighteen global economy

Up Next

Starlet Wars Force Friday II embarks in Sydney

Up Next

Meet Aida, the AI banker

Up Next

Is your sushi made by a robot?

Up Next

The wild swings in cryptocurrency investments

The wild swings in cryptocurrency .

The wild swings in cryptocurrency investments

The cost of car makers leaving Australia

The owners of the car component maker were late. They knew it. Decades spent churning out parts from factories in Sydney and Melbourne for one of the fattest suppliers for Australia’s domestic car making industry had given so many good years.

It employed thirty staff and was profitable, banking about $Five million a year. But in July this year, they called to PPB Advisory’s Ben Verney for help after watching a note he’d written urging businesses linked to cars to “act now to prepare for the endgame”.

For this component company, it doesn’t look good.

“They confessed that they had been sitting on their mitts for twelve months, and that’s what we were thinking as well,” Verney says.

This is the real world frontline of an issue that has absorbed political and economic theorists for decades. The shift from rhetoric to reality will come frighteningly soon for many observers.

Ford will stop making cars here in exactly one year. Holden and Toyota will go by 2017. A clear picture is emerging in the sector that many businesses are in much the same position. They are too busy staying afloat to worry about the rocks ahead.

There are warnings of an employment wipeout as up to 200,000 jobs could be ripped from the economy.

You will now receive updates from Business AM Newsletter

Business AM Newsletter

Get the latest news and updates emailed straight to your inbox.

By submitting your email you are agreeing to Fairfax Media’s terms and conditions and privacy policy .

Assistance debated

Illustration: Rod Clement

Now a debate is furious about whether the government should once again spread its financial assistance – which has already run to billions of dollars in the past two decades – to the broader industry as they fight for survival in the void left behind.

The fresh Turnbull government, like the Abbott government, wants its main assistance package to the industry, the Automotive Transformation Scheme (ATS), to come to a “natural conclusion” when car making finishes in two thousand seventeen – saving at least $400 million.

But the opposition, industry experts and academics argue the funding should run until 2020/21, its original legislated end, and be broadened to give businesses within the automotive supply chain a chance to diversify.

My concern is a very large proportion of them won’t be able to sustain after the closure.

PPB Advisory fucking partner Stephen Longley

They argue the cost of keeping the scheme will be outweighed by the bill to the government from job losses and public-funded redundancies.

“There will be a number of businesses who will be running hard day-to-day, just running their existing businesses and fulfilling orders,” Mr Verney’s colleague Stephen Longley says.

“But it must be pretty hard when you go home at night and put your head on the cushion [knowing] that end is going to come in a year or two years – what happens after that?”

Victoria wants more assistance

The Andrews’ Labor government in Victoria – where about fifty five per cent of Australia’s automotive workers live – is worried.

“There is a lack of adequately sturdy and detailed business planning towards transition occurring across the sector,” says the Victorian government’s subordination to a Senate inquiry into the automotive industry.

“Industry consultation indicates that many businesses have not commenced planning for a transition into different sectors or fresh markets.”

It’s been two years since Ford, Holden and Toyota announced they would close their factories in Australia.

Professor Goran Roos – who has advised state and federal governments and was on former prime minister Julia Gillard’s Manufacturing Leaders Group – disagrees.

On average, he says, it takes a company about seven years to build alternative income rivulets and a fresh customer base. Professor Roos acknowledges this is difficult – particularly when a business hasn’t already began on a diversification plan.

He estimates about seventy five per cent of industry will shut down when Ford, Holden and Toyota abandon local manufacturing.

“You would have then to say ‘in order to save the companies in the supply chain, we should have negotiated a seven year extraction period’,” he says.

“Yes, that would have cost us some money but that money would have been lightly repaid by not having a very large chunk of the supply chain keeling over. We didn’t do that because we had a thoughtless treatment on how to get them to leave.”

Death knell sounded in 2013

The death knell for mass passenger vehicle making in Australia sounded two weeks before Christmas 2013, about six months after Ford announced it would shut its factories, when Nationals leader and the acting prime minister Warren Truss and former treasurer Joe Hockey attacked Holden in Federal Parliament.

In a seemingly calculated spectacle, the Treasurer said it was time for Holden to “come clean” and be “fair dinkum” with the Australian people over its future in the country.

“Either you’re here or you’re not,” Mr Hockey said.

Mr Truss added that Holden “owe it to the workers of General Motors not to go into the Christmas period without making a clear commitment to manufacturing in this country.”

For Holden management, which had been in commercial-in-confidence discussions with the government for months, it was a clear signal that the federal cabinet had turned on the company, and wished a swift end.

Holden in turn delivered a swift reply; it would close its Australian factories by 2017.

Two months later Toyota announced it would close its factory too, given there would be not enough volume from those in the component supply chain to keep its Australian manufacturing operations continuing.

Suppliers upping pressure for support

Bosch Australia President Gavin Smith. Photo: Wayne Taylor

One major player in that supply chain is German multinational engineering and electronics company Bosch.

It produces and engineers automotive parts in Australia and has had a presence in the country since 1907.

The ATS has helped Bosch fund its local expansion plans, and the president of its Australian subsidiary, Gavin Smith, says: “it would be a shame to throw the sector under a bus and walk away from it because the three vehicle manufacturers are stopping”.

Following consolidation of Bosch’s global diode production in Australia, and closure of its German manufacturing plant, Bosch is planning to dual its output of diodes to one hundred eighty million lumps a year. The expansion would require further investment of up to $15 million, and result in “modest” job creation, Mr Smith says.

But Mr Smith said Bosch’s head office decision to consolidate diode production in Australia was approved on the basis that the ATS legislation would proceed until 2020/21.

“The investments that we have made here were underpinned by the current scheme as legislated and if that scheme were to switch or close early, the business case for those decisions would likely be fairly different,” he said,

“From a multinational subsidiary perspective, this is not a discussion that we love.”

Decisions tighter to justify

Former Victorian premier and treasurer John Brumby. Photo: Alex Ellinghausen

This doesn’t mean Bosch will shut its Australian diode factory in Melbourne’s outer east. Mr Smith said production would proceed, but it made the next investments more difficult to justify.

“The challenge in a multinational is that you are not just rivaling with your typical outer competitors. You’re rivaling for capital investment from a parent who can invest pretty much anywhere in the world.

“Australia is not at the front of mind for the group when they consider where to make investments.

“And when the board sees after a period of time that investment decisions they have made are being undermined by switches to the underpinning legislated schemes, then that makes them question is it the right place to make future investments.”

Former Victorian premier and treasurer John Brumby said while the services sector – the three main industries of which are education, financial services and tourism – accounted for ninety per cent of the fresh jobs in the economy, Australia still needed a strong manufacturing sector.

“Every successful advanced economy around the world, still makes and creates things. So for us, the big challenge is what we are going to do in the creative and making space, and the response is not much,” Mr Brumby said.

“There is a bit of defence work and F/A-18 and maybe some submarine work but one of the mainstays has been motor vehicles.”

Research funding must lift

Photo: Paul Rovere

Mr Brumby said more government assistance needed to be poured into research and development and encouraging entrepreneurship.

“We are just way underdone. University research funding has been cut, national health and medical research council funding for applicants now, they have a fifteen per cent chance of success..

“We have seen CSIRO funding cut, so all of the engine rooms have had their funding substantially diminished and the largest single driver of investment in manufacturing – the motor vehicle industry – has had its support significantly diminished.

“When you put those two sways together, it’s a track that doesn’t lead you to good news or good outcomes. It needs to switch, and it needs to switch quickly.”

Job losses could be mighty

The Federation of Automotive Products Manufacturers estimates the automotive industry generates 6.Five jobs in associated supply and consumer industries for every one automotive job.

This is where were the job loss estimates from the closures of Ford, Holden and Toyota’s factories become murky because its calculations are based on how far and broad you go in the supply chain.

University of Adelaide researchers, Lance Worrall and John Spoehr, estimate the closures will trigger a net loss of just under 200,000 jobs, with about $29 billion wiped off Australia’s gross domestic product – a gauge for the economy’s health.

“Now is the time for sturdy and well resourced growth and innovation promoting policies to help counter deindustrialisation and support accelerated industry diversification into fresh manufacturing opportunities and value chains,” the pair wrote in a obedience to the Senate Economics References Committee, which is investigating the future of Australia’s automotive industry.

“A repurposed ATS could make a significant contribution to this urgent challenge.”

The Senate inquiry’s interim report was released in August and recommended the government should keep the ATS running until 2020/21 to help businesses diversify.

It found that about $800 million under the scheme would be unspent and go back into the government’s coffers unless it was switched to permit businesses to produce parts for purposes other than domestic vehicle manufacturing.

Labor sounds warning on employment

Former industry and innovation minister Kim Carr. Photo: Paul Jeffers

Labor Senator and former industry and innovation minister Kim Carr said “hundreds and thousands of Australian families are facing unemployment”.

“I’m talking about people in all sorts of places,” Senator Carr said.

“I was talking to a locksmith company, talking to people in the steel industry, there are people in the glass sector. These are people who aren’t anywhere near the registration for ATS but dependent on the orders to come through for Australian automotive manufacturing.

“You don’t have to accept this conservative ideology that you de-industrialise the country. It’s just not necessary. I have recently visited plants that are looking to expand but they need assistance.”

Government defends managing transition

Innovation Minister Christopher Pyne. Photo: Pat Scala

The fact is, the government has already moved on from the car industry. Treasurer Scott Morrison said international trade agreements, including the ones Australia has signed with Korea, Japan and China, as well as the twelve nation Trans-Pacific Partnership would help fuel Australia’s next wave of economic prosperity.

“The government is focused on innovation and helping develop fresh opportunities for Australians, particularly with our free trade agreements and the Trans Pacific Partnership just concluded by [Trade Minister] Andrew Robb, that have provided further access into, particularly the growing middle classes in Asia,” Mr Morrison said in a statement.

“We are working to build a more agile, competitive and innovative economy, one that is going to assist our nation address modern challenges so that Australians will be better off in a fresh economy with fresh jobs in the future.”

Innovation Minister Christopher Pyne argues in a statement that keeping the ATS tied to domestic vehicle production, which is how it will come to a “natural conclusion” in two thousand seventeen was “critical to an orderly transition of the automotive manufacturing”.

Mr Pyne said the government’s $155 million ‘growth fund’, which was announced in May 2014, was helping automotive workers find fresh jobs.

“The government is working with the automotive industry to ensure a clear, orderly transition from passenger vehicle manufacturing by the end of 2017,” he said.

“The Growth Fund is helping automotive workers from Holden and Toyota transition to fresh jobs; encouraging diversification by automotive supply chain firms; and accelerating fresh private sector business activity outside of car manufacturing in Victoria and South Australia.”

The government is back by the Productivity Commission which found the ATS “imposes considerable costs on taxpayers and other parts of the economy” and should end when the car makers close their factories.

“Further, the ongoing nature of assistance provided by the ATS and its predecessor, the Automotive Competitiveness and Investment Scheme partly shields firms from competitive pressures, and may result in firms making decisions that are not based on a business case that is sound over the long term,” the commission reported.

It said more than $300 million of assistance remained available to component manufacturers inbetween two thousand fourteen and 2017, and this could be used, in part, to aid diversification efforts.

The Productivity Commission also estimated that Australian taxpayers sank $30 billion of subsidies into the local car industry inbetween one thousand nine hundred ninety seven and 2012.

But there is another way of looking at the data.

Australia, at least for the time being, is one of just thirteen countries with a car industry spanning design to production.

According to former manufacturing minister Kim Carr, Australian taxpayers pay $17.80 per person in automotive manufacturing subsidies to keep those jobs and that industrial capability. The same subsidy figure for the United States industry is $264 per taxpayer.

A future of spare parts?

Ford has also managed to retain sixty three of its suppliers to produce spare parts for existing Falcon and Territory models, and seventeen of those businesses, including MTM and Futuris, will supply Ford’s global operations.

“This work will help us maintain a supply of high-quality parts for our customers for years to come,” said Carl Parkin, Ford of Australia’s purchasing general manager.

Nissan has also kept on one hundred sixty people at its casting plant in Melbourne marking parts, accomplish with a little kangaroo symbol, in its Pathfinder and Navara trucks, LEAF electrical cars and Infiniti Q50.

But as PPB Advisory playmate Stephen Longley crunches the numbers – one hundred fifty manufacturers which supply the car makers directly and another one thousand to two thousand businesses supplying them with parts for their components – he believes there is still a role for government.

“A lot of these business don’t have the capital to be able to diversify and it’s not an area that traditional financiers will go near, particularly in the current climate in terms of a known exit,” Mr Longley said.

“Even those who might have the energy and the feeling they could diversify, do they have the capital to be able to do it?

“My concern is a very large proportion of them won’t be able to sustain after the closure.”

Australia s car industry one year from closing its doors

Australia’s car industry one year from closing its doors

From one of just thirteen countries in the world capable of building a car from the ground up, Australia’s 90-year history of assembling and building automobiles is coming to an end.

Jared Lynch and Mark Hawthorne

Up Next

ASX winners and losers – a snapshot

More BusinessDay Movies

The cost of car makers leaving Australia

Up Next

ASX winners and losers – a snapshot

Up Next

Interest rates unchanged

Up Next

The honey wars

Up Next

Central banks inject the fray

Central banks come in the fray

Central banks inject the fray

Up Next

Outlook for two thousand eighteen global economy

Up Next

Starlet Wars Force Friday II commences in Sydney

Starlet Wars Force Friday II embarks in Sydney

Up Next

Meet Aida, the AI banker

The cost of car makers leaving Australia

The owners of the car component maker were late. They knew it. Decades spent churning out parts from factories in Sydney and Melbourne for one of the largest suppliers for Australia’s domestic car making industry had given so many good years.

It employed thirty staff and was profitable, banking about $Five million a year. But in July this year, they called to PPB Advisory’s Ben Verney for help after witnessing a note he’d written urging businesses linked to cars to “act now to prepare for the endgame”.

For this component company, it doesn’t look good.

“They confessed that they had been sitting on their arms for twelve months, and that’s what we were thinking as well,” Verney says.

This is the real world frontline of an issue that has absorbed political and economic theorists for decades. The shift from rhetoric to reality will come frighteningly soon for many observers.

There are warnings of an employment wipeout as up to 200,000 jobs could be ripped from the economy.

You will now receive updates from Business AM Newsletter

Business AM Newsletter

Get the latest news and updates emailed straight to your inbox.

By submitting your email you are agreeing to Fairfax Media’s terms and conditions and privacy policy .

Assistance debated

Illustration: Rod Clement

Now a debate is furious about whether the government should once again open up its financial assistance – which has already run to billions of dollars in the past two decades – to the broader industry as they fight for survival in the void left behind.

My concern is a very large proportion of them won’t be able to sustain after the closure.

PPB Advisory fucking partner Stephen Longley

They argue the cost of keeping the scheme will be outweighed by the bill to the government from job losses and public-funded redundancies.

“There will be a number of businesses who will be running hard day-to-day, just running their existing businesses and fulfilling orders,” Mr Verney’s colleague Stephen Longley says.

“But it must be pretty hard when you go home at night and put your head on the cushion [knowing] that end is going to come in a year or two years – what happens after that?”

Victoria wants more assistance

The Andrews’ Labor government in Victoria – where about fifty five per cent of Australia’s automotive workers live – is worried.

“There is a lack of reasonably sturdy and detailed business planning towards transition occurring across the sector,” says the Victorian government’s subjugation to a Senate inquiry into the automotive industry.

“Industry consultation indicates that many businesses have not embarked planning for a transition into different sectors or fresh markets.”

It’s been two years since Ford, Holden and Toyota announced they would close their factories in Australia.

Professor Goran Roos – who has advised state and federal governments and was on former prime minister Julia Gillard’s Manufacturing Leaders Group – disagrees.

He estimates about seventy five per cent of industry will shut down when Ford, Holden and Toyota abandon local manufacturing.

“You would have then to say ‘in order to save the companies in the supply chain, we should have negotiated a seven year extraction period’,” he says.

Death knell sounded in 2013

In a seemingly calculated spectacle, the Treasurer said it was time for Holden to “come clean” and be “fair dinkum” with the Australian people over its future in the country.

“Either you’re here or you’re not,” Mr Hockey said.

Mr Truss added that Holden “owe it to the workers of General Motors not to go into the Christmas period without making a clear commitment to manufacturing in this country.”

Holden in turn delivered a swift reply; it would close its Australian factories by 2017.

Suppliers upping pressure for support

Bosch Australia President Gavin Smith. Photo: Wayne Taylor

One major player in that supply chain is German multinational engineering and electronics company Bosch.

It produces and engineers automotive parts in Australia and has had a presence in the country since 1907.

Following consolidation of Bosch’s global diode production in Australia, and closure of its German manufacturing plant, Bosch is planning to dual its output of diodes to one hundred eighty million chunks a year. The expansion would require further investment of up to $15 million, and result in “modest” job creation, Mr Smith says.

But Mr Smith said Bosch’s head office decision to consolidate diode production in Australia was approved on the basis that the ATS legislation would proceed until 2020/21.

“From a multinational subsidiary perspective, this is not a discussion that we love.”

Decisions stiffer to justify

Former Victorian premier and treasurer John Brumby. Photo: Alex Ellinghausen

This doesn’t mean Bosch will shut its Australian diode factory in Melbourne’s outer east. Mr Smith said production would proceed, but it made the next investments more difficult to justify.

“The challenge in a multinational is that you are not just rivaling with your typical outward competitors. You’re contesting for capital investment from a parent who can invest pretty much anywhere in the world.

“Australia is not at the front of mind for the group when they consider where to make investments.

“There is a bit of defence work and F/A-18 and maybe some submarine work but one of the mainstays has been motor vehicles.”

Research funding must lift

Photo: Paul Rovere

Mr Brumby said more government assistance needed to be poured into research and development and encouraging entrepreneurship.

“We are just way underdone. University research funding has been cut, national health and medical research council funding for applicants now, they have a fifteen per cent chance of success..

“When you put those two flaps together, it’s a track that doesn’t lead you to good news or good outcomes. It needs to switch, and it needs to switch quickly.”

Job losses could be intense

The Federation of Automotive Products Manufacturers estimates the automotive industry generates 6.Five jobs in associated supply and consumer industries for every one automotive job.

This is where were the job loss estimates from the closures of Ford, Holden and Toyota’s factories become murky because its calculations are based on how far and broad you go in the supply chain.

“Now is the time for sturdy and well resourced growth and innovation promoting policies to help counter deindustrialisation and support accelerated industry diversification into fresh manufacturing opportunities and value chains,” the pair wrote in a subjugation to the Senate Economics References Committee, which is investigating the future of Australia’s automotive industry.

“A repurposed ATS could make a significant contribution to this urgent challenge.”

The Senate inquiry’s interim report was released in August and recommended the government should keep the ATS running until 2020/21 to help businesses diversify.

Labor sounds warning on employment

Former industry and innovation minister Kim Carr. Photo: Paul Jeffers

Labor Senator and former industry and innovation minister Kim Carr said “hundreds and thousands of Australian families are facing unemployment”.

“I’m talking about people in all sorts of places,” Senator Carr said.

Government defends managing transition

Innovation Minister Christopher Pyne. Photo: Pat Scala

Mr Pyne said the government’s $155 million ‘growth fund’, which was announced in May 2014, was helping automotive workers find fresh jobs.

“The government is working with the automotive industry to ensure a clear, orderly transition from passenger vehicle manufacturing by the end of 2017,” he said.

It said more than $300 million of assistance remained available to component manufacturers inbetween two thousand fourteen and 2017, and this could be used, in part, to aid diversification efforts.

The Productivity Commission also estimated that Australian taxpayers sank $30 billion of subsidies into the local car industry inbetween one thousand nine hundred ninety seven and 2012.

But there is another way of looking at the data.

Australia, at least for the time being, is one of just thirteen countries with a car industry spanning design to production.

A future of spare parts?

“This work will help us maintain a supply of high-quality parts for our customers for years to come,” said Carl Parkin, Ford of Australia’s purchasing general manager.

But as PPB Advisory fucking partner Stephen Longley crunches the numbers – one hundred fifty manufacturers which supply the car makers directly and another one thousand to two thousand businesses supplying them with parts for their components – he believes there is still a role for government.

“Even those who might have the energy and the feeling they could diversify, do they have the capital to be able to do it?

“My concern is a very large proportion of them won’t be able to sustain after the closure.”