Car Manufacturing Industry In Australia - Essay Example

The Collapse of Australian Car Manufacturing Industry Student’s Name The Collapse of Australian Car Manufacturing Industry I. Introduction The automotive manufacturing industry in Australia comprises of different firms involved in manufacturing of motor vehicles, trailer and body manufacturing, manufacturing of automotive electrical components, and manufacturing of other motor vehicle parts. The industry includes numerous small-scale engine manufacturers. The presence of these small-scale engine manufacturing firms has skewed the distribution of business in the automotive industry across the territories and states to resemble the population distribution. The industry establishments is over represented in Victoria. This is because each major player in the Australian automotive industry has its head office located there. GM Holden and Toyota have their headquarters in Port Melbourne. Ford Motors Australia has its headquarters in Richmond. Both ford and Toyota also operates in their facilities in Victoria. There are also manufacturing facilities for Toyota in Altona. Ford also operates in its Geelong and Campbell field manufacturing facilities. The manufacturing plants of GM Holden are in Victoria’s Fisherman’s Bend and Elizabeth, South Australia[Cli16]. The Australian automotive industry manufactures a wide range of vehicles including cars, light commercial vehicles, sport utility vehicles (SUVs), vans, and buses. The industry also manufactures heavy, medium, and special purpose highway trucks. The vehicles manufactured in Australia are used both for commercial purposes and private purposes. The industry also includes automotive engine manufacturing. II. Industry Analysis & Industry Trends The Australian automotive manufacturing industry was created in the 20th century when international manufactures opened Australian plants. Ford Motor Company was the first major car maker to set foot in Australia. However, Holden manufactured the first Australian designed mass production vehicle in 1948. In 1970s, manufacturing of cars in Australia was up to a maximum of 500,000 units. This placed the country in the 10th place globally. In 2004, the production still exceeded 400,000 units. The country was top in designing and manufacturing of large sized passenger automobiles. However, the country’s total production of automobiles had reduced to approximately 175,000 units. The market was getting dominated by imported units from Europe and Asia. The graph below shows the monthly domestic sales of new motor vehicles in Australia. Figure 1: Monthly Domestic Sales of New Motor Vehicles in Australia[IBI16]. Over the past five years, the performance of automotive manufacturing industry in Australia has been largely dominated by imports from a globalized market. There are factors that have contributed to the fall of the volume of local automotive production. These factors include free trade agreement signing with the largest car manufacturing nations such as Japan and South Korea, high Australian dollar over the beginning of the period, and the failure to adapt the changing preferences of consumers by the local automotive manufacturers. The preference of Australian consumers has been shifting towards smaller vehicles that fuel efficient as well as vehicles such as SUVs which combines comfort and utility. The high Australian dollar has benefited importers especially at the beginning of the period. Import units are more affordable that the vehicles that are locally manufactured. The graph below shows the monthly value of motor vehicle exports ($millions) since 1988. Figure 2: Monthly Value of Motor Vehicle Exports ($millions) since 1988[IBI16]. The graph below shows the trend of sales of large automotive manufacturers in Australia. The graph clearly shows that there has been a decline in the sales of locally manufactured cars since the late 1990s. Figure 3: The Trend of Sales of Large Automotive Manufacturers in Australia[IBI16]. The graphs below shows the monthly value of automotive imports in $ millions from 1988. Special purpose and transportation vehicles Passenger vehicles Figure 4 & 5: Monthly Value of Automotive Imports in $ Millions from 1988[IBI16]. The Australian automotive industry is the cornerstone of manufacturing in the country. The industry is diverse and includes both international manufacturers as well as small component firms. It receives massive support from the government to see it thrive in the future. According to the June 2012 report from the Federal Chamber of Automotive Industries, the Australian automotive industry pays to the Australian government more than $10 billion in tax annually. The industry employs approximately 56,000 people in the three major manufactures which are Holden, Ford and Toyota. This figure is inclusive of related component manufacturers and dozens of vehicle importers[Cli16]. The cost of labor is currently not a palatable option for the automobile section of Australian Manufacturing Workers Union, particularly at this point when the General Motors is considering shutting down its operations in the Holden plant. This is because of the precedent that would be caused nationally. Currently the hourly wage rate of an entry-level Holden worker that has finished an induction program is $23.50. On the other hand, since 2000, the General Motors Australia trade employees’ wages have increased by approximately 76 percent. Similarly, since 2008, the wage rates have increased by 21 percent. This reflects an increase from $679.20 weekly in the year 2000 to $ 1194.50 weekly in the year 2013. It is equivalent to $62,114 annually for working 38 hours weekly. Employees earn overtimes and shift penalties, with shifts taken on Sundays earning 2 ½ times more than the normal weekday overtime rates. Trade persons with more than three months experience earn a basic annual salary of $80,444. Group leaders earn an annual basic salary of approximately $102,000. There has been a 9 percent increase in the weekly wage for non-trade positions such as a minimally trained factory worker or a store worker. This interprets to an increase from $817 weekly in the year 2008 to $892 weekly in the year 2013, and a salary of approximately $46,423 annually[Nor13]. III. Union Involvement in the Automotive Industry There is a culture of a workplace relations club in many automotive manufacturing plants in Australia. AMWU is the most dominant union but there are others, such as, the Australian Industry Group representing smaller employees. These unions undertake EBAs (enterprise bargaining agreements) meant for assessing the industry’s ability to grow and adapt. There are many common condition and pay standards that have been adopted irrespective of the circumstances and the size of individual firms. EBAs aims at acknowledging that firms must accommodate the pressure amounting from home and abroad. Contrary to this, the result is a workplace that is rigid, prescriptive, and inflexible. Mostly, the management of various companies has a constrained capacity to adapt because of the dominance of the focus on entitlements[Llo12]. Therefore, as the automotive industry continues becoming more integrated into the global operations, productivity and jobs in Australia will continue suffering. Because of the plat closures, the unions are calling on the government to support the industry and encourage purchase of locally manufactured vehicles. However, they have refused to accept the need for reviewing conditions entitlements, generous pay, and the burden imposed on management of the automotive factories. This is contributing to high operation costs in the Australian automotive industry as compared to other neighboring countries[Llo12]. IV. Collapse of Australian Car Manufacturing Industry According to the Department of Industry, Innovation, and Science in Australia, by the end of 2017, three major motor vehicle manufacturers will be ceasing their operations in Australia. Holden, Toyota, and Ford have announced that they will be ceasing manufacturing in Australia. Ford ceased its operations in October 2016, while Toyota and Holden will cease production by the end of the year 2017. Mitsubishi has also announced its exit by the end of 2017. Car manufacturing is coming to an end in Australia after 90 years. Beyond the direct impact the exit of these major vehicle manufacturers will have on the suppliers, research indicates that the country will be faced with a significant impact on output and many job losses in industries both upstream and downstream. This translates to loss of more than 40,000 jobs as the major vehicle manufacturing firms exit the Australian market. The sector that will be highly affected the Professional, Scientific, and Technical Services (PSTS)[Col]. According to the Australian Bureau of Statistics, these sectors currently employ approximately 8.5 percent of Australian total workforce, translating into more than one million people[Pin12]. These major car international car manufactures are taking their assembly lines elsewhere where the production cost is relatively and significantly lower and make supply components and accessories to the automotive sector in Australia. Several reasons have been cited for the closure of the vehicle manufacturing Industry in Australia. All exiting motor vehicle manufactures have cites high fragmented and competitive domestic market, high cost of production, and the consumer preference that is ever changing as the major reasons hindering their progress and growth in the Australian market. The Australian vehicle market has proved too small to enable the automotive industry to exploit economies of scale fully. For the country to remain solvent, it requires cheap foreign produced vehicles, parts, and labor. The Australian domestic market condition became untenable when: Free trade agreement was signed and import tariffs were lowered The union started demanding better working conditions and higher wages, and The Australian dollar started appreciating. Competition with other vehicle producing countries becomes difficult when labor costs in those countries are just one-fourth of the labor costs in Australia. About 17 years ago, Holden was the market leader with approximately 90,000 units of sales annually. Currently, the company sells slightly over 40,000 units annually. Apart from luxurious brands which sells at high prices, no car manufacturing company can survive on such small sales volume. In the UK, the automotive industry thrives because it exports eight vehicles out of ten vehicles manufactured. Australian Automotive industry cannot survive with the country being surrounded by developing nations which offer cheap labor. The minimum wage per hour paid to workers in the automotive industry in Thailand is $2. The workers at car assembly line takes approximately $6 per hour, translating to an annual pay of $12,500. This wage rate is nowhere near the annual wage of $69,000 given to an average car manufacturing worker in Australia. Australia has signed Free Trade Agreements with several countries but the deal that was signed with Thailand in 2005 has been very brutal to the Australian automotive industry. Import tariff was lifted on vehicles from Thailand leading to more than 2 million units of vehicles made in Thailand being imported into the country from similar brands being produce in Australia like, Mazda, Mitsubishi, Nissan, Honda, Toyota, Holden, and Ford among others[End]. V. Conclusion The government should come in to reform the Australian automotive industry through massive support. Workplace reforms should be energetically endorsed. The automotive industry and the unions come up with a closed enclave to bargaining of relations in workplace. Australian automotive firms’ viability can only be enhanced if a culture valuing efficiency and productivity is apparent. It can only begin when the managers to these firms, union officials and industry associations negotiate terms that are attuned to the circumstances of the industry. The government should value what it gains from financially supporting the automotive industry. The government should ensure the workplace is flexible and productive and it should come in to trim the union’s power to dictate management. What should be encouraged is an environment that favors direct engagement between the employees and the employer. References Cli16: , [1], IBI16: , [2], Nor13: , [2], Llo12: , [3], Col: , [4], Pin12: , [5], End: , [6], Read More