C2311 Motor Vehicle Manufacturing in Australia Industry Report

7/28/2019 C2311 Motor Vehicle Manufacturing in Australia Industry Report

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2 Aot this Inst2 Idustry Deitio

2 Mai Activities

2 Similar Idustries

3 Additioal Resources

4 Inst at a Glance

5 Inst Peomance

5 Eecutive Summary

5 Key Eteral Drivers

6 Curret Perormace

9 Idustry Outlook

12 Idustry Lie Cycle

14 Pocts & Makets

14 Supply Chai

14 Products & Services

16 Demad Determiats

16 Major Markets

17 Iteratioal Trade

19 Busiess Locatios

21 Competitive Lanscape

21 Market Share Cocetratio

21 Key Success Factors

21 Cost Structure Bechmarks

23 Basis o Competitio

24 Barriers to Etry

24 Idustry Globalisatio

26 Majo Companies

26 Toyota Motor Corporatio AustraliaLimited

27 GM Holde Ltd

29 Ford Motor Compay o AustraliaLimited

32 Opeating Conitions

32 Capital Itesity

33 Techology & Systems

33 Reveue Volatility

34 Regulatio & Policy

35 Idustry Assistace

38 Ke Statistics

38 Idustry Data

38 Aual Chage

38 Key Ratios

39 Jagon & Glossa

IBISWorld Industry Report C2311Motor Vehicle Manuacturingin AustraliaJl 2012 Aies Ngi

Green pressure: Operators must meet demandby developing fuel-efcient vehicles

.iisol.com.a | (03) 9655 3881 | [email protected]


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www.IbISwOrLd.COM.Au Moto Vehicle Manacting in Astalia July 2012 2

Companies in this industrymanufacture motor vehicles. Thesevehicles mainly include cars, sportsutility vehicles (SUVs), lightcommercial vehicles, buses, vans andmedium, heavy and special-purpose

highway trucks such as re trucks.Vehicles produced in this industry areused for private and commercialpurposes. The manufacturing ofautomotive engines is also included inthis industry.

The pima activities o this inst ae

Car mauacturig

SUV mauacturig

Egie mauacturig

Bus mauacturig

Va mauacturig

Heavy truck mauacturig

Inst defnition

Main Activities

Simila Insties

The majo pocts an sevices in this inst ae

Large-size cars

Luury ad all other cars

Medium-size cars

Small-size ad hybrid cars

SUVsTrucks

Utes

Vas ad buses

Aot this Inst

C2812 Moto Vehicle bo Manacting in Astalia

Compaies i this idustry covert vehicle bodies usig a eistig egie ad chassis.

C2819 Atomotive Pats an Accessoies Manacting in Astalia

Busiesses i this idustry mauacture motor vehicle parts that are ot i associatio with the mauactureo complete vehicles or egies.

C2862 Mining an Constction Machine Manacting in Astalia

Firms i this idustry produce o-highway trucks.

G5311 Ca retailing in Astalia

Establishmets i this idustry carry out mior assembly o otherwise ully imported vehicles.

G5312 Motoccle dealing in Astalia

Compaies i this idustry coduct mior assembly o otherwise ully imported motorcycles.


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Aot this Inst

Aitional resoces Fo aitional inomation on this inst.innovation.gov.aDepartmet o Idustry, Iovatio, Sciece, Research ad Tertiary Educatio

.cai.com.aFederal Chamber o Automotive Idustries

.oica.netIteratioal Orgaizatio o Motor Vehicle Mauacturers (OICA)

.tckol.com.aTruckworld

IBISWorld writes over 500 Australianindustry reports, which are updatedup to four times a year. To see allreports, go towww.ibisworld.com.au


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Maket Shae

Toyota Motor

CorporationAustralia Limited45.6%

GM Holden Ltd23.7%

Ford MotorCompany of

Australia Limited18.7%

Ke Extenal divesConsmesentiment inex

Tae-eighte inex

wol pice o ce oil

Moto vehicle tai

domestic pice oion an steel

Ke StatisticsSnapshot

Inst at a GlanceMoto Vehicle Manacting in 2012-13

revene

$10.7nPoft

$213.3mExpots

$2.4nbsinesses

68

Annal Goth 13-18

-1.4%

Annal Goth 08-13

-9.4%

Inst Stcte Lie Cycle Stage DeclieReveue Volatility High

Capital Itesity Medium

Idustry Assistace Medium

Cocetratio Level High

Regulatio Level Medium

Techology Chage High

Barriers to Etry High

Idustry Globalisatio High

Competitio Level High

FOR ADDITIOnAL STATISTICS AnD TIME SERIES SEE THE APPEnDIx On PAGE 38

Index

120

80

90

100

110

1905 07 09 11 13 15 17Year

Consumer sentiment index

SOURCE: WWW.IBISWORLD.COM.AU

%c

hange

16

24

16

8

0

8

1905 07 09 11 13 15 17Year

Revenue Employment

Revenue vs. employment growth

Business locations

34.9%VIC

1.9%TAS

25.5%NSW

0.9%NT

19.8%QLD

10.4%WA

6.6%SA


p. 26

p. 5



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Ke Extenal dives Consumer sentiment indexEnd customers are very important toensure the survival of the Motor VehicleManufacturing industry. Economic

downturns and other events can affectexpenditure decisions of households.When consumers are not happy oroptimistic about the future of theeconomy, they tend to postpone largepurchases (such as cars) until times aremore favourable. Consumer sentimentwas dismal during the global nancialcrisis.

Trade-weighted indexChanges in the value of the Australiandollar affect the internationalcompetitiveness of domestic carmanufacturers. The Australian dollarappreciated rapidly over the past ve

years. The competitiveness of domesticmanufacturers diminishes when thevalue of Australian dollar appreciatesbecause it makes imported cars cheaper.

At the same time, the strong Australiandollar makes automotive productsmanufactured in Australia moreexpensive in export markets.

World price o crude oilThe price of oil and petrol affect thedriving habits of consumers and the typeof car they buy. Over the past ve years,the price of petrol has been causing chaosamong motorists who have startedswitching to more fuel-efcient options.These include cars that run on liqueedpetroleum gas (LPG), hybrids and smallcars that achieve better mileage. Thetrucking segment has also been

ExectiveSmma

Motor vehicle manufacturers are havinga tough time. Industry revenue isforecast to contract by an annualised9.4% over the ve years through 2012-13to reach $10.7 billion. Motor vehiclemanufacturers woes started whenconsumers began switching to smaller,more fuel-efcient vehicles. Consumersmade the switch due to environmentalconcerns and skyrocketing petrol prices.This proved to be an issue for domesticmanufacturers, particularly for Holden

and Ford, as their core product rangeconsists of large, powerful, fuel-inefcient vehicles. Truck manufacturersalso noticed the shift towards cleanertrucks, but their troubles lie more in theslowdown of truck-freight demand thanin environmental factors.

As domestic manufacturers continuedto produce cars that consumers did notwant, car buyers turned to importedvehicles. As such, import penetrationrose in the past ve years, with Toyotasimported cars leading the pack. To make

matters worse, the Australian dollarincreased in value, which led to cheaperimported cars. Faced with fallingdemand, domestic manufacturersstruggled to maintain protability over

the past ve years. In March 2008,Mitsubishi gave up entirely and exitedthe market after years of trying to propup production and efciency.

Car production is expected to improvein 2012-13, as domestic manufacturersshift focus to smaller and fuel-efcientvehicles. Pent-up demand will alsosupport a recovery in production. Assuch, industry revenue is expected togrow 7.7% in 2012-13. However,domestic manufactures will continue to

face strong import competition.Domestic manufacturers shift to fuel-efcient vehicles will help the industryremain competitive.

The next ve years are expected to bechallenging for domestic motor vehiclemanufacturers. Industry revenue isforecast to decline at an annualised 1.4%over the ve years through 2017-18 toreach $10 billion. While domesticdemand is expected to improve, importsare expected to satisfy a greaterproportion of domestic demand. To

remain competitive, domesticmanufacturers will invest in greenercars. Government help will aidcompanies in restructuring theiroperations.

Inst PeomanceExective Smma | Ke Extenal dives | Cent Peomance

Inst Otlook | Lie Ccle Stage


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Inst Peomance

CentPeomance

Manufacturing motor vehicles is a globalaffair. Australias three major carmakers and three major truck makers

are all divisions of foreign companies.Domestic manufacturers also competedirectly with imported motor vehicles,which makes uctuations in theexchange rate all the more important.The Australian dollar grew in value overthe past ve years, which made importedvehicles more affordable. Manufacturersalso watched hopelessly as the cost ofproduction increased due to rises in theprice of steel, a major input in motorvehicle manufacturing.

Exchange rates and the price of steelwere not the only factors watched closelyby manufacturers. Petrol pricesskyrocketed over the past ve years. As a

result, consumers and businesseschanged the way they viewed fuel costs.Freight companies tried to offset rising

operation costs through fuel surchargesand by reducing expendable costs such asreplacement trucks. Consumersdemanded more fuel-efcient cars anddrove less, hoping to save money on theirfuel bills. A consumer shift towards morefuel-efcient vehicles led to a fall indemand for domestically manufacturedcars. The reduced demand fromconsumers and business led to a declinein revenue. As such, motor vehiclemanufacturing revenue is estimated tocontract at an annualised 9.4% over theve years through 2012-13 to reach $10.7billion. Meanwhile, motor vehicleproduction is expected to fall at an

Ke Extenal divescontine

struggling with a rise in the price of fuel,which has put enormous pressure onproduction costs.

Motor vehicle tariTaxes on imports increase the price ofimported motor vehicles, which makesdomestic products more competitive onthe market. The government reducedtariffs to 10% in 2005 and to 5.0% in2010. Domestic manufacturers havevoiced their concerns about the tariff

reduction, believing that it will harmdemand. A rise in the number ofimported cars in the market could be

detrimental to parts manufacturers,which would have a ow-on effect on theentire automotive supply chain.

Domestic price o iron and steelSteel is a major input used in motorvehicle manufacturing. Rises in the priceof steel put cost pressures onmanufacturers, which often leads to afall in protability. Over the past veyears, the price of steel has been risingrapidly and manufacturers have not

been able to completely pass onincreased costs to customers.

Index

80

55

60

65

70

75

1905 07 09 11 13 15 17Year

Trade-weighted index


Index

120

80

90

100

110

1905 07 09 11 13 15 17Year

Consumer sentiment index


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Inst Peomance

Cent Peomancecontine

annualised 7.6% over the same period toreach 233,306 vehicles.

Demand is expected to continue risingin 2012-13, backed by the production offuel-efcient cars (including the hybridCamry and the Holden Cruze) and eetsales. Domestic manufacturers will feelthe heat from imports, but manufacturers

will be better equipped to deal withimport competition. All three major carmakers will be manufacturing fuel-efcient vehicles. Domesticmanufacturers will no longer ignore theshift in preferences from large petrol-guzzlers to fuel-efcient cars. Revenue isexpected to grow 7.7% during 2012-13.

The ca cisis The past ve years were tough on all car

manufacturers. Production fell by 27% in2008-09 due to the global nancial crisis,which led to a decline in demand for carsboth domestically and globally. Abysmalconsumer condence and fears about thefuture of the economy meant thathouseholds and businesses postponedpurchasing new vehicles. Manymanufacturers were already producingtoo many vehicles and had to cutproduction drastically.

Car sales rose in 2009-10, mainly dueto the low-base effect rather than any

other factor. However, export markets didnot fare as well due to the loss of thePontiac export deal and the lingeringeffects of the global nancial crisis. By2009-10, many manufacturers hadswitched to making vehicles only onconrmed orders. Production continuedto fall in 2009-10 for this reason, andbecause of the pile-up in inventory during2009. Truck manufacturers did not faremuch better, with road freight services inshambles after massive fuel price jumps.

Low consumer sentiment led to a declinein freight demand during 2008-09, whichcaused overcapacity in the truckingsegment. Truck manufacturers will not beexpanding their eet or replacing existingvehicles anytime soon.

Car sales were dismal in 2010-11, due

to cautious customers preferring to saverather than spend on big-ticket items.Furthermore, toward the end of thenancial year, small businessespostponed replacing their eets in orderto take advantage of a business tax breakto be introduced in July 2012. The weakcar retail environment dragged down carmanufacturer revenue. Ford reducedproduction shifts temporarily in March2011 due to poor demand. Toyota facedcomponent supply issues due to the

tsunami in Japan, which drasticallyaffected car production. Toyotas Altonaplant was back to full production in earlyJune 2011, but this was too little, too latefor the industry. Production fell by 11.9%in 2010-11 as a result.

Shiting geas Car prices declined over the past ve years,which should have encouraged demand.However, consumers were not running todealerships and buying cars in droves atleast not domestic cars. With the exceptionof Toyota, domestic manufacturers

struggled to keep their sales up as fuelprices rose. Like their parent companies,Ford and GM Holden had core productsconsisting of large, fuel-inefcient cars andSUVs. Environmental concerns andpersistent rises in petrol prices led

Passenge vehicle poctionyea

Vehicles(uits) (% chage)

2007-08 345,828 3.7

2008-09 252,448 -27.0

2009-10 248,854 -1.4

2010-11 219,194 -11.9

2011-12 224,754 2.5

2012-13* 233,306 3.8

*EstimateSOURCE: FCAI


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Inst Peomance

Shiting geascontine

consumers to switch to more fuel-efcientand smaller cars.

Car makers such as Mazda andHyundai that offer fuel-efcient vehiclesand small cars gained market sharequickly over the past ve years. Theimport competition put even moredownward pressure on industry revenue.The fall in import tariffs from 10% to5.0% in 2010 also contributed to a shifttowards smaller imported cars. The tariffcut made imported motor vehicles

cheaper. A strong dollar also supportedthe popularity of imported vehiclesthrough lower prices. A fall in the price ofimported motor vehicles furthersupported the shift towards foreign-made, small, fuel-efcient vehicles.

The shift was to the detriment ofdomestic production. Downwardpressure on production could haveadverse widespread effects across thesupply chain, and automotive componentmanufacturers have already voicedconcerns about lower tariffs. As

suppliers, generally smaller companies,started going out of business, motorvehicle production was undermined.

The Australian arms of Ford and GM

Holden account for only a small part oftheir respective parent companysrevenue. In the United States, GeneralMotors Corporation declared Chapter 11bankruptcy in 2009 and exited on 11 July2009, due in part to the US Government.The new GM was mostly owned by theUS Government and was re-listed on theNew York stock exchange in November2010. GM does not intend to close downits Australian operations. However, thePontiac deal with Holden was a casualty

of GMs restructuring. The deal wascancelled in early 2009, which causedexport revenue and Holdens exportproduction to drop signicantly.

Modern motor vehicle manufacturingis no longer a labour-intensive process. Itrequires huge investment into state-of-the-art automation, which reinforces thenecessity for fewer plants with fewerworkers, but greater output. Employmentnumbers declined at an estimatedannualised 6.7% over the past ve years.Employment numbers contracted due to

automation trends, plant closures, costcutting, model downsizing, Mitsubishiswithdrawal from manufacturing activitiesand improvements in labour productivity.

Poftailit The industry is too small to be protable.Motor vehicle manufacturing is moreprotable when done on a large scale.Faced with shrinking demand,manufacturers have been shutting down

production facilities in Australia fordecades. Mitsubishi closed its lastremaining plant in March 2008. Even bigcompanies such as GM Holden and Fordstruggled to make prot over the past veyears. Faced with falling production,companies in the industry are nding itmore difcult to improve margins due tolower capacity utilisation.

To make matters worse, GM Holdenand Ford in particular lacked the vehiclerange that consumers wanted to buy.Toyota is a step ahead in the small-carsegment (including hybrids), and

beneted from a consumer preferenceshift to more fuel-efcient motorvehicles. GM Holden and Ford sufferedoperating losses over the past ve yearsas they persisted in manufacturing SUVs

and other large vehicles, despite clearsigns of a consumer shift away from suchmodels. On top of having to deal withfalling demand, companies within theindustry battled high material costs,which further negated protability.

Despite the challenges, industryprotability improved over the past veyears. Operating prot margins grewfrom an estimated 1.7% in 2007-08 to2.0% in 2012-13. Margins widened asthe three major car makers restructuredand as input costs softened. Operatingmargins reached a low of 1.0% losses in


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Inst Peomance

Poftailitcontine

2008-09, during the worst of thedownturn.

The primary reason for the lossesduring the downturn wasunderutilisation of factory capacity,which led to an increase in xed costs asa percentage of revenue. Labour costs

were slightly easier to control. Operatorscut wage costs and employee numbers asproduction slowed. However, labourcosts as a percentage of revenue did riseduring the worst of the crisis asmanufacturers overestimated demandand halted production too late.

InstOtlook

Demand for cars will pick up, but

domestic motor vehicle manufacturerswill continue to face tough importcompetition. As such, revenue is forecastto decline at an annualised 1.4% over theve years through 2017-18 to $10 billion.Oil prices are forecast to rise over thenext ve years and will continue to playhavoc with the industry, while thedomestic price of steel is expected tosoften, which will help keep productioncosts in check. The Australian dollar willremain strong over the next ve years,which will keep imports cheap and causemore trouble for domesticmanufacturers.

Govenment tos camakes

Australias relatively small car market is amajor hurdle for the industry, but it has a

receptive government willing to help. Thegovernment pledged to provide theindustry with various assistance schemes.In November 2008, many car dealersfaced bankruptcy when two of the majorautomotive nancing companies, GMAC(a GM subsidiary) and GE Financial,decided to leave the Australian market.The government intervened in December2008 and provided $2.0 billion to helpcar dealers in need. Although this helpdoes not directly apply to manufacturers,it does conrm the Australian

Governments commitment to theindustry. Car dealers must remain inbusiness for manufacturers to stay aoat,as they represent a major share of itsmarket. Without car dealers, productionwould fall drastically.

The aim of government assistance wasoften to give manufacturers an incentive

to invest in research and development.Over the past ve years, the focus was on

the development of fuel-efcient,emission-reducing, hybrid andalternative-fuel technology. It is alsocritical for domestic producers tocontinue to invest in productivity andquality improvements. Investment inequipment and training employees wasequally important, since increasedautomation requires higher skill levels.

Some believe that manufacturing carslocally will never be viable and that it willbe more economical if car makers importcars instead. Imports completely

dominate the small-car segment andaccount for more than half of themedium-car segment. Imports declinedat an annualised 2.2% over the ve yearsthrough 2012-13 due to weak domesticdemand. However, imports satised anincreasing proportion of domesticdemand as penetration increased.

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Industry revenue



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Inst Peomance

The ight sie Producing green cars requires signicantinvestment. Domestic manufacturerswere initially reluctant to manufacturesmall cars for various reasons, includingthe difcultly in making prot out ofgreen cars without proper governmentsupport. Fuel-efcient vehicles arerelatively more expensive and there is

not a mass market for them yet.Manufacturing will be slow at rst. Thesmall scale will diminish protabilitysince large-scale production is crucial forhealthy margins in the industry. Thegood news is that the AustralianGovernment is willing to help make theindustry greener.

The Australian Government willcontinue to support the automotivesector over the next ve years, which willstimulate growth for the industry.

However, domestic manufacturers willonly reap the full benets of governmentintervention and assistance if producerscan achieve industrial harmony, reduceemployee turnover and invest inautomated production equipment.

Industry players will strive for reliable

supply links with specialist componentproducers and will contain costs througheconomies of scale in production.Domestic manufacturers can then passon cost reductions to model pricing fordomestic consumption and exports. Bypumping money into the pockets ofmotor vehicle manufacturers, the

government will ensure a rise inproduction volumes over the next veyears. Financial incentives (as opposedto outright handouts) to generateinvestment schemes for green carmanufacturing will also supportproduction volumes.

Government intervention alone willnot be enough to jump-start theindustry. Nonetheless, the aid willencourage manufacturers to startproducing the right type of motor

vehicles cars that consumers actuallywant to buy. Manufacturing smallercars and fuel-efcient vehicles will helpto drive industry demand. The industrywill also see limited growth in thelarge-vehicle segment, as fuel pricesremain high.

Geene te With reduced industry protection, therewill be a shake-out among vehicleproducers, as pressures increase foroperators to become competitive or exitthe industry. Some industryconsolidation is expected over the next

ve years as companies eliminateinefcient units. Establishmentnumbers will decline by an estimatedannualised 3.1% over the next veyears.

As manufacturers strive to become

Going geen Better economic conditions with higherhousehold disposable income will backdemand for new motor vehicles.Domestic manufacturers will have abetter range of fuel-efcient vehicles onoffer, which will promote demand andsupport production. Despite theimproved demand for motor vehicles,revenue will drop over the next ve yearsdue to strong import competition. Thefuel-efcient range will help dilute thestrong import competition.

The shift in production towardsgreen cars may be too late for domestic

manufacturers. Vehicles that are morefuel-efcient compared to those madelocally have been available on theglobal market for years. Consequently,imported green vehicles may be moreprice-competitive than domesticallymade cars. The government introduceda mandatory emission standard forvehicles in Australia to be phased infrom 2013 to 2018. This will lead tohigher research and development costsfor domestic manufacturers.

IBISWorld does not expect thesehigher costs to be crippling.


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Geene tecontine

more competitive, labour productivitywill be one of the rst issues addressed.Industry operators are likely to invest instate-of-the-art production machineryover the next ve years, and to improvelabour productivity through leanerproduction methods. Consequently,employment is forecast to decrease aslabour costs fall following productivitygains. These gains, along with thedevelopment of green car productionand a shift away from manufacturing

big cars, will lead to a rise in industry

protability over the next ve years.Domestic manufacturing of small

and fuel-efcient vehicles is expected tobecome more established, which willdrive wider prot margins. Industryoperating prot margins will widen toabout 2.8% in 2017-18. However, weakmargins will feature initially. It will bedifcult for car manufacturers togenerate prot when they rst launchthe vehicles in the market, due to therelatively small scale of car

manufacturing in Australia.

Tae slos Ford and GM Holden will attempt tofollow Toyotas success in developing itsexport markets. However, industryexports will continue to face strongcompetition in export markets.Domestic manufacturers will need tocompete against overseas manufacturersthat benet from lower operating costs.Due to the strong competition, exports

are expected to decline by an annualised2.1% over the ve years through 2017-18. As such, exports will make a smallershare of industry revenue over the nextve years.

Imports are expected to rise. Althoughdomestic manufacturers will be doingtheir best to become more competitive,restructuring is a long process. Motorvehicle importers will reap the benets ofa fall in tariffs before domesticmanufacturers catch up with new

products. Imports are forecast to increaseat an annualised 2.0% over the next veyears. Likewise, import penetration willgrow and satisfy an increasing proportionof domestic demand.

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Revenue vs. exports



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Inst PeomanceThe industrys contribution tothe economy is shrinking

The market for domestically manufacturedmotor vehicles is shrinking

Products manufactured by theindustry are not protable

Companies are downsizing

Lie Ccle Stage


30

25

20

15

10

5

0

5

10

10 100 20

5 155 25 30

%

Gowthopoft/GdP

% Goth o estalishments

declineCrash or Grow?

Potential Hien GemsFuture Idustries

Qalit GothHigh growth i ecoomicimportace; weaker compaiesclose dow; developedtechology ad markets

Time wastesHobby Idustries

MatitCompaycosolidatio;level o ecoomicimportace stable

Shakeot

Qantit GothMay ew compaies;mior growth i ecoomicimportace; substatialtechology chage

Ke Feates o a decline Inst

Reveue grows slower tha ecoomy

Fallig compay umbers; large rms domiate

Little techology & process chage

Decliig per capita cosumptio o good

Stable & clearly segmeted products & brads

Moto Vehicle bo Manacting

Atomotive Pats an Accessoies Manacting

Mining an ConstctionMachine Manacting

Ca retailing

Motoccle dealing

Moto Vehicle Manacting


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Inst Peomance

Inst Lie Ccle The Motor Vehicle Manufacturingindustry is in the decline stage of its lifecycle. Domestic motor vehiclemanufacturers are having troublemanufacturing protable cars thatconsumers want to buy. Buyers areturning towards imports to nd whatthey want. Demand for domesticallyproduced vehicles is subsequently falling.As such, the industrys contribution tothe economy (industry value added) willfall by an estimated annualised 3.7% over

the 10 years through 2017-18.Meanwhile, GDP is forecast to grow at anannualised 2.9% over the same period. Assuch, the Motor Vehicle Manufacturingindustry in Australia will shrink inproportion to the economy. Theshrinking suggests the industry is in thedecline stage of its life cycle.

Customer shifts toward fuel-efcientvehicles started a chain of events that ledthe industry to where it is today:inefcient, in a stage of decline andfacing falling demand. Carmakers have

been downsizing their capacity in the

case of Mitsubishi, exiting the marketaltogether. Engine manufacturers havebeen going out of business. As such, thenumber of industry establishments willfall by an estimated annualised 3.3% overthe 10 years through 2017-18.

However, over the next ve years therewill be growth potential for the industryin the form of fuel-efcient andenvironmentally friendly vehicle such aspetrol hybrids and electric cars.Manufacturers will develop these

products mainly due to a push from thegovernment and emission standards(whether voluntary or not). It is unlikelythat domestic motor vehiclemanufacturers will be able to increasetheir value added on new vehicles in theshort run, especially since foreignmanufacturers have been making fuel-efcient vehicles for years. Increasedmanufacturing of environmentallyfriendly cars will be off a low base. Thegrowth from the low base will not bestrong enough to push the industry into a

new growth phase.

This idustryis declining


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Pocts & Sevices The industry traditionally manufactureslarge vehicles. Cars that fall under thelight, hybrid or small categories aretypically imported. Domesticmanufacturers took too long to respond to

the growing popularity of small cars. Theyrelied on Australians always appreciatingiconic cars such as the HoldenCommodore. Over the past ve years,consumers continually bought smaller,more fuel-efcient (usually imported)cars. Subsequently, Toyota found itselfsurpassing Holden in sales numbers.

Small and hybrid carsThis lack of domestically manufacturedsmall and hybrid cars changed in 2010-11, with Toyotas Hybrid Camry andHoldens Cruze (excluding the 2.0-litre

diesel engine Cruze, which falls into themedium segment). As a result, the smalland hybrid car segment grew the fastestover the past ve years.

For the purpose of this segmentation,

small is dened as a passenger car with afour- to six-cylinder engine withdisplacement between 1.5 litres and 1.9litres. It also includes hybrid cars. Growthin this segment was the result of shiftingconsumer preferences towards smallercars, which had previously been satisedby imports. Domestic manufacturers arenow catching up to this trend with somesubsidies from the government.

This segment has potential for growthover the next ve years, although Holdenis reassessing its ability to make theCruze locally without government help.

KEy buyING INduSTrIESF4621 Ca wholesaling in Astalia

Car wholesalers are the mai buyers o products rom the Motor Vehicle Mauacturigidustry.

G5311 Ca retailing in AstaliaDistributio o motor vehicles to cosumers maily occurs through dealerships.

I6110 roa Feight Tanspot in AstaliaRoad reight compaies are sigicat buyers ad users o trucks.

I6121 Long distance bs Tanspot in AstaliaBus compaies are major buyers o buses made by motor vehicle mauacturers.

I6122 Shot distance bs an Tama Tanspot in AstaliaCompaies i short-distace bus trasport are the mai buyers o buses rom motor vehicle

mauacturers.

KEy SELLING INduSTrIES

C2551 Te Manacting in AstaliaMotor vehicle mauacturers source tyres or their vehicles rom this idustry.

C2711 Ion an Steel Manacting in AstaliaIro ad steel are major iputs used i mauacturig motor vehicles.

C2812 Moto Vehicle bo Manacting in AstaliaMotor vehicle bodies are modied by this idustry, the supplied to motor vehiclemauacturers.

C2813 Atomotive Electical an Instment Manacting in AstaliaThis idustry is the mai supplier o electrical ad electroic compoets used i producig

motor vehicles.C2819 Atomotive Pats an Accessoies Manacting in Astalia

Automotive parts ad accessories rom this idustry are paramout to mauacturig motorvehicles.

Pocts & MaketsSppl Chain | Pocts & Sevices | deman deteminants

Majo Makets | Intenational Tae | bsiness Locations

Sppl Chain


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Pocts & Makets

Pocts & Sevicescontine

In January 2011, the governmentscrapped the green car innovation fund,which was a setback for all threedomestic manufacturers. However, carmakers will continue to expand theirsmall-car offering.

MediumMedium-size cars include cars runningon engines of up to 12 cylinders, but witha capacity of more than 1.9 litres. Thelarge cars segment includes bigger cars

that run on engines with a minimum ofsix cylinders. In the medium-size carsegment, domestically manufactured carsaccount for less than 30% of sales, andthis segment is mainly dominated byToyotas four-cylinder Camry (excludingthe hybrid Camry).

The medium-size segment gainedsome ground over the past ve years,mainly due to Toyotas foresight inoffering a smaller Camry. Medium-sizecar production is expected to performwell over the next ve years as consumers

continue to shift to smaller cars.

SUV, luxury and otherThe luxury car segment shrank over thepast ve years as Holden discontinued

the Holden Statesman in 2010. Thisoccurred in the face of rising importcompetition. The segment is nownegligible and is dominated by theHolden Caprice.

The SUV segment has not alteredradically over the past ve years becauseit accounts for an extremely small part ofproduction in Australia, mainly FordsTerritory.

Demand for utes has been growing asutes are used in business sectors like

construction. Due to a downturn in theeconomy, demand for utes slowed.However, government incentives such asthe tax break right before the end of2008-09 provided a boost to demand forutes among businesses.

Similar conditions prevail in the trucksegment, which is also facing pressure toproduce more fuel-efcient and hybridvehicles. Demand for buses has beengrowing over the past ve years asconsumers have been leaving their cars athome and using public transport instead

of driving, to save on petrol costs.However, this trend has saturated themarket for buses and, with tryingconditions ahead, companies will bereluctant to invest in new eets.

Products and services segmentation (2012-13)

Total $10.7bn

42.3%Large-size cars

3.2%Trucks

17.3%Utes

2.9%Vans and buses

1.5%Luxury and all other cars

16.9%Medium-size cars

11.3%Small-size and hybrid cars

4.6%SUVs



16/40


Pocts & Makets

Majo Makets The market for motor vehiclesmanufactured in Australia shrank overthe past ve years, mainly due to thegrowing popularity of small cars that arenot manufactured domestically. Aboutone million vehicles are sold in Australiaper year, most of which will be imported.

Motor vehicle manufacturers usuallywholesale vehicles themselves, which iswhy wholesalers are not included in thissegmentation. There are small, private

companies that partake in wholesalingactivities but their contribution is negligent.

Car dealersUltimately, the main market for theindustry is car dealers who sell cars directto the public. Car dealers have beentroubled lately with the exit of GMAC andGE Finance from the Australian market.Dealers purchase vehicles throughautomotive nancing companies such as

demandeteminants

Demand for motor vehiclesmanufactured in this industry can bedetermined by various factors fromvehicle prices and exchange rates, topersonal consumer preferences of avehicle. Product innovation will alsoinuence demand for motor vehicles aswill scrapping rates. Movements in thevalue of the dollar determine theattractiveness of Australian productsoverseas, and the price of imports fordomestic consumption. Movements in

income and interest rates will determinethe affordability of new motor vehicles;the dollar has been strong over the pastfew years, which has promoted imports.

Longer-term determinants of demandinclude trends in Australias demography.Despite a decline in population growth,there will be several signicant changes tothe structure of Australian society. Factorsthat may curtail demand for motor

vehicles include slowing populationgrowth and an increasing proportion ofaged people in the population that will beless inclined to use and replace cars.Factors that are likely to add to vehicledemand include a lesser dependency onthe traditional single-family incomestructure, and an increasing proportion ofhouseholds without dependent children.Movements in oil prices have an effect ondemand for large cars assembled inAustralia. During periods of high fuel

costs, as experienced in 2007 and therst-half of 2008, demand for large carswill decline in favour of smaller, morefuel-efcient vehicles, which arecurrently sourced from imports. Changingpatterns in customer preferences forsmaller more fuel-efcient vehicles has ledall three manufacturers to plan for thedomestic manufacture of environmentallyfriendly vehicles.

Major market segmentation (2012-13)

Total $10.7bn

49.8%Car dealers

3.7%Vehicle rental operators

22.3%Exports

13.8%Government

6.7%Freight and bus operators

3.7%Taxi operators



17/40


Pocts & Makets

Intenational Tae Import penetration rose over the past veyears, mainly due to an inux of medium-to-small SUVs and cars. This trend is dueto increasing fuel prices and a strongerAustralian dollar that made imports moreattractive. Imports from Thailand havebeen growing since GM established aplant there. The Thailand-Australia FreeTrade Agreement was signed in 2004,which eliminated tariffs on vehiclesimported from Thailand during 2005. Atariff elimination on motor vehicle

components occurred in 2010. Therefore,sales of new vehicles imported fromThailand increased greatly.

Imports as a percentage of domesticdemand will rise from 60.8% averagedover the ve years through 2007-08 to69.9% averaged over the ve yearsthrough 2012-13. Import penetration willcontinue to increase over the next veyears due to reductions in tariffs, but thiswill be at a slower rate as domesticproducers catch up on foreignmanufacturers in terms of productofferings and productivity.

Despite the increase in importpenetration, the value of imports actually

fell over the past ve years. Imports fellat an annualised 2.2% over the ve yearsthrough 2012-13. Imports fell due toweakened domestic demand for newmotor vehicles.

ExportsExports as a percentage of revenuedeclined over the past ve years. Theindustrys reliance on exports marketsshrank as the domestic market provedmore resilient than some export markets.

Majo Maketscontine

GMAC. When these two major players leftthe automotive nancing business, manycar dealers were worried that they wouldnot be able to nd the money to buy cars.The situation improved in 2009-10 thanksto pent-up demand that led to a rise in carsales. The car dealers market has beenstagnant over the past ve years due tocautionary consumers saving rather thanspending on big-ticket items.

Exports

The export market shrank over the pastve years. The export market took a hit in2009, when Holden lost its Pontiac exportdeal with GM; however, the company isstill looking to expand its export markets,especially in the Middle East. Exportmarkets have yet to recover since the lossof the Pontiac deal and the global nancialcrisis. There will be potential for growth inthe future though, especially for fuel-

efcient engines. The introduction ofmandatory emission standards will alsoensure that locally made vehicles arecompetitive on the global market withrespect to fuel efciency.

Freight and governmentThe freight market has been contractingof late mainly due to a slowdown infreight demand. The rental market, whichincludes car and truck rental, has alsobeen shrinking due to the economic

downturn. The Queensland oods inearly 2011 provided a small temporaryboost to the rental market, as manyQueenslanders lost their cars in thenatural disaster. On the bright side,demand for government eets (includingpolice cars) was relatively positive. Thetaxi market, dominated by Fords LPGFalcon sedan, was resilient over the pastve years.

Level & Ten

Eports i theidustry are Highad deceasing

Imports i theidustry are Highad Inceasing

$million

10000

40000

30000

20000

10000

0

1905 07 09 11 13 15 17YearExports Imports Balance

Industry trade balance



18/40


Pocts & Makets

Intenational Taecontine

Exports as a percentage of revenue fellfrom an estimated 27.4% in 2007-08 to22.3% in 2012-13. Likewise, the value ofexports fell at an annualised 13.0% over thepast ve years as export markets waned.

Nonetheless, manufacturers continuallylook at overseas opportunities. The largestmarket for Holden exports is the MiddleEast, where the Holden Commodore andStatesman were branded as Chevrolets.

Toyota Australia is the largest exporter ofcars and its markets include the MiddleEast, New Zealand and South-East Asia.The Middle East accounts for close to 70%of export revenue since Holden lost thePontiac export deal with the United States,which used to account for up to 20% ofexport revenue now accounts for less than2.0%. Manufacturers are continuing toexpand into the Middle East.

Imports From...

Total $22.0bn

38%Japan

21%Other

17%Thailand

14%Germany

11%South Korea

Exports To...

Total $2.4bn

40%Saudi Arabia

32%Other

14%New Zealand

8%United Arab Emirates

7%Kuwait

Year: 2012-13SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: ABS


19/40


Pocts & Makets


TAS1.9

wA10.4

QLd19.8

VIC34.9

NSw25.5

NT0.9

SA6.6

ACT0.0

Estalishments (%)

Col Zone (


20/40


Pocts & Makets

bsiness Locations The automotive industries are highlyinterdependent. Motor vehiclemanufacturers need timely and easyaccess to components to keepproduction lines running smoothly. Thismeans that motor vehiclemanufacturers tend to be located closeto component manufacturers in order toimprove supply chain synergies. Themajor car manufacturers of Australiaare based in Victoria where manycomponent manufacturers are also

located. Until the departure ofMitsubishi in March 2008, SouthAustralia had contributed signicantlyto the geographic spread of the industryon an employment and output basis.Truck manufacturers are located inQueensland and Victoria. IBISWorldexpects the number of motor vehiclemanufacturing establishments to growin Victoria as Ford and Toyota arerespectively anticipated to build smallerand hybrid cars in the future.

Motor vehicle manufacturers also

tend to be located where their customersare. Besides Victoria and New SouthWales, the share of the industry for all

other states is similar to their share ofthe population. Victoria is over-represented in the industry comparedwith the states population. This is dueto a large number of componentmanufacturers being located there,particularly in traditional manufacturing

hubs such as Geelong. New South Walesis under-represented due to companieschoosing to open plants in Victoria.

Percentage

50

0

10

20

30

40

W

A

ACT

NS

W

N

T

QLD S

A

TAS

V

IC

Establishments

Population

Distribution of establishments vs. population



21/40


Cost Stcte

benchmaks

Manufacturing motor vehicles can be a

protable business if done on a large-scale. In Australia, the market fordomestically manufactured cars has beenshrinking for years due to rising importcompetition. Falling demand coupledwith rising costs proved too much forMitsubishi and the company exited themarket in 2008. The three remainingmajor players are struggling to makeprot. Companies in the industrystruggled to be protable due to theirproducts mismatching consumerdemand. Operators also battled withovercapacity in the aftermath of the

global downturn. Import competition

also pressured margins.Industry protability improved over

the past ve years. Operating protmargins (earnings before interest andtax) rose thanks to improving productionand the lagging effects of pastrestructuring. Operating prot marginsgrew over from approximately 1.7% in2007-08 to 2.0 % in 2012-13. Operatingmargins dipped into losses during theworst of the downturn.

Industry protability is forecast toimprove over the next ve years. Industryoperating prot margins are expected

Ke Sccess Factos Eective cost controlsClose relationships with suppliers andgood distribution channels will helpmanufacturers succeed. They will alsoensure that car manufacturers haveaccess to relatively cheap car parts.

Establishing motor vehicleexport marketsDeveloping solid export markets withdownstream motor vehicle buyers willhelp manufacturers secure demand, and

therefore income. Global expansion isalso important due to the relatively smallsize of the Australian market.

Having an extensive distributionand collection networkGood distribution channels will assistmotor vehicle manufacturers to succeed

in this industry. The more networks arm is involved in, the moreopportunities exist for business.

Use o most efcient work practicesImproved labour productivity, includingindustrial relations, will helpmanufacturers succeed.

Ability to adapt to changesin consumer demandManufacturers need to adapt to new

technology when consumer preferenceschange.

Optimum capacity utilisationThe level of plant utilisation ofmanufacturers in this industry will eitherhelp or impede business for motorvehicle production.

Maket ShaeConcentation

Manufacturing motor vehicles is a globalgame. One could argue that Australiadoes not really have domestic businessesthat manufacture motor vehicles as thethree major car makers (GM Holden,Ford and Toyota) and the three majortruck makers (Volvo, PACCAR andIveco) are all subsidiaries of foreigncompanies. Nonetheless, manybackyard-type small operators

manufacture engines and assemblemotor vehicles, often with used parts.The top four companies of the industryaccount for an estimated 91.0% ofrevenue. Market share concentration fellover the past ve years. The industryconcentration level fell in 2008-09 dueto the withdrawal of Mitsubishi frommanufacturing operations in Australiaduring March 2008.

Competitive LanscapeMaket Shae Concentation | Ke Sccess Factos | Cost Stcte benchmaks

basis o Competition | baies to Ent | Inst Gloalisation

Level

Cocetratio ithis idustry is High

IBISWorld ideties250 Key SuccessFactors or abusiess. The mostimportat or thisidustry are:


22/40


Competitive Lanscape

Cost Stctebenchmakscontine

widen to 2.8% in 2017-18. Protabilitywill improve as purchase costs moderateon the back of softer hard commodityprices. However, margins will not widensignicantly due to continued strongimport competition.

PurchasesCosts of materials required in motorvehicle manufacturing have been risingdue to increases in the price of steel. Togive some perspective, the cost of

purchases of motor vehiclemanufacturers is about three-quarters ofrevenue. Meanwhile, purchase costsaccount for about half of revenue for themanufacturing sector as a whole.Research and development has also beenputting upward pressure on costs.Manufacturers have been turning torelatively cheaper imported componentsin order to control costs.

Purchase costs as a percentage ofrevenue is expected to decrease over thenext ve years. Purchase costs will

moderate as commodity prices soften.For example, the domestic price of ironand steel is forecast to fall as developingeconomies slow. The lower commodityprices will help manufacturers lowertheir purchase costs.

WagesIndustry wage costs as a percentage ofrevenue decreased over the past veyears. Wage costs fell as increasinglyautomated production decreased labour

dependence. Labour costs for motorvehicle manufacturers tend to beproportionately less than for theManufacturing sector as a whole. This isbecause manufacturing motor vehicles ishighly automated. Since late 2008,manufacturers have at times shortenedworkweeks and reduced shifts in order toalign production with demand. This ledto a fall in the average industry wage asproduction workers earn less when theirhours contract.

Wage costs as a percentage of revenue

Secto vs. Inst Costs

Poft

rent

utilities

depeciation

Othe

wages

Pchases

Average costs of

all industries in

sector (2012-13)

Inst costs

(2012-13)

0

20

40

60

Percentage

ofrevenue

80

1007.3

60.5

13.3

11.93.5 2.1

1.52.0

74.4

13.8

3.63.11.61.5



23/40



basis o Competition The main sources of competition in theindustry stem from imports, pricing andbranding. Imports have been on the riseover the past ve years due to lowertariffs and the proliferation of relativelycheap foreign vehicles. The abolition ofquotas in 1988 ended a restriction onthe number of motor vehicles that couldbe imported into Australia at prevailingtariff rates. An increase in importcompetition resulted from this

movement and was a key strategy inpursuing the achievement ofgovernment objectives for the industry:greater efciency, higher quality andlower prices with minimal disruption.

There has been an increase in therelative importance of small cars, asegment supplied entirely by imports.The price and quality gap is quite smallbetween a used domestic car and a cheapnew imported small car. This expandedthe market for smaller and cheaper

vehicles at the same time that localproducers increased the size,specication levels, and prices of theirsmall vehicles. The resultant increase inimports of small cars accounted for asignicant portion of growth in totalimports. Accounting for the remaininggrowth in imports, there has been anincrease in the import share of the smalland medium sector of the market; thesmall-car segment is completely servicedby imports. In the next ve years, theindustry will increasingly facecompetition from Chinese car makers,who are expanding into the Australian

market using low pricing strategies.The use of lighter materials, such as

magnesium to replace aluminium, in abid to improve fuel economy is acompetitive strategy that manufacturerscould use in the future. Magnesium islighter and stronger than aluminium andhas better die-casting characteristics. Theuse of magnesium is expected to increasefrom the current average of threekilograms per vehicle to more than 100

kilograms in the next 15 to 20 years.Holden introduced employee pricing

to the public but was forced to scale-down the incentive when the AustralianCompetition and Consumer Commission(ACCC) found in April 2006 that thescheme was misleading. It was revealedthat Holden employees receiveddiscounts that were not available to thepublic. These included discounts onfactory-tted options and accessories aswell as a discounted dealer delivery fee.

Furthermore, when the campaign startedemployees were offered a furtherdiscount of between 25% and 29%, whichwas not available to the public.Competition between major industryplayers mainly occurs through brandingand price deals. Ford and Holden incompete in similar markets (high-powered vehicles and utes) with productsthat are alike. They tend to competethrough advertising campaigns thatpromote their respective brands. Holdenalso positions itself as an Australiancompany as a competitive strategy.

Cost Stctebenchmakscontine

is expected to continue to fall over thenext ve years. Wage costs will contractas operators continue to invest in greaterautomation.

Depreciation and other costsOther costs include spending onbuildings, transportation and utilities.Depreciation costs appear relatively lowcompared to revenue. Depreciationcosts appear small because of the high

value products that manufacturerschurn out. Depreciation costs increasedslightly over the past ve years asautomotive manufacturers retooledtheir plants to match their vehiclesbetter with customer demand.Depreciation costs also increasedslightly as operators made capitalinvestments to increase efciency inlight of poor protability in theaftermath of the global nancial crisis.

Level & Ten

Competitio ithis idustry isHigh ad the tredis Inceasing


24/40



InstGloalisation

A high level of globalisation for theindustry is largely due to the signicantpresence of foreign owners among majorlocal manufacturers in Australia; all themajor assemblers in Australia areforeign-owned. Australian motor vehicle

manufacturers are increasingly looking tosource components globally to remaincompetitive. For example, local contentfor Holdens VE Commodore dropped to55% in 2006. Holden has replacedseveral local suppliers and sourced partsfrom Mexico, Thailand, the United Statesand China. Less than half of componentsused to assemble the Cruze, which

Holden started manufacturing inAustralia in late 2010, is sourced locally.

In 2006, GM Holden expanded itsPort Melbourne design centre to designvehicles for global markets. The designoperations are GMs third-largest behind

its design centres in Detroit, US, andRusselsheim, Germany. Design staffincreased from 107 to 176 during 2006,making it the largest automotive designcentre in Australia. Despite downsizingits operations in early 2009 due to theglobal economic crisis, the design centreis still going ahead with its globalinitiatives.

baies to Ent The industry is characterised by a highlycyclical growth pattern, high xed costs,break-even prot levels and an excessivenumber of participants for the size of themarket. Barriers to entry into motorvehicle manufacturing are formidable.Some barriers that need to be overcomeby a new entrant include the cost ofdeveloping high-volume productionfacilities, in order to benet fromeconomies of scale; and the ability of acompany to gain access to technology

from major global operators, as presentincumbents include some of the largestmultinationals that have considerableclaims to new technology. The relatively

small size of the domestic market,together with high import penetrationlevels, has already seen signicantrationalisation in the industry.

baiesto ent checklist Level

Competitio High

Cocetratio High

Lie cycle stage Declie

Capital itesity Medium

Techology chage High

Regulatio ad policy Medium

Idustry assistace Medium


Level & Ten

Barriers to Etryi this idustry areHigh ad Stea


Tae Gloalisation Going Gloal: Moto Vehicle Manacting

1998-2012

Expots/revenue

Expots/revenue

200

150

100

50

0

200

150

100

50

0

Impots/domestic deman Impots/domestic deman

0 040 4080 80120 120160 160

Iteratioal trade is amajor determiat oa idustrys level oglobalisatio.

Eports oer growthopportuities or rms.However there are legal,ecoomic ad political risksassociated with dealig ioreig coutries.

Import competitio cabrig a greater risk orcompaies as oreigproducers satisy domesticdemad that local rmswould otherwise supply.

Expot ExpotGloal Gloal

ImpotLocal ImpotLocal

Moto VehicleManacting 1998 2012

Level & Ten

Globalisatio i

this idustry isHigh ad the tredis Inceasing


25/40



InstGloalisationcontine

Ford Australia is to undertakeleadership in the design and engineeringof a new global light commercial vehiclearchitecture that will eventually be used

in more than 80 countries worldwide. Itwill also develop future Falcon andTerritory programs for Australia andexport markets.


26/40


Plae Peomance Toyota Motor Corporation AustraliaLimited is a wholly owned subsidiary of

Toyota Motor Corporation of Japan. Thecompanys head ofce and manufacturingoperations are located in Altona, VIC,while its sales and marketing activitiesare Sydney-based. Its overseas marketshave expanded signicantly, with regularshipments of Altona-built cars andcomponents to countries in the MiddleEast, South-East Asia and Oceania. TheAltona plant has a production capacity ofabout 150,000 cars.

Quick shit gets Toyota ahead

Toyota almost consistently bucked trendsover the past ve years. The companysabove-average performance was mainlydue to it being the only car maker to havea medium-car offering. The Camry hasbeen one of the bestselling vehicles inAustralia and overseas over the past veyears. Toyotas performance can also beexplained by its strong export sales. Overthe ve years through March 2011,revenue grew by 1.6% annually.

Toyota did not neglect the large-car

segment either, and geared up to

compete with General Motors and Fordby launching its Aurion model in October

2006. Sales have been encouraging, andthe vehicle is pitched as the most fuel-efcient vehicle among all large vehiclesproduced in Australia. Positioning theAurion as a fuel-efcient model showsthat Toyota has been more realistic aboutconsumer shifts towards smaller cars.The company was quicker to react to thechange than Ford and Holden.

RoadblocksToyota was not immune to the globalnancial crisis. Operating prot for its

manufacturing segment is estimated tohave declined at an annualised 29.3%over the four years through March 2011.As such, operating prot marginscollapsed from 5.4% in 2006-07 to 1.3%in 2010-11. Weak protability after theglobal downturn was more due tonatural disasters, rather than biggerstructural issues.

Despite poor performance in 2009-10,Toyotas market share rose in 2009. Thiswas mainly due to Holdens production

crash when the Pontiac export deal fell

Majo CompaniesToota Moto Copoation Astalia Limite | GM Holen Lt

Fo Moto Compan o Astalia Limite | Othe

Majo plaes(Market share)

12.0%Othe

Toota Moto Copoation Astalia Limite 45.6%

GM Holen Lt 23.7%

Fo Moto Compan o Astalia Limite 18.7% SOURCE: WWW.IBISWORLD.COM.AU

Toota MotoCopoationAstalia LimiteMarket share: 45.6%

Toota Moto Copoation Astalia Limite fnancial peomance

yea*revene($ billio) (% chage)

Opeating poft($ millio) (% chage)

2005-06 7.73 4.7 n/C n/C

2006-07 8.30 7.4 451.4 n/C

2007-08 9.50 14.5 342.3 -24.2

2008-09 8.92 -6.1 160.6 -53.1

2009-10 8.59 -3.7 178.2 11.0

2010-11 8.39 -2.3 112.9 -36.6

SOURCE: IBISWORLD


27/40


Majo Companies

Plae Peomance GM Holden Limited is a wholly ownedsubsidiary of General Motors Company,which is headquartered in the United

States. Its head ofce, design andengineering centre is based in PortMelbourne, VIC, along with its enginemanufacturing operations. Its vehicleassembly, body-tool design, stamping,plastic moulding, paint and bodyhardware facilities are located inElizabeth, SA. Distribution and marketingfacilities of Holden service parts andaccessories for the Holden dealer networkand international customers are located inDandenong, VIC.

Like its parent company, Holden isknown for its legacy of big and powerful

cars. The Commodore is an iconicAustralian car and Holden has been ahousehold name for decades. The

company relied on its brand power tokeep generating sales, despite thegrowing popularity of smaller cars thatHolden does not manufacture. Thecompany stopped manufacturing four-cylinder engines in 2009, which led toabout 500 job losses.

Holden launched its Australiandesigned VE Commodore in the secondhalf of 2006. Its persistence with large-car production seems against markettrends, as the share of large cars has beendeclining over the past ve years. In2007, Holden introduced a dual-fuel

Plae Peomancecontine

through. Toyotas production did not fallby as much in the year, which meant thatit gained market share. Ford also gainedsome market share, but it was not assignicant as Toyotas rise. Toyota wasgranted $35 million by the FederalGovernment to produce the hybridCamry domestically in 2010, and theVictorian Government also contributed$15 million. Toyota manufactured about10,000 Camrys each year in Victoria. Thecompany sold the car domestically and in

New Zealand.Toyota is a step ahead when it comes toenvironmentally friendly vehicles.Toyotas greater experience in producing

environmentally friendly vehicles gave thecompany an edge over its competitors.Unfortunately for the company, Toyotasuffered in 2010-11 due to naturaldisasters in Japan in early 2011, the strongAustralian dollar and strong competition.The tsunami led to disruptions in themanufacture and supply of cars and carparts. Australian revenue was negativelyaffected due to a drop in imports of partsfor use in manufacturing new vehiclesdomestically, which directly affected

Toyotas production in this industry.Despite the drawbacks, Toyota continuedto gain market share due to its strongproduct offering.

Toota Moto Copoation Astalia Limite (atomotive manactingsegment) fnancial peomance

yearevene($ billio) (% chage)


2006-07 4.21 9.1 228.8 n/C

2007-08 5.70 35.4 205.6 -10.1

2008-09 4.70 -17.5 84.7 -58.8

2009-10 3.94 -16.2 81.9 -3.3

2010-11 4.23 7.4 57.0 -30.4

SOURCE: IBISWORLD

GM Holen LtMarket share: 23.7%


28/40


Majo Companies


version of its VE range to attract fuel-efcient minded consumers. Thecompany also launched a fully redesignedVE ute range based on its VECommodore line. The redesigned modelwas engineered in Australia and built inElizabeth, SA. As standard across therange, the model offers safety featuressuch as electronic stability programming(ESP), and crash-avoidance safetytechnology. The company spent an extra$100 million on top of its $1.0 billion VE

Commodore sedan program to developthe ute. Holden is looking at a long-termstrategy of supplying about two-thirds ofits annual output to the domestic marketand the remaining one-third to exports.Holden uses its GM plant in Thailand asa base to expand into the Asia-Pacicregion as part of its focus on becoming aglobal player. Holdens parent companyGeneral Motors was in trouble in 2009,but was bailed out from bankruptcy bythe US Government. GM wasnationalised as part of the bailout. The

new General Motors made an initialpublic offering in 2010.

Car troubleHoldens nancial performance over theve years through 2010 was worse thanthat of the overall industry. Revenue fellby an annualised 15.8% over the periodand the company demonstrated poorprotability, with operating losses orclose to zero operating prot margins.

However, protability improved over2010. Prior to 2005, Holden wascomplacent about sales and the power ofits brand. Since then, several factors haveradically changed this notion: the fall inimport tariffs in 2005; the appreciationof the Australian dollar making importedcars even cheaper; and stinging rises inthe price of petrol, which led consumersaway from petrol-guzzling cars.

Holdens losses in 2008 wereprimarily due to the closing down of an

engine plant. In 2008, export revenuewas up due to strong engine shipmentsand the Pontiac G8 contract with GM inthe United States. The story wasdifferent in 2009. Revenue fell by over30% due to the loss of the Pontiac exportdeal. When Holdens parent was on thebrink of bankruptcy, it was saved by theUS Government on the condition ofsevere restructuring the Pontiac didnot make the cut and Holden lost theexport deal. Holden only manufacturedabout 7,000 vehicles destined for

overseas in 2009, compared with about56,000 in 2008. Holdens export volumecrashed 87.9% over 2009. Holden lostmarket share in 2009, partly because ofdismal export production.

Holden started manufacturing theHolden Cruze in Australia in 2010-11. InJuly 2010, Holden announced that itwould add a second shift at its plant inElizabeth, SA, in November 2010, to pavethe way for the production of the Cruze.

GM Holen Lt fnancial peomance


Opeating poft($ millio)

2005 6.67 -2.2 n/C

2006 6.51 -2.4 -165.4

2007 6.30 -3.2 14.7

2008 5.93 -5.9 -45.1

2009 4.13 -30.4 -132.4

2010 4.54 9.9 160.3

*yea en deceme SOURCE: IBISWORLD


29/40


Majo Companies

Plae Peomance Ford Motor Company of Australia is awholly owned subsidiary of the US-based Ford Motor Company. Ford

manufactures, imports and distributessmall to medium-size vehicles, andlarge, luxury, sports, four-wheel drivepassenger and commercial vehicles fordomestic and export markets. The FordFalcon and Territory are the only modelsmanufactured in Australia. The FordFalcon and Territory are exported insmall quantities to New Zealand, SouthAfrica and other countries in theOceania region. As consumerpreferences changed from large cars to

small and more fuel-efcient cars overthe past ve years, Ford introduced adiesel Territory in 2011.

Ford Australia led design andengineering for a new vehicle architecture(T6 truck program) targeted to underpina range of light commercial vehicles inmore than 80 countries worldwide.Engineered for both right- and left-handdrive and manufactured in multiplelocations, the rst derivative is the FordRanger. The architecture has thecapability for a variety of multiplecongurations and body styles.


The second shift will lead to full-timework for many employees who have beenon part-time shifts since the globalnancial crisis. Holden obtained a $149

million grant from the FederalGovernment and a $30 million grantfrom the SA Government to support themanufacture of the Cruze.

GM Holen Lt (atomotive manacting segment) fnancialpeomance



2006 5.12 n/C -130.0

2007 4.21 -17.8 9.8

2008 4.10 -2.6 -31.2

2009 2.88 -29.8 -92.3

2010 2.21 -23.3 78.0

*yea en decemeSOURCE: IBISWORLD

Fo Moto Compan o Astalia Limite (atomotive manactingsegment) fnancial peomance



2006 3.45 n/C -78.9 n/C

2007 2.72 -21.2 -86.0 9.0

2008 2.06 -24.3 -205.4 138.8

2009 1.97 -4.4 37.7 n/C

2010 1.74 -11.7 36.0 -4.5


Fo MotoCompan oAstalia LimiteMarket share: 18.7%


30/40


Majo Companies


Falcon production nosediveFord struggled to keep sales up with itsFalcon and SUV offerings, even prior tothe crisis. Revenue fell 2.8% per annumover the ve years through December2010. In 2008, the company posted astaggering operating margin loss of 10%.The manufacturer has been sheddingjobs due to declining production of theFord Falcon and Ford Territory.

Demand for Fords large motorvehicles deteriorated signicantly over

the past ve years, which negativelyaffected Fords revenue. Fordsperformance in 2009 was better thanHoldens results. Ford posted strongerprotability than other major companiesduring 2009 because its production didnot fall as sharply as that of the industry.However, IBISWorld believes Ford was

already in trouble and had been reducingcapacity prior to the economic downturn.

Other strategies to improve marketshare include importing smaller cars suchas the Fiesta, Focus and Mondeo tocomplement its domestic models. TheEcoBoost Falcon will be eligible for thecleaner car rebate should it go ahead. Fordinvested $230 million into developing theEcoBoost engine, which is fuel efcient.The government granted the company$42 million of the $230 million. In

2010-11, Ford lost some market share dueto dismal production following poordemand for its Falcon and Territory. Thecompany announced that 240manufacturing jobs were lost in 2011 as aresult. Ford is expected to keep losingmarket share until it adapts its productionline to match consumer demand.

Othe Companies Several smaller operators in the industrymanufacture engines, modify motorvehicles and build customised vehicles.These operators account for only a smallpart of revenue and are mainly owner-operators. Their exact number is difcultto estimate, although many of them wentout of business during the worst of thecrisis as they were ill-equipped to dealwith an unfavourable economic climate.

Only three truck manufacturersproduce trucks domestically in theindustry. They each account for less than5.0% of market share.

PACCAR Australia Pty LtdEstimated market share: 3.0%This company is a subsidiary of PACCARInc, based in the United States. PACCARInc manufactures trucks under theKenworth, Peterbilt, DAF and Leylandnameplates. In Australia, PACCARmanufactures Kenworth trucks inBayswater, VIC. Domesticallymanufactured trucks are exported toPapua New Guinea and New Zealand. In2010, the company achieved revenue of$757.8 million and recorded operatingprot of $153.7 million.

Fo Moto Compan o Astalia Limite fnancial peomance



2005 3.97 -3.9 n/C

2006 3.43 -13.6 -78.3

2007 3.45 0.6 -109.3

2008 3.41 -1.2 -340.1

2009 3.29 -3.5 62.8

2010 3.45 4.9 71.2



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Majo Companies

Othe Companiescontine

Volvo Group AustraliaEstimated market share: 2.9%Volvo Group Australia, known as VolvoCommercial Vehicles Australia untilAugust 2009, manufactures Mack trucks.It operates an assembly plant at Wacol,QLD, which produces heavy vehicles for awide range of applications comprisingmore than 15 models. It is also the onlyMack assembly plant outside of theUnited States. Established in 1972, thefacility has a production capacity of up to

10 vehicles per day on a single shift, andcurrently has capacity to manufacture3,000 vehicles annually. Mack trucks useover 275 supplier organisations, 160 ofwhich are based in Queensland. Revenueamounted to $1.0 billion and operatingprot was $24.9 million in 2010-11.

Iveco Trucks AustraliaEstimated market share: 1.5%As with Volvo and PACCAR, Iveco TrucksAustralia is the subsidiary of foreign-owned Fiat Group, which is based in

Italy. Iveco Trucks Australia, formerlyknown as International Harvester andInternational Trucks, is located in

Dandenong, VIC. The companymanufactures light, medium and heavycommercial vehicles (vans, trucks andbuses) for the road freight sector. TheDandenong plant has manufacturedmore than 200,000 trucks since itopened in 1952. Consolidated revenue in2010 amounted to $395.7 million, whilethe company recorded an operating lossof $4.1 million.

Mitsubishi Motors Australia Ltd

Compay eit 2008Until 2008, Mitsubishi Motors AustraliaLtd was a major player in the industry.After failing to gain market share andexport markets, Mitsubishi ceased motorvehicle manufacturing activities inAustralia during March 2008. In 2007,Mitsubishi Australia sold just 10,942 cars(the Mitsubishi 380 model) in thedomestic market. The 380 model wassupposed to be the saviour of Mitsubishismanufacturing operations in Australia;however, it had to be discounted in price,

and protability suffered as a result.Mitsubishi manufactured 4,482 vehiclesin 2008, before exiting the industry.


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Capital Intensit Manufacturing motor vehicles is a highlyautomated process, although labour isrequired on the assembly line. A largeamount of capital is required to purchaseequipment and machinery for theproduction line. Most manufacturingprocesses involve repetitive activities thatare automated to increase productionspeed and cost efciency. Capitalrequirements for the industry have notchanged signicantly over the past veyears. There has been signicant

investment into plant and equipmentupgrades, and in processing and productdevelopment. However, this has beenmet by rising labour costs. On average, arm in the industry spends about $4.39on labour for each unit dollar invested incapital. Even though employment is

falling, it has not decreased by a largeenough number to offset the dramaticdrop in production completely.

Opeating ConitionsCapital Intensit | Technolog & Sstems | Inst Volatilit

reglation & Polic | Inst Assistance

Tools o the tae: Goth stategies o sccess


LabouIntensive

CapitalIntensive

Change in Shae o the Econom

Ne Age Economreceation, Pesonal Sevices,Health an Ecation. Firmsbeet rom persoal wealth sostable macroecoomic coditiosare imperative. Brad awareessad iche labor skills are key toproduct dieretiatio.

Taitional Sevice Econom

wholesale an retail. Reliato labor rather tha capital tosell goods. Fuctios caotbe outsourced thereore rmsmust use ew techologyor improve sta traiig toicrease reveue growth.

Ol Econom

Agiclte an Manacting.Traded goods ca be producedusig cheap labor abroad.To epad rms must mergeor acquire others to eploitecoomies o scale, or specializei iche, high-value products.

Investment EconomInomation, Commnications,Mining, Finance an realEstate. To icrease reveuerms eed superior debtmaagemet, a stablemacroecoomic evirometad a soud ivestmet pla.

Moto Vehicle boManacting

Ca wholesaling

Atomotive Patsan AccessoiesManacting

roa Feight Tanspot

Moto VehicleManacting

Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4


Dotted line shows a high level of capital intensity

Capital units per labour unit

Motor VehicleManufacturing

ManufacturingEconomy

Level

The level o capitalitesity is Meim


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Opeating Conitions

revene Volatilit Over the past ve years, the industrybecame more volatile. This was theresult of uctuations in exchange ratesand fuel prices, changes in legislationand assistance packages, as well as thegrowing popularity of small cars. Anappreciation of the Australian dollaralso led to rises in the competitiveness

of the industry, which wascompounded by consumers preferringto buy small, imported cars rather thanbig domestic cars. The price of petrolcreated havoc and uncertainty inhousehold budgets over the past veyears. Furthermore, this variable hasbeen at the forefront of an

Technolog& Sstems

Investment in technology by motorvehicle producers has been on the rise,especially in robotics where repetitivepinpoint accuracy is needed. TheAustralian Automotive sector isaccelerating plans for an industry-widecommunications network to link majormanufacturers with parts suppliers.Under the Australian AutomotiveNetwork Exchange project, existingcommunication links betweenmanufacturers and parts suppliers

would be replaced by the AANXnetwork, with an outside serviceprovider to run the operation.

Fuel-cell technology, which principallyinvolves the use of hydrogen to produceelectric current, is expected to greatlyincrease the market potential of electricvehicles. In the interim, hybrid petrol andelectric systems incorporated in vehiclesare providing a technology bridge to thefuture. Ford Australia conrmed in

March 2007 its support of a long-termresearch project by the University ofMelbourne to study efcient and practicalhydrogen-fuelled vehicle technologies.The rst stage of the project aims todevelop, build and test a hydrogen-fuelled turbo-charged Ford six-cylinderengine using advanced combustiontechnology (HAJI Hydrogen AssistedJet Ignition).

Further development of electronicbraking and steering systems is also

expected to reduce the amount of producttesting required in future. This will alsowork to increase fuel-efciency, eliminatehydraulic uid use, improve safety, andallow for more standardisation of parts.Investment into new technology such assupply-chain management andcollaborative forecasting (wheremembers of the supply chain shareforecasting data to reduce bottlenecks)helps make the industry competitive.

Level

The level oTechologyChage is High


Volatilit vs Goth

revenuevolatility*(%)

1000

100

10

1

0.1

Five ea annalise evene goth (%)

30 10 10 30 50 70

Hazaos

Stagnant

rollecoaste

ble Chip

* Ais is i logarithmic scale

Moto Vehicle Manacting

A higher level o reveuevolatility implies greateridustry risk. Volatility caegatively aect log-termstrategic decisios, such asthe time rame or capitalivestmet.

Whe a rm makes poorivestmet decisios itmay ace uderutilisedcapacity i demadsuddely alls, or capacitycostraits i it risesquickly.

Level

The level oVolatility is High


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Opeating Conitions

reglation & Polic The industry is set to face more stringentemissions standards in the future. TheEuropean Community (EU) tightened itslimits on exhaust emissions at thebeginning of 2001, and they will become

even stricter. By 2008, regulations inAustralia had matched Europeanstandards. To meet these sorts ofregulations, car makers are looking atalternatives to traditional engines.Hybrid vehicles, which use petrol enginesto generate electric power, are just oneoption. A more radical solution is fuelcells that produce electricity bycombining hydrogen and oxygen.However, a problem lies in how to goabout storing the volatile hydrogen gas.

Toyota and Honda have developed

hybrid vehicles. The Toyota Prius usesabout half the fuel of a similar-sized carand emits half the amount of carbondioxide. Other energy savingcharacteristics include auto-petrol engineshutdown, regenerative braking systems,and battery-powered operations thatkicks in whenever the vehicle has stoppedor is under light load. In 2010, Toyotastarted manufacturing a hybrid version ofthe Camry in Australia. In June 2006, theAustralian Transport Council (ATC)

urged the Federal Government to make itcompulsory for new cars to includecomputerised safety technology thatdetects and avoids skids. The ATC hascalled for the Australian Design Rules torequire electronic stability control (ESC);a system that uses sensors and acomputer to detect impending loss ofcontrol and avoids it by manipulating thecars brakes and throttle. Ford andHolden only offer ESC on luxury models.

Emission targetsAccording to the Federal Chamber ofAutomotive Industries (FCAI), theautomotive sector is committed to making

a strong contribution to reduce the effectof global climate change. A target has beenadopted to reduce average carbon dioxide(CO2) emissions from new light vehicles.This involves cutting emission from levels

of about 252 grams of CO2 per kilometre(g/km) in 2002 to an average 222 g/km by2010, a reduction of 12%. In 2010, theeet-wide national average carbonemissions total about 218 g/km, whichimplies that the industry has beensuccessful in meeting the target. Thispositive result came about mainly thanksto improvements in engine technologybrought about by intense importcompetition. The automotive sector is aglobal one and engine manufacturerstypically sell engines across the world.

Europe has strict and enforceable enginestandards, which implies thatmanufacturers must develop morefuel-efcient engines. As a result, it iseasier for any manufacturer to meet theless-strict Australian targets as thetechnology already exists. The EU target iscurrently 160 g/km and it will be loweredto an average of 130 g/km by 2015; thelong-term target is 95 g/km by 2020.

In July 2010, the governmentproposed the development of carbon

dioxide emission standards for passengervehicles, which was welcomed by theFCAI. The proposed targets are 190 g/kmby 2015 (a reduction of about 12.8% on2010 levels) and 155 g/km by 2024.These targets are far less strict than EUtargets. The two markets are quitedifferent and not necessarily directlycomparable. For example, smaller dieselcars are historically more common inEurope, while Australians tend to drivebigger petrol-guzzling vehicles. At anyrate, EU targets are relevant in thatAustralian targets will not be difcult tomeet if enforced as the engine technologyalready exists. The government is still

revene Volatilitcontine

environmental revolution. Changes inlegislation regarding the level ofassistance and voluntary emissiontargets also affect the volatility of the

industry. The global nancial crisis alsocontributed to a massive decline in carproduction since 2008-09, which led toa rise in volatility.

Level & Ten

The level o

Regulatio isMeim ad thetred is Inceasing


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Opeating Conitions

Inst Assistance The tariff rate for passenger motorvehicles is 5.0%. Declining tariff rateshave contributed to a rise in sales of

imported cars to the detriment ofdomestically manufactured vehicles.Apart from private motor vehicles, tariffsof 5.0% apply to light commercialvehicles (LCVs) and four-wheel drives(4WDs), as well as components for thesevehicles: no changes are currentlyscheduled. Vehicle tariffs also apply tosecond-hand imports, plus a specictariff of $12,000 per vehicle. Tariffs havehad a major indirect effect on theindustry. In 2004, the average level of

imported content across all models was35%, with considerable variation aboveand below this gure for individualmodels. The lowering of tariffs on partshas had a positive effect on the industryby reducing input costs and exertingpressure on domestic suppliers toperform more efciently. Successfulnegotiations of free-trade agreementswould also benet Australian motorvehicle manufacturers. Free-tradeagreements with Asia-Pacic countrieswould provide access to larger marketsthat have been protected by tariffs.

Increasing assistanceThe industry has experiencedgovernment intervention in assistance to

protect employment and engineeringcapabilities: including research anddevelopment. Direct grants by thegovernment have been the norm inrecent years to assure motor vehiclemanufacturing capabilities in Australia.For example, Mitsubishi was

C2311 Motor Vehicle Manufacturing in Australia Industry Report

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