Assessment of Profitability in Australian Automobile Industry

This report discusses the factors driving profitability in the Australian automobile industry and analyzes the impact of these factors on the industry. It also examines the challenges faced by the industry and the changes that are expected to occur in the future.

AUTO MOBILE INDUSTRY
AUSTRALIA

Table of Contents
Introduction......................................................................................................................................4
Porters five analysis of auto mobile industry Australia...................................................................4
Assessment of profitability of automobile industry and the factors which are driving this
profitability industry........................................................................................................................6
Discussion relating to change in factors which affect in profitability of automobile industry and
impact of these changes on industry..............................................................................................10
Multiple channels and formats will coexist to please diverse market segment.............................12
Conclusion.....................................................................................................................................14
References......................................................................................................................................15

List of Figure
Figure 1: Implication of optional channel alternatives in future...................................................13

Introduction
In present fast growing economy where progressively companies are seeking to plan the
productive activities in the worldwide market for the effective use of world resources and market
potentials. In Australia Four wheeler auto mobile industry is well known for its global
manufacture as there were different competitive advantage different parts of the automobile
business. In Australian four- wheeler automobile industry activities such as designing,
development, productions and marketing as well as selling of world’s motor vehicles have been
done. Australian automobile industry is the great source of revenue as it has the value of $ 37
billion (Aithal, 2017) per annum. In the present report discussion has been presented relating to
factors which drive the profitability of automobile industry. Initially Five Forces (Porter’s)
Analysis has been discussed relating to four –wheeler automobile industry of Australia and then
discussion relating to its profit driving forces. Lastly, the manner in which these forces will
change in future has been discussed along with the manner in which it will affect the profitability
of automobile industry.
Porters five analysis of four- wheeler auto mobile industry
Australia
Australian automobile industry can be analyzed in a complete manner through Five Porter
Analysis. In this approach threat of the new entrants, rivalry amongst existed competitors and
threats of substitution, bargaining power of buyers and bargaining power of suppliers is
described in detail (Aghion.at.el, 2016).
VARIANT DESCRIPTION
Threats of New Entrants The threat of new entrant in the competitive market of four- wheeler automobiles is quiet
low. Therefore there is the less threat for multinational companies. Australian car
manufacturing industry has a huge pressure from the exporters of cars within foreign
market to some level. However, as there is a decline in the tax of the export which
ultimately influence various foreign car producers to export duty- free cars in the market
of Australia. Due to which lots of challenges for the growth of the Australian automobile
industry are brought by exported cars. On the other hand a multinational company
progressively seeks to retreat from the Australian automobile industry for avoiding fuming

competition from such imported vehicles.
Rivalry amongst existed
competitors
There is a strong regional development tendency in Australian automobile industry and
most of the car productions houses are situated in Adelaide City, Melbourne and other
developed regions. In Australia there are just four historic car brands that are Toyota,
Ford, Holden and Mitsubishi. Further, extreme competition is faced by such four car
producers from each other as there is limited volume in complete market. The internal
rivalry from the Australian automobile market mainly increases the endurance pressures
for such car producers, moreover at the same time domestic car brands turn out to be
competitive in the Australian automobile industry (Valadkhani, and Smyth, 2016).
Threats of Substitution When it comes to automobile industry there are various substitutions in the daily life such
as train, motorbike, bicycle, plane, metro and others. Nowadays the traffic issues are
increasing day by day because of which the preference of modern people is also change as
the choose the public transportation instead to using their personal cars. Likewise such
occurrence is influencing the market performance badly. The public transportation is being
supported by the society for protecting the environment. As of these reasons the use of
personal cars is reduced their threats of substitutes are high in Australia.
Bargaining power of buyers The economy in Australia is fast growing and due to developed economy. Australian
population can purchase different types of cars from the foreign markets in fewer costs
comparatively. Moreover, the execution of the information technology, latest information
about car is come to known by modern people and comparison is made of different cars in
an inclusive manner. Customers buy cars by taking the advantage of such promotions and
which manufactures gets profit to the large extent as the bargaining ability of the buyers
get increased than it will be the great threat for the development of the Australian
automobile industry. When the situation rose of declining profits, the austral in automobile
producers will without any doubt lose advantages in growing the Australian automobile
industry in a matching way (Stanford, 2017).
Bargaining power of
suppliers
In the automobile industry it has been experienced that suppliers for the production of cars
offers lots of different parts for different car producers. Therefore suppliers have powers
to decrease their dependence on the current purchaser as well as due to which their
marketing can be easily transferred. Moreover, the Australian car producers are in
deprived position when they prefer to buy the parts from such suppliers. However if
manufacturers of cars are not creating the parts by themselves, they will be definitely
depends on such suppliers to large extent. Consequently, the bargaining powers of supplier
get increased and automobile producer will in addition will badly influenced by their
suppliers.

In accordance with above analysis it has been understood that Australian four-wheeler
companies have faced great challenges from existed competitors, purchaser bargaining ability,
new entrants, substitution threats as well as supplier bargaining ability (Skellern, Markey, and
Thornthwaite, 2017).
Assessment of profitability of automobile industry and the
factors which are driving this profitability industry
In Australia the automotive industry is in its declining phase, even though their performances
keep changing around the industry (Bamiatzi, at.el,2016). The Australian automotive industry
directly supports to the country’s economy. The support includes full time jobs with satisfactory
wages. On the other hand instability in the costs of raw material and the worth of the currency
directly affects the productivity of automakers. In addition the instable financial markets highly
influence the customers demand, evaluation as well as refinancing expenses (Dixon, 2016).
Failure of automobile industries affects the supply chain greatly mainly a for upstream parts
producer that completely depends on demand from such local motor vehicle companies
(Alexander, and Merkert, 2017).
The fact cannot be denied that automotive industry has made great contribution through number
of employment. Moreover its success is relying on the employment numbers and confidence of
customers which must be remaining comparatively high. Furthermore instable exchange rates do
force the reduction of the profit margins. The automobile industry in the country was facing great
difficulties by imports and suffering from market share turn down and also in the real worth of
the cars manufactured. On the other hand, it adversely, affected the productivity and
competitiveness of the business that provides benefits significantly as of scale economics the
more and more manufacturing of cars the more cheaply they turn into (Beer, 2018).
Strategically automotive industry is most essential for the Australian economy. The factors that
influence the profitability of automotive industry are macro economic factors such as
employment, competition, growth, rate of innovation as well as technological progress.
Competition

Currently most of the automotive business is experiencing uneven to optimistic business
competition situations. The highest proportion of diverse business experience is seen in Western
Australia that is below average performance to poor business circumstances. It has been
observed that in high performing automotive industry sustainable strategies are employed that
helps in development and overall drive the industry in contract to underperforming industries
(Castillod, 2016).
Australian automobile industry is comprised with wholesalers; manufactures, retailers, and can
be stated as growing industry apart from this various sectors are struggling towards the
profitability. Furthermore the automotive industry in Australia is more and more developing and
is in competitive, expanding market and active position. It consists of various smaller industries
and its operations are different due to diverse supply chain. The automotive industry is highly
competitive as lots of brands are struggling for extending their market share. It is predictable that
profit margins will increase to some extent in the coming five years because competitors in
market with higher margins trying to hold a large market share. The most important challenges
that are faced by the automotive companies are attaining adequate scale to be successful. Various
challenges are faced by automakers in this industry as also gets outstanding opportunities.
Presently, business is struggling with massive and unparalleled shifts in vehicle technology and
power train plan (Purnell, at.el, 2018).
Tariff and non-tariff barriers
The above specified variant has made obstructed efforts to improve the scale troubles through
extended production for export. An added restraint has been the protectionist strategies in
potential export purpose that have additional vulnerable exports. The clear example is Thailand,
in spite that there is free trade agreement between Thailand and Australia. Ford in Australia
exports it’s the Ford automotive to Thailand territory, however the Thai Government inflict a
non-tariff duty, to manufacture the Territory’s price in Thailand an unappealing $100,000,
which is higher than the cost of a similar locally made manufactured goods. Therefore, it should
be noted that after the end of an apparently trade liberalizing agreement among Australia as well
as Thailand, in 2017 Australian manufacturing brands such as , ford, and Toyota all are close
down (Nilsson, and Nykvist, 2016). The main reason behind its closure was effects of
government tariffs and non competitive labor of Australia.

Currency swings
In an automobile manufacturing where economies of scale are very important in attaining cost
competiveness, the present quantity is an actual drawback. This is together in itself as well as in
flow on to main parts producers, that fight back to give good reason for investing in efficiency
enhancing technologies similar to highly developed robotics (Reitz, 2018). Rise in the prices of
fuel and exchange rate are the two most important factors that affects the profitability of the local
vehicle producers and manufacturing quantity.
The profitability of the domestic vehicle manufacturers is greatly affected by the exchange rate.
Even thought the increase in the worth of the Australian dollar has slightly protected the business
as well as its local market manufacturing quantity from the huge rise in its fuel costs, it largely
impacted the productivity of manufacturing operations (Dowling. 2017). The present traditional
high value of the Australian dollar exchange rate has positioned the business under additional
competitive pressure, both its impact on export competitiveness as well as from cheaper imports
(Lockrey, 2017.).
Technology
The most advanced industry in Australia is automotive manufacturing industry. Advanced
production techniques as well as technologies that add value throughout the broader economy
away from its production core are organized by it. Presently the automotive business includes
three subsidiaries of international producer of motor vehicles that are Ford, Toyota and General
Motors Holden (GMH) in addition to hundreds of parts makers, ranging from small Australian
manufacturer to corporation that are as well subsidiaries of very large internationals, for
example Bosch. Approx 50000 peoples are directly employed by the automobile industry from
which 17000 are operated in Toyota, Ford and GMH (Litman, 2017). An uncertain future is
faced by the business in the country. While it has been documented properly, in 2016, Ford will
stop manufacturing operations, and presently it can been recorded that just around 225,000 motor
vehicles are manufacture in the Australia which was decline from historic highs of above
407,000 in 2004 in quantum.
Customer Choice/ Trends

Automation, concept of driverless car is speedily coming into presence. Presently declaration
was made by the Ford that they are planning to manufacture an autonomous cars from 2021,
apart from this Google and Tesla are facing various legal restrictions to driverless cars. It has
been analyzed by the researchers that by 2020 there will be around 10 millions self – driving
cars. Moreover back home in Victoria Australians first self- driving car is revealed by German
Multinational Bosch. However the designed car was not fully automatic as it is designed to find a
way without driver inputs but decreasing deaths on the roads. Even though nine months were
taken as well as team that include 45 people is constructed, the producers claims that they will
bring self –driving vehicles in the market in coming 10 years. Bosch president Gavin Smith
announced that the car is very advance in its technical terms.
SHRINKING VEHICLES is another trend which has been accessed on a wide scale. In 2016
with innovative technologies , the appearance of car also get advance , as average car was three
inches smaller in compare to the same model in 2005, and which was six inches smaller than
1995. All the models of SUVs, Cars as well as Trucks have been shrieked.
The development in the cars appearance occurs due to produces as they don’t need longer space
to operate a similar function. The advanced technical engines can produce a similar amount
power just in fewer cubic inches. Moreover its fuel effectiveness is also very important. Slimmer
kinds of vehicles have an advantage of keeping ownership costs down and utilization of less
petrol. All these features are in accordance with choice of consumer, thus it can be concluded
that customer choice impact the profitability of automobile industry.
Discussion relating to change in factors which affect in
profitability of four- wheeler automobile industry and
impact of these changes on industry
There are various challenges that are faced by the Australian four-wheeler automotive industries
and which are fall into three domains therefore effects of the macroeconomic surroundings,
competition to the large extent in the comparatively small market of Australia. A change is the
requirement of the clientele, as well as value that influences all the aspects of marketing.
Presently the automobile industry has progressively turning out to be strong global strategic play,

additionally with important corporation capitalizing on worldwide economies of scale.
Competently make best use of production capability means volume objectives are key to
productivity.
Competition:
The competitive situation of the domestic industry can negatively get affected by the polices of
the government. Those administrative strategies might add burdens on the industry which can
however affect the home producers more in compare to the foreign producers. The supported
programs were initiated by the administration of Australian government towards communities
and regions that are impacted by the wind- down of the car manufacturing business such as-
Initiation of the Automotive transformation approach in which competitive investment and
innovation will be supported during 2020 in the automotive industry (Bloomfield, 2017). The
specified attempt has been made in order to reduce the negative impact on industry.
Technology
The main role is played by the internet in the series of future change in auto distribution.
However a lots of essential auto industry innovators are presently developing the services that
relates to web. They are growing in the direction when it should be made assured that most
important automotive company of the coming century will be based on the software. For
example in republic industries it is supposed that sales to reach 2 billion on the World Wide Web
by the year 2025.
The change in variant technology can be accessed through the steps which are taken towards the
advanced manufacturing fund that is $100 million which includes- $10 million for an automotive
modernism Labs plans to construct automotive test services and boost access to plan as well as
test amenities for automotive goods (Bui, ate, 2018). $5 million for an Automotive Engineering
Graduate Program to enlarge the pipeline of extremely trained graduate engineers into
Australia’s automotive segment. $47.5 million are utilized for the advanced manufacturing
growth fund assisting car – related companies step towards the other business in South
Australia and Victoria (Carson, at.el, 2017)
Tariff and non-tariff barriers:

The competitive circumstances of the home industry could be unfavorably exaggerated by any
Government policy that contained added burden on the automotive industry and affects the local
producer badly than foreign manufactures or on the other hand impose costs significant adequate
to decrease on the whole vehicle demand considerably (Conlon, and Perkins, 2018).
For convincingly claiming an achievement in maintaining a single economic market within
Australia, there are various challenges expected coming around for the member state that
includes coordination of administrative principals and enhancing local connectivity, as well as
business liberalization in services. On the other hand one sector of exacting concern and the
focus of the investigation are known as the application of non-tariff measures (NTM).
According to the United Nations Conference on Trade and Development (UNCTAD, NTMs are
the strategy measures, different from the normal customs tariffs, which probably have a
economic impact on worldwide trade in goods.
Moreover, because of which many forms can be taken by they can and though they all do
something to deform the movement of products and services all around the boundaries, moreover
they are not always working for this exact reason. For instance, severe regulations on safety and
heaths, planned with a desire to defend domestic sectors
Currency swings:
The major reason because of which Australia lost its automotive manufacturing businesses is the
countries inflated currency exchange rate and not its shrinking market share. During 2011 the
rate of Australian dollar decline by 36% from approximately $US1.10 to $US0.70 cents for the
precedent 18 months that highly affected the which relative cost competitiveness of Australian
finished products in export markets, in addition to the business case for new capital investments
in Australian services”( Law, 2017).
According to the current report of economic position “The grouping of rising sales is expected,
particularly to export markets, enhanced cost competitiveness, and rebounding service,
efficiency, and productivity has collectively underpinned a important and capable intensification
of universal business attitudes in Australian mechanized,”
Trends / Customer Choice

The five most important changes which are expected in future automobile distribution patterns
and practices have been discussed below. Multiple channels and formats will coexist to please
diverse market segment in future. There are various channels between the customers and
producers throughout comparable financial entities. Formats are different grouping of points of
sale, service contributions and trade procedures inside a broad channel description for instance,
the Lexus format versus the Chevrolet format. A significant change in channels and arrangement
is expected in a physical sense and more separate placing regarding the acquiring and ownership
knowledge which is provided by them, additionally uneven the source of competition from
services to product as well as brand quality.
Figure 1: Implication of optional channel alternatives in future for Four-wheeler Automotive
Industry
(Source: Hirsh , Rodewig , Soliman , 2016)
Without any doubt, the customary dealer channel will carry on to play a most important role,
even though almost all the technical novelty and quantity enlargement will take place somewhere
else. However In different consumer-durables marketplaces, numerous channels with diver’s
value plans coexist relatively happily.

The six different businesses under the roof of the established dealership will be unbundled. The
incorporated model -- finance and insurance, sales of new-car, sales of used-vehicle, service,
fieets, and parts was launched earlier when automobile retailing was just entered within the
industry. Moreover various operational structures are needed to serve a range of purchaser needs
and economics. The cost of distributing and marketing automobiles will be reduced in significant
manner which will impact positively on profits of the business. The present system will be
maintained by the new formats and channels for expelling the non-value-adding cost. Trader
consolidations may release considerable economies of scale in back-office operations in addition
to purchasing power. Savings are possible to the great extent , on the other hand, by driving out
account; plummeting speculation in brick-and-mortar and real estate savings, as well as
optimizing the delivery of services and products .
Conclusion
It can be concluded from above analysis that, overall the automotive industry is in better shape
than it was five years ago and this progress will likely continue. By 2020, global profits for
automotive OEMs (Original Equipment Manufacturer) of four wheeler automobile industry are
expected to rise by almost 50 percent. In Australia the major role that is played by the
automotive industry is the main concentration on economic growth and especially more benefits
are offered to the economy through training and educating employees, by providing them
knowledge regarding the innovative techniques , by operational and managerial approaches ,
manufacturing and design potential in addition to its sustainability for further global
incorporation. Furthermore these industries carry out a most important role for edge customers
for significant sectors of such supplier industries (Grant, 2016). Lastly, technology and customer
choice / trends are the significant variants which drive the profitability of automobile industry.

References
Aghion, P., Dechezleprêtre, A., Hemous, D., Martin, R. and Van Reenen, J., 2016. Carbon taxes,
path dependency, and directed technical change: Evidence from the auto industry. Journal of
Political Economy, 124(1), pp.1-51.
Aithal, P.S., 2017. Industry Analysis–The First Step in Business Management Scholarly
Research.
Alexander, D.W. and Merkert, R., 2017. Challenges to domestic air freight in Australia:
Evaluating air traffic markets with gravity modelling. Journal of Air Transport Management, 61,
pp.41-52.
Bamiatzi, V., Bozos, K., Cavusgil, S.T. and Hult, G.T.M., 2016. Revisiting the firm, industry,
and country effects on profitability under recessionary and expansion periods: A multilevel
analysis. Strategic management journal, 37(7), pp.1448-1471.
Beer, A., 2018. The closure of the Australian car manufacturing industry: redundancy, policy and
community impacts. Australian geographer, 49(3), pp.419-438.
Bloomfield, G.T., 2017. The world automotive industry in transition. In Restructuring the global
automobile industry (pp. 19-60). Routledge.
Bui, D.P., Balland, S., Giblin, C., Jung, A., Kramer, S., Peng, A., Aquino, M.C.P., Griffin, S.,
French, D.D., Porter, K.P. and Crothers, S., 2018. Interventions and controls to prevent
emergency service vehicle incidents: A mixed methods review. Accident Analysis &
Prevention, 115, pp.189-201.
Carson, D.B., Carson, D.A., Porter, R., Ahlin, C.Y. and Sköld, P., 2017. Decline, adaptation or
transformation: new perspectives on demographic change in resource peripheries in Australia
and Sweden. Comparative Population Studies, 41(3-4).
Castillod, J.J., 2016. Teamwork in the Automobile Industry: Radical Change or Passing
Fashion?. (pp 58-92). Springer.

Conlon, R. and Perkins, J., 2018. Wheels and deals: The automotive industry in twentieth-
century Australia. (pp 101-152) Routledge.
Dixon, J., 2016. Workforce Adaptation to the Cessation of Motor Vehicle Manufacturing in
Australia. Economic Papers: A journal of applied economics and policy, 35(4), pp.301-315.
Dowling. N., 2017.Currency killed the car industry. Available through<> [assessed on 3 april
2019].
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Hirsh E., Rodewig F.L., Soliman P., 2016. Changing Channels In The Automotive Industry: The
Future of Automotive Marketing and Distribution. Available through <>. [Accessed on 5th April
2019]
Law, C.M., 2017. Restructuring the global automobile industry. Routledge.
Litman, T., 2017. Autonomous vehicle implementation predictions (p. 28). Victoria, Canada:
Victoria Transport Policy Institute.
Lockrey, S., 2017. Temporal ripples-Automotive industry influence on contemporary Australian
design practice. In AHA 2016 Automotive Histories: Driving Futures (pp. 1-16). Automotive
Historians Australia.
Nilsson, M. and Nykvist, B., 2016. Governing the electric vehicle transition–Near term
interventions to support a green energy economy. Applied energy, 179, pp.1360-1371.
Purnell, K., Young, S., Dixon, D., Bruce, A. and MacGill, I., 2018. Opportunties to Facilitate
Electric Mobility In Australia. Submission in response to the Senate Select Committee on
Electric Vehicles.
Reitz, J.G., 2018. Warmth of the welcome: The social causes of economic success in different
nations and cities. Routledge.
Skellern, K., Markey, R. and Thornthwaite, L., 2017. Identifying attributes of sustainable
transitions for traditional regional manufacturing industry sectors–A conceptual
framework. Journal of cleaner production, 140, pp.1782-1793.

Stanford, J., 2017. Automotive surrender: The demise of industrial policy in the Australian
vehicle industry. The Economic and Labour Relations Review, 28(2), pp.197-217.
Valadkhani, A. and Smyth, R., 2016. The effects of the motor vehicle industry on employment
and research innovation in Australia. International Journal of Manpower, 37(4), pp.684-708.