Impact of Global Retreat on Car Manufacturing Industry in Australia

This article discusses the impact of global retreat on the car manufacturing industry in Australia, including a five forces model and competitor analysis, situational impact analysis, and suggestions for future R&D activities.

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Contents
Introduction.................................................................................................................................................3
1) Background to the study..........................................................................................................................3
2) A Five Forces model and competitor analysis explaining the industry...................................................4
3) A situational impact analysis..................................................................................................................7
Conclusion...................................................................................................................................................8
References...................................................................................................................................................8
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Introduction
According to Hanawalt and Rouse (2017), with global economy developing fast MNCs, in
particular car manufacturing industry are opting towards arranging the productive activities in
international market for capitalizing on the global resources and market potentials. However,
since 2013 the car manufacturing industry in Australia is witnessing a shrinking period with key
players like Ford, Holden, and Mitsubishi pulling out resulting into others choosing to close their
operations under the influence of global retreat.
1) Background to the study
As reported by Griffiths (2014), General Motors Holden in 2013 had has announced closure to
its vehicles manufacturing in Australia by the 2017 following a row with the federal government
over subsidies for keeping the iconic car maker here beyond 2020– putting an end to its 65 years
of glorious history further reflecting the exemplary upheaval of adverse impact the motor
vehicles industry faces within the region that encompass the sustaining strength of AUD, higher
production costs, smaller domestic market and possibly the most competing and disintegrated
auto market globally. The decision which is seen as the "dark day" for manufacturing in
Australia was followed by approximately 2,900 people losing their jobs and putting the
remaining car and components industry in Australia and its 45,000 workers into abrupt
uncertainty. However, the sales division, a parts distribution centre, and a global design studio
will be retained after 2017, ensuring that sales and service of Holden remains unaltered. With
this announcement, according to Taylor (2013), multinational automotive manufacturer Toyota
acknowledged of placing unparalleled pressure on the local supplier network and their capability
of building cars in Australia further magnifying the fears of having a knock-on effect. Holden
was criticized for its failure in immediately clarifying its long-term intentions in Australia
despite of being commissioned by the industry minister, Ian Macfarlane to report what ongoing
subsidies should be provided to car manufacturers. According to Hanson, et al., (2014) citing
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high Australian dollar a major factor behind its decision Holden pointed that Australian
manufacturing was 65% more expensive comparing to what it was a decade earlier.
2) A Five Forces model and competitor analysis explaining the industry
CEOs or strategic business managers generally tries to steer their businesses towards a direction
where it can develop an edge over market competitors. According to Bhawsar and
Chattopadhyay (2018), for bettering understanding the industry environment where organizations
(here car manufacturing) operates Porter’s Five Forces is extensively used as a model for
evaluating the appealing factor of an industry structure.
(Source: opentextbc.ca)
Figure 1: Porters Five Forces Analysis
Threat of New Entrants: Medium
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According to Lin, et al., (2018), entering into a car industry is not easy owing to customers’
loyalty towards brands however, with global car-maker like Honda Motor Co. easily entering
into the Australian car market easily and opening its first office in Ohio, began the period of
major competition. The expansion of the foreign entrants has eventually decreased the market of
domestic manufactures.
Bargaining Power of Suppliers: Low
With an automobile industry the power of suppliers is little because most suppliers depend on a
handful of auto manufacturers for buying their products. Holden for example, has more than ten
suppliers across Australia. Quality, cost and products delivery are the primary criterion of
suppliers and in the absence of these basic considerations, survival is hard.
Bargaining Power of Buyers: High
According to Patra and Rao, (2017), Global economy development has provided buyers access to
numerous brands and cars models to choose from. Appearance, quality, price and environmental
effect are the factors affecting their buying decisions. Besides, with technological advancement
updated information about the industry is in their grab enabling them in comprehensively
comparing different brands and models, placing them into an advantageous position thus,
threatening the growth of Australian car manufacturing industry.
Threats of Substitutes: Low
Automobiles according to Patra and Rao, (2017), have many transportations substitutes mainly
motorbikes, bicycles, subways, buses, and metros, making peoples life much easier particularly
in cities, especially today when traffic jams are becoming a serious problem enforcing more
number of people in preferring public transportation over their personal cars, to a large extent
badly affecting the Australian car market. Moreover, using public transportation is also
increasingly advocated for environment protection resulting into less use of cars.
Competitive Rivalry in the industry: High
With the existence of too many brands, the competition in the Australian automobile industry
very high leading causing the industry earn lower profits when the cost of competition is high.
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Competitor analysis of automobile industry
Valued at $67 billion with over 60 million cars produced the automotive industry according to
Hernandez and Leblebiciolu (2012) is the largest industry in the world comprising of different
smaller industries having varied performances. Increase in new cars sales have benefited motor
vehicle wholesalers and dealers while the service agents are gaining from ever growing number
of registered motor vehicles on the roads of Australia. However, with shift in customers’
preferences from locally manufactured large cars towards imported vehicles have resulted into
the local car-makers like Holden leaving the market. According to Toyota (2018), over the five
years through 2017-18, industry revenue is expected witnessing a fall of annualised 0.5% to
$165.0 billion. Toyota leads the Australian auto industry followed by Mazda, Hyundai and
Holden. Rise of Hyundai exemplifies how emerging market carmakers are fast becoming global
players. The industry is now holding back to see whether the trick can be repeated by the car
manufacturers of China and India by uplifting their products quality to the standards of
Australian market sans pushing up prices too far.
(Source: acaresearch.com.au)
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Figure 2: Top 10 Brands-January 2018
3) A situational impact analysis
According to Minchin, (2016), the effects of withdrawal of passenger motor vehicle
manufacturing from Australia can be seen on aspects like political, economic, social and
technological. It has been estimated by the Australian Workplace Innovation and Social
Research Centre that withdrawal of car makers has resulted more into costs than benefits, a
weakening industry that is increasingly dependent on government assistance. The automobile
industry provides employment to more than one million people, i.e. 8.5% of the total workforce.
Complete shutdown of Ford, Toyota, Mitsubishi and Holden’s production line in 2017, together
have negatively impacted more than 5,000 production jobs, plus thousands of white collar and
supplier positions, especially Professional, Scientific and Technical Services sector. A rapid
contraction of the death of car manufacturing industry will be seen in the remaining
manufacturing industry further locking the country into resource development as the main driver
of economy having quite severe implications. Left with no other option, the government will
have to degrade the environment, and different risks the country’s economy will be becoming
exposed to if dependency on the extraction of resources is really unusual. Highly competitive
market, strong Australian dollar coupled with anticipated reduction in the total scale of vehicle
production have contributed in the rapid decline of the country’s automobile industry. According
to Dowling (2017), a wave of semi-hysteria about jobs the Abbott Government’s wickedness in
ignoring the workers needs has been prompted by the pulling out of major car makers from
Australia. It is high time for the government to accept that its high cost-structure simply cannot
afford to make cars competitively in Australia in the absence of subsidies and a wall of high
tariff. Government is working together with the state governments, unions and companies for
ensuring that the closure does not drives in downturn in the country However, the withdrawals
have a negative political impact where many pointing it as the government failing workers by
refusing to give Holden any more taxpayer funding and the closure could have been easily
prevented. Change of Federal Government and reduced government financial backing
unfortunately is perceived as the death knell for local automotive manufacturing.
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According to Valadkhani and Smyth (2016), with diversified Australian economy it is argued by
economic boosters that displaced car workers will face more ease in finding other employment
opportunities however, since jobs in automotive industry were of tremendous value, providing
well-paid jobs to generations of new immigrants and locals that eventually give them upward
mobility, there has been a significant decline in regaining jobs having a good pay thus, to some
extent will leave an adverse social impact as the spending power of a major section of the
Australian population will be get affected. Downward mobility- drop in socio-economic status
resulting from job loss is usually suffered by the displaced car workers, in particular women and
racial minorities. According to The Conversation (2016), the motor vehicle industries collapse
may negatively affect the growth of PSTS industry providing services in scientific research,
architecture, engineering, and computer systems design, all primarily involved in R&D. The
technological impact on the withdrawal of passenger motor vehicle manufacturing from
Australia might affect the other R&D-intensive manufacturing industries playing essential role in
technology diffusion process.
Conclusion
Thus it can be concluded from above discussion that car manufacturers like Ford, Holden and
Toyota may have to shift their R&D activities in future closer to their manufacturing centres so
as to minimise adverse effect on capability of industry in Australia further to ensure sustained
development in dynamic business environment.
References
Bhawsar, P. and Chattopadhyay, U. (2018). Evaluation of industry cluster competitiveness: A
quantitative approach. Benchmarking,[Online] 25(7), 2318-2343. Available:
http://dx.doi.org/10.1108/BIJ-02-2017-0022 [Accessed 30 November 2018].
Dowling, J. (2017). Counting the cost of killing Australia’s car industry [Online]. Available
from: https://www.news.com.au/technology/innovation/motoring/counting-the-cost-of-killing-
australias-car-industry/news-story/cb10862b3405a9b26ce9f4541bbdbc08 [Accessed 30
November 2018].
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Griffiths, E. (2014). Holden to cease manufacturing operations in Australia in 2017 [Online].
Available from: https://www.abc.net.au/news/2013-12-11/holden-to-cease-manufacturing-
operations-in-australia-by-2017/5150034 [Accessed 30 November 2018].
Hanawalt, E. and Rouse, W. (2017). Assessing location attractiveness for manufacturing
automobiles. Journal of Industrial Engineering and Management, [Online] 10(5), 817-852.
Available: http://dx.doi.org/10.3926/jiem.2321 [Accessed 30 November 2018].
Hernandez, K. and Leblebiciolu, A. (2012). A regime-switching analysis of pass-
through. Review of World Economics, [Online] 148(3), 523-552. Available:
http://dx.doi.org/10.1007/s10290-012-0120-7 [Accessed 30 November 2018].
Hanson, D., Hitt, M.A., Ireland, R.D. and Hoskisson, R.E. (2014). Strategic management:
Competitiveness and globalisation. Cengage AU. ISBN 9780170227643
Lin, D., Lee, C., Lau, H. and Yang, Y. (2018). Strategic response to industry 4.0: An empirical
investigation on the Chinese automotive industry. Industrial Management & Data
Systems, [Online] 118(3), 589-605. Available: http://dx.doi.org/10.1108/IMDS-09-2017-0403
[Accessed 30 November 2018].
Minchin, T. (2016). The Ford shutdown could impact Australia more than we think [Online].
Available from: https://www.businessinsider.com.au/ford-shutdown-economy-impact-2016-10
[Accessed 30 November 2018].
Patra, T. and Rao, M. J. (2017). Impact of macroeconomic factors on automobile
demand. Journal of International Economics, [Online] 8(1), 97-113. Available:
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2018].
Taylor, L. (2013). Holden confirms it will leave Australia in 2017 [Online]. Available from:
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[Accessed 30 November 2018].
The Conversation (2016). Collapse of Australian car manufacturing will harm R&D in other
sectors: study [Online]. Available from: https://theconversation.com/collapse-of-australian-car-
manufacturing-will-harm-randd-in-other-sectors-study-66984 [Accessed 30 November 2018].
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Toyota (2018). TOYOTA LEADS AUTO INDUSTRY TO RECORD TOTAL [Online].
Available from: https://www.toyota.com.au/news/toyota-leads-auto-industry-to-record-total
[Accessed 30 November 2018].
Valadkhani, A. and Smyth, R. (2016). The effects of the motor vehicle industry on employment
and research innovation in Australia. International Journal of Manpower, [Online] 37(4), 684-
708. Available: http://dx.doi.org/10.1108/IJM-06-2015-0098 [Accessed 30 November 2018].
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