Strategic Analysis: Automotive Industry and Holden Plant Closure

This report provides a strategic analysis of the Australian car manufacturing industry, focusing on the impact of Holden's plant closure. Using Porter's Five Forces model, the analysis examines the threat of new entrants, the threat of substitution, the bargaining power of buyers and suppliers, and the intensity of industry rivalry. The report also assesses the political, economic, social, and technological effects of the withdrawal of passenger motor vehicle manufacturing from Australia, including job losses, economic impact, and technological development. The closure of Holden marks the end of a 100-year history and highlights the challenges faced by the Australian automotive industry due to factors such as high labor costs, government policies, and international competition. Desklib offers a wealth of similar documents and study tools for students.

Running head: MANAGEMENT
Management: Strategic Analysis
Name of the Student:
Name of the University:
Author note:

1MANAGEMENT
1. Background of the study
Closure of manufacturing plant of Holden, a unit of the US automobile manufacturer
General Motors, marked the end of 100 years of history in the automobile manufacturing in
Australia. The company closed the plant on October 20, 2017 to move its manufacturing to other
cheaper locations (Packham 2017). Holden closed its plant after a year when Ford and Toyota
also closed and moved out from Australia resulting in loss of thousands of manufacturing jobs.
This is a big blow to the car manufacturing industry in Australia. Not only in terms of
employment, but also for the reason that Holden cars would have to be imported now. This
entails the imposition of import tariff, making the cars expensive for the Australians (Beer 2018).
The decision to close down a 100 year old car manufacturing industry came after decades of
subsidies provided by the Australian government, increasing value of Australian dollar, high
wages, rising cost of Australian labor, import barriers in the Asian countries and increasing
competition in the international industry (Ladd 2017). In this paper, the competitor analysis of
the industry will be conducted along with the situational analysis, that is, the political, economic,
social and technological effects of withdrawal of passenger motor vehicle manufacturing from
Australia.
2. Five forces model and competitor analysis explaining the industry
Porter’s five forces model will be used to analyze the competitive position of the
company as well as for the car manufacturing industry of Australia.

2MANAGEMENT
Figure 1: Porter's five forces model
(Source: Lüttgens and Diener 2016)
Threat of new entry: The Australian car manufacturing industry, or companies like Holden
faced the threat of new entrants from the international companies that export their cars to
Australia. Local manufacturers are not a big threat but the global players are a major threat to
this industry as they are producing the cars in locations with cheaper labor cost, while the labor
cost is high in Australia contributing in the higher price of the cars (Conlon and Perkins 2018).
Thus, this force is moderate.
Threat of substitution: The Australian consumers want fuel efficient small cars, which is an
initiative towards sustainability. The demand for sports utility vehicles are also higher compared
to the large passenger vehicles produced by Holden. The demand for foreign made small cars
and SUVs are high in Australia due to low interest rates in the country and increasing
discretionary income, followed by high quality fuel efficient cars at a competitive price provided

3MANAGEMENT
by the foreign manufacturers (Njuguna 2016). Hence, the threat of substitution is the car industry
of Australia is very high.
Bargaining power of buyers: This force is high in the car industry of Australia. Lack of
demand for higher priced cars has ultimately resulted in loss of the car manufacturers, such as,
Ford, Toyota and Holden, and eventually they shut down their plants. Environmental awareness
of the consumers is also compelling the industry to produce fuel efficient cars as the switching
cost is low.
Bargaining power of suppliers: This also has a heavy impact on the industry. The production
cost gets higher due to factors like high labor cost, high cost of raw materials, and as the
government stopped the subsidies, the car manufacturers faced a tough challenge to supply the
cars at a competitive price (Stanford 2017).
Industry rivalry: Australian car manufacturing industry consisted only four companies, Ford,
Toyota, Holden and Mitsubishi, and among these, 3 have shut down their plants. Hence, the
industry rivalry from the Australian companies is very low at present. However, it faces high
competition from the international players (Lansbury, Wright and Clibborn 2017).
3. Situational impact analysis explaining the political, economic, social and technological
effects of withdrawal of passenger motor vehicle manufacturing from Australia
The shut down of the passenger motor vehicle manufacturing in Australia has a
significant impact on the political, economic, social and technological grounds. Firstly, the
government ended the subsidy on the vehicle manufacturing, which was a set back for the
manufacturers and it resulted in rise in the car prices. It has been criticized that rather than

4MANAGEMENT
offering subsidy, the government should have been forceful to shift the local production to match
local demand, which would have made the industry more competitive (Toner 2013).
Secondly, the major impact of the production withdrawal is on the economic and social
ground. Shutting down vehicle production leads to around 200000 well-paying job loss, across
the country (Eisenstein 2017). Holden used to contribute around AUD 1 billion into the economy
on an average, which would no longer be there. On one hand, rising labor wages has been
pushing the economy forward, while on the other hand, this factor also led the multinational
automobile manufacturers to shut down their plants in Australia and move its production to the
countries with cheaper labor price (Oliver and Yu 2018). Thus, the industry has to be dependent
on car imports, which would put a pressure on the foreign exchange reserve of the country.
Moreover, there is exchange rate volatility and rising price of AUD, which is making the exports
costlier and imports cheaper. Thus, the domestic car industry is facing a downturn and in the
long run, would lose its competitiveness in the international market.
Loss of thousands of jobs creates a social impact and increases unemployment in the
country. As the government did not provide any subsidy or funding to the local component
suppliers, the local industry did not develop as expected. With the withdrawal of the large
companies, the future manufacturing capacity of the local manufacturers is reduced too, which is
leading to jeopardizing the jobs of millions of workers in this industry (Green 2017).
Similarly, the lack of development of the local industry will affect the technological
enhancement required for car manufacturing. It has been reported that 10-15% of the component
suppliers would diversify their supply to other industries, such as, medical, defense, mining,
renewable energy, while 50% would go out of business. Thus, 35% would remain to be

5MANAGEMENT
repositioned, however, they lack the capability to adopt as the technological advancement never
happened for them (Valadkhani and Smyth 2016).

6MANAGEMENT
References
Beer, A., 2018. The closure of the Australian car manufacturing industry: redundancy, policy and
community impacts. Australian geographer, 49(3), pp.419-438.
Conlon, R. and Perkins, J., 2018. Wheels and deals: The automotive industry in twentieth-
century Australia. Routledge.
Eisenstein, P., 2017. Australia's entire auto-making industry just produced its last car.. [online]
NBC News. Available at: https://www.nbcnews.com/business/autos/australia-s-100-year-old-
automobile-industry-just-closed-down-n812756 [Accessed 22 Mar. 2019].
Green, R., 2017. The truth about the Holden shutdown in Australia. [online] The Sydney
Morning Herald. Available at: https://www.smh.com.au/opinion/the-truth-about-the-holden-
shutdown-in-australia-20171010-gyxogj.html [Accessed 22 Mar. 2019].
Ladd, M., 2017. Holden and Australia's history of car manufacturing. [online] ABC News.
Available at: https://www.abc.net.au/news/2017-10-08/holden-closure-australia-history-car-
manufacturing/9015562 [Accessed 22 Mar. 2019].
Lansbury, R.D., Wright, C.F. and Clibborn, S., 2017. Who Will Make Our Cars: Global Lessons
from the Demise of Australia's Auto Industry. Members-only Library, 21.
Lüttgens, D. and Diener, K., 2016. Business model patterns used as a tool for creating (new)
innovative business models. Journal of Business Models, 4(3).
Njuguna, J. ed., 2016. Lightweight composite structures in transport: design, manufacturing,
analysis and performance. Woodhead publishing.

7MANAGEMENT
Oliver, D. and Yu, S., 2018. The Australian labour market in 2017. Journal of Industrial
Relations, 60(3), pp.298-316.
Packham, C., 2017). Australian car manufacturing ends as GM Holden closes plant. [online]
Reuters. Available at: https://in.reuters.com/article/us-holden-australia-manufacturing/australian-
car-manufacturing-ends-as-gm-holden-closes-plant-idINKBN1CP0JB [Accessed 22 Mar. 2019].
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.
Toner, P., 2013. What do we lose if the car industry is allowed to fail?. [online] ABC News.
Available at: https://www.abc.net.au/news/2013-08-14/toner---car-manufacturing-in-australia/
4886462 [Accessed 22 Mar. 2019].
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.