Economic Analysis of the Australian Automotive Industry: Challenges

This report provides an in-depth analysis of the Australian automotive industry (AAMI), focusing on its structure, key players like Ford and Holden, and the challenges it faces. It examines the industry's division into manufacturing and sales sectors, highlighting the oligopolistic market structure. The report delves into the decline of local car manufacturing, citing factors such as competition from imported products, government policies, and economic conditions. It discusses the impact of factory closures, job losses, and the ripple effects on related industries, including the professional and scientific technical services sector. The analysis covers the role of government in the industry's demise, the impact on the labor market, and the long-term economic consequences. Furthermore, the report explores the reasons behind the industry's decline, including market size, cost factors, and the impact of free trade agreements. It also examines the government's efforts to support workers and supply chains during the transition period, and the spillover effects of the automotive industry on other sectors. The report concludes with a discussion of the overall economic impact and future prospects of the Australian automotive industry.

Running Head: Automobile Automotive in Australia
The changes in the Australian car manufacturing industry
Name
Professor
Institution
Corse
Date

2
Automobile Automotive in Australia
Australia is one country that is capable of designing cars from scratch and also
manufacturing big volumes. The series of cars are also important in Australian automotive
company and generally the economy of Australia. The industry can be subdivided into two parts:
the production phase and the manufacturing phase. Both of these phases are important in the
overall performance of the AAMI. The manufacturing sector refers to the conditions of the
market in which the manufacturing business compete, through the production of vehicles and
related goods with an aim of the maximization of profits. The sales sector implicates the
conditions of the market under which the sales business people do compete and has the same
business objectives as the manufacturing sector. One market structure can be described in the
manufacturing sector as far as AAMI is concerned, this is the oligopoly. There two organizations
that have been producing cars and these are Ford and Holden, the methods of competition and
the strategies are based between two organizations (Singh, Smith & Sohal, 2014).
The most important characteristic of the oligopoly that should be stated here is that the
prices are in most cases sticky, meaning that they are capable of changing less frequently more
than in any other market structure. Secondly, the prices do change frequently. The latter makes
the firms change their prices concurrently. This boosts up the competition between markets.in
our discussion; it is very important to distinct between the sectors within the AAMI for the
purposes of developing economic models, one for each AAMI sector (Singh, Smith & Sohal,
2014).
Research shows that the AAMI experienced a 20% turnover in the 3500 workforce it
faces. The company is growing at a compound annual rate of 18% since it is recruiting 1000
people per year. The price size has spurred a land grab in the sector of recruitment (Singh, Smith
& Sohal, 2014).

3
Automobile Automotive in Australia
Notwithstanding the responsibility games from the previous week, the conspiracy theory
does not exist and there is no one reason. Given that it was a little bit simpler, that could have
saved the company. The AAMI manufacturing sector had shrunk to a point that each company
was relying on the other for survival. Factories are in dire need of the frugalities of gauge at the
best times but not only the worst of the times when they have to compete with the cheap
imported products (Singh, Smith & Sohal, 2014).
The locally made cars in Australia were in decline.30 % of them had to make a dozen
Holden Cruse which were locally sourced while the Commodore was only 50% Australian at the
long run. The Toyota had an appearance from japan was 70% Australian and the this applied to
Ford Falcon too. Given that the cars had to survive beyond the current models, they had to rely
on the imported parts for their survival because this would keep the costs down (Singh, Smith &
Sohal, 2014).
It means that redeeming the car will not make to save the other parts of this
manufacturing, which was contrary to the “if you save us, we save them “used by the Holden
when engaging its argument for a continued aid from the government. Ford and Toyota were
always in the forefront of the headlines but some hundreds of smaller manufacturers were feeling
just the same pain or even more. The latter led to the fall of Domino in last year-Ford-collapse of
the remaining two manufacturers, Toyota and Holden and then the rest of the industry was not
evitable(Singh, Smith & Sohal, 2014).
However, the two Factories and the large number of spare part suppliers will struggle to
go full distance of the proposed dates of shutting down since the locally made sales began to tank
up. Although the cars made between now and the shut down time will have a backup warranty of

4
Automobile Automotive in Australia
three years and parts up service for ten years, the customers have a high feeling of being insecure
thinking that they will be left in the lurch. The commentary predicts that by the end of the year
2017 the company will be shut although the companies are maintaining that they are staying in
the market for life. The reality is that as soon as all these factories shut down, the Toyota, Holden
and Ford will then start making massive profits (Singh, Smith & Sohal, 2014).
All the three firms have made a combined loss of more than $ 1.5 billion on their local
manufacturing operations in the last ten years despite the double receipts that they received in the
funding from the taxpayers over the same period (Singh, Smith & Sohal, 2014).
Who to blame
The government that created low import tariffs and also went ahead to sign in free trade
agreements that allowed the cheap foreign cars a larger market size (Singh, Smith & Sohal,
2014).Many factors apart from the one mentioned above contributed to the demise of the AAMI
along with the purchasing public and machinists of the navies who were responsible for
swapping partisanship for a larger option of more desirable, reasonable and more appropriate
imported cars. The consecutive administrations from the duo of government made an economic
environ that Australia is in: a country that is characterized of high earnings, low importation
tariffs and also a very robust currency.
The above mentioned factors makes it almost impossible to import cars particularly when
you are surrounded by Asian countries that in most cases do not necessarily need the Australian
made cars since they are making vehicles for just one third of the labor cost. Given that Australia
sells her cars to the huge marketplaces and in areas like USA, ignoring the rates of exchange
which are not favorable, the overcapacity of too many car factories would just be neutralized to

5
Automobile Automotive in Australia
the normal level and the customers would be there for the purchases (Singh, Smith & Sohal,
2014).
The industries have been noted to be struggling under some inefficient scale and also stiff
competition from competitors elsewhere. The commonwealth department of industry reported
that the vehicle industry of Australia has brought back a trading profit since the year 2003 and
between that time and 2012; it incurred losses of about $ 4.37 billion (Singh, Smith & Sohal,
2014).
The mass of the labor market in Australia that is meant to absorb this complete shutdown
will make an influence to the labor market, an extent which will go on to softening. Reports from
media show that ford and Holden employ an approximate of 8000 workers in the vehicle
assembly. Their combined closure though massive will not be like an historical retrenchment in
the history of Australia. The distinction in the Australian history came from the Anset airlines
which retrenched about 16000 employees in the year 2001 and unlike any other vehicle plant
closure shut down without giving any prior warning(Singh, Smith & Sohal, 2014).
There would however be some flow on impacts into the automotive manufacturing
component. The manufacturing employment of Australia estimated total motor vehicle parts of
about 40,000 in 2013 which showed an increase from 37,000.the primary concerns the risk of the
localized unemployment and flexibility of workers to look and acquire alternative forms of
employment. The car industry is said to be one of the biggest in Victoria and SA. If the closure
thing will take place in the next few months, there would still be time for some adjustment; thou
not all for the labor markets which are localized ((Singh, Smith & Sohal, 2014).

6
Automobile Automotive in Australia
The Ansett suggests that about 75% of the employees who were affected had secured
some other jobs in some other give n places although the secured jobs were of a relatively lower
quality. The inter-industry mobility during this time appeared to be much retrenched since most
of the Anset workers were re-employed within the aviation company (Singh, Smith & Sohal,
2014).
In the near future, the uncertainty on the jobs market in the car industry can also be
expected to reduce the confidence of the willingness of the consumers to spend. The latter will
definitely occur in the environment where we are expecting the unemployment to continue
rising. Attempts aimed at modelling the effects of the announcement that concerned the closure
of the industry are complicated by the long term leads moments which are envisaged(Humphrey
& Memedovic, 2013).
Apart from the direct effects that will be felt by the direct and indirect suppliers of these
companies, research shows that a significant impact in output and many jobs will be lost in both
the downstream and the upstream industries. A good example of the sector that will be mostly

7
Automobile Automotive in Australia
affected is the is the professional and scientific technical service ministry which is said to have
employed about 8.5% of the total workforce and which is a representative of about 1.5 million
people. There are reasons as to why the Australian car industry will be closed.one of the reasons
is that the market in Australia is very small and the company is not able to exploit the economies
of scale. For them to remain solvent, they have no alternative but foreign inputs which are
relatively cheaper (these include both labor and the parts).the domestic market situations in
Australia in the recent times have become more tenable having: lower import tariffs and signing
of the free trade agreements, relatively higher pay and conducive working environments which
are demanded by the unions and the increased value of the Australian dollar (Humphrey &
Memedovic, 2013).
The closure of the motor vehicle industry will adversely affect the productivity of the
professional scientific and technical services company. The company provides services to the
scientific researches, administration, engineering, the systems of computer designs, commerce,
law, advertising, management and other consultancies, veterinary science and professional
photography (Humphrey & Memedovic, 2013).
Depending on the range of the linkages, the number of job losses across the whole car
industry differs across the companies. Giving assumption to the entire car company, the table
below shows the approximate number of jobs which are lost in some ten of the most hit sectors.
Most of these workers have already established jobs in some other industries which are in a way
related.

8
Automobile Automotive in Australia
The above table represents the industries which have a high probability of being affected
by the R and D vacuum which will be created by the absence of the motor vehicle industry.
Recent studies have shown that car manufacturers give technical support, skills which are
transferable and also training the employees and also the small part suppliers. There is so much
spillover of skills from this industry to other industries (Humphrey & Memedovic, 2013).
The spillovers aid the automotive ministry in the equipment handling capability.
Research shows that the closure of the motor vehicle industry could by a very large extent
disturb the PSTS Company through the creation of a vacuum in upstream and also downstream
companies. Same outcomes were evident in the years of 1998 and 2012, bringing up a suggestion
that the R & D manufacturing companies including the motor vehicle industry play out a vital

9
Automobile Automotive in Australia
role in the of diffusing technology. The findings are consistent with the finding that R&D is a
linchpin of the automotive sector of Australia and that there exists some numerous spillages in
the automotive sector in the other Australian industries (Humphrey & Memedovic, 2013).
The AAMI of Australia gets much aid from the government through aiding the workers
and also the supply chains through its period of transition. The government of Australia has
invested $ 101 million into the lump sum $ 155 million fund for growth aimed at ensuring the
employees in South Australia and Victoria are receiving the support that they need. The workers
are said to be reskilled, the supply firms are also diversified and that new areas are being
adjusted into the area of economy (Humphrey & Memedovic, 2013).
With an aim of supporting the employees, the government has set aside $ 15 million to
extent the Automotive Industry program of the structural adjustment which is by a large extent
helping employees and also the automotive workers to find alternative jobs. The Australian
government has contributed $ 20 million to aid the supply chain. The funding has gone to the
Automotive Diversification program and the $ 90 million next generation program of
investment. The program of the automotive industry is aiding the supply chain of the automotive
to enter the new markets. The latter has produced some $ 52 million in the private ministry
management (Humphrey & Memedovic, 2013).
The next generation diversification package is aiding supply chain industries in high
value manufacturing sectors in both Victoria and South Australia.it has generated about $ 283
million in investment. The elements of growth fund are working out now, helping the automotive
employees and the chains of supply now having money moving out of the door and aimed at

10
Automobile Automotive in Australia
creating job positions. The above elements of development fund are functioning now and they
are helping the employees and the supply chains too (Humphrey & Memedovic, 2013).
The trades in the effected regions have received assistance from the commonwealth
through the $ 29.5 million Geelong Regional Innovation and also the investment Fund and $ 24.4
million Melbourne North Innovation and Asset account that gives support to the innovative,
creation of job projects that are able to give strength and diversity in these regions (Humphrey &
Memedovic, 2013).
The budget of the financial year 2014/15 reproduce the decision of the government to
give a termination of the ATS on the 1st of January 2018, following the line of the production
timing coming to an end.an approximate of about $ 1.0 billion asset over the five years from the
financial year 2013/14 remains available under the schemes with an aim of supporting vehicle
manufacturers and also the supply chain firms. Termination of the ATS will lead to the saving $
618.5 million over some eight years from the year 2013.the state will also save some $ 15.0
million over the four years from the years 2014-2015(Humphrey & Memedovic,2013).
The government announced a growth fund with an aim of supporting some new jobs,
investment in the economy and general economic growth in South Australia and Victoria in in
response to the response to the planned closure of the production of the facilities for vehicles.
The finance department from the government has provided $ 100.6 million funding which is
meant for this initiative, having the remainder of the growth fund which is $ 155 million to be
given by the South Australian and the government of Victoria, Holden and Toyota (Humphrey &
Memedovic, 2013).

11
Automobile Automotive in Australia
Conclusion
From the general point of view, it is evident that both Holden and Ford will in the next
few days run out of the market. The latter will be caused by the fact that there exists small
market in the Australian region. If the Australian Automotive manufacturing industry was to
prosper and survive in the market, they need to move far to the global economy and in places
like North and South America. Australia is between the countries that also produce their own
vehicles hence it does not enjoy the economies of scale and hence it is advisable for it to either
close down or look for markets in the foreign countries and come up with strategies that will
make it sell.

12
Automobile Automotive in Australia
References
Humphrey, J., and Memedovic, O. (2013). The universal mechanized industry worth chain: What
prospects for updating by creating nations.
Singh, P. J., Smith, An., and Sohal*, A. S. (2014). Strategic production network administration
matters in the motorized fabricating: an Australian perspective. Global journal of
Production Research, 41(56), 5325-5369.