The end of Australian automobile manufacturing

The year 2017 will see the end to the Australian automobile manufacturing industry. In early 2013, Ford announced plans to exit the country and in December 2013, GM/Holden followed suit leaving Toyota to ponder its future in Australia. As expected though, Toyota announced last week that it too would end manufacturing in Australia in 2017.

All three companies cited similar reasons for abandoning the country: a strong Australian dollar, high cost of production, incoming free trade agreements, fragmented automotive markets and a small domestic market.

Furthermore, over the years, much of the automotive industry has been dependent on government assistance however, that is being phased out including lowering tariffs on imported cars. It is expected these measures will help lower the price of automobiles for consumers.

As such, the total number of units produced has not recovered since 2005 highs.

Today, the car industry now represents about 5% of manufacturing.  In a highly competitive market in which low cost of production prevails, it is difficult for Australia’s automotive industry to compete against the tightly woven supply chains of those found in Thailand, South Korea and China.

Australia’s 100 plus tier one parts suppliers which includes such companies as Bosch, ANCA Motion and APV Automotive Components are now faced with either diversifying into other industries or to close shop.

For parts supplier, Australian Arrow, in particular, this situation is very concerning.  The company supplies Toyota and GM/Holden via its manufacturing facility in Samoa. According to Yazaki, the owner of Australian Arrow, the Samoan manufacturing facility is extremely important to the Samoan economy – employing 2,000 and representing 6% of Samoa’s national GDP. While supplying to the Australian market is its major business, it also exports its electrical wirings and harnesses to Asia and Europe.

For logistics providers that offer automotive logistics support such as CEVA, DB Schenker, Kerry Logistics and Panalpina this change should not have a major adverse on operations. Many providers, including these, provide a balanced automotive industry portfolio including transport, inbound services, spare parts and aftermarket.

As the Australian automotive industry winds down, its supply chain will change and will focus more on international transportation, inbound and domestic transportation services. Perhaps demand for aftermarket parts will rise, presenting additional opportunities for logistics providers and parts suppliers.