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Green pressure: Operators must meet demand by developing fuel-efficient vehicles

IBISWorld Industry Report C2311

Motor Vehicle Manufacturing in Australia


July 2012 Aries Nuguid
2 About this Industry
2 2 2 3 Industry Definition Main Activities Similar Industries Additional Resources 17 International Trade 19 Business Locations 33 Revenue Volatility 34 Regulation & Policy 35 Industry Assistance

21 Competitive Landscape
21 Market Share Concentration 21 Key Success Factors 21 Cost Structure Benchmarks 23 Basis of Competition 24 Barriers to Entry 24 Industry Globalisation

38 Key Statistics
38 Industry Data 38 Annual Change 38 Key Ratios

4 Industry at a Glance 5 Industry Performance


5 5 6 9 Executive Summary Key External Drivers Current Performance Industry Outlook

39 Jargon & Glossary

26 Major Companies
26 Toyota Motor Corporation Australia Limited 27 GM Holden Ltd 29 Ford Motor Company of Australia Limited

12 Industry Life Cycle

14 Products & Markets


14 Supply Chain 14 Products & Services 16 Demand Determinants 16 Major Markets

32 Operating Conditions
32 Capital Intensity 33 Technology & Systems

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Motor Vehicle Manufacturing in Australia July 2012 2

About this Industry


Industry Definition
Companies in this industry manufacture motor vehicles. These vehicles mainly include cars, sports utility vehicles (SUVs), light commercial vehicles, buses, vans and medium, heavy and special-purpose highway trucks such as fire trucks. Vehicles produced in this industry are used for private and commercial purposes. The manufacturing of automotive engines is also included in this industry.

Main Activities

The primary activities of this industry are Car manufacturing SUV manufacturing Engine manufacturing Bus manufacturing Van manufacturing Heavy truck manufacturing

The major products and services in this industry are Large-size cars Luxury and all other cars Medium-size cars Small-size and hybrid cars SUVs Trucks Utes Vans and buses

Similar Industries

C2812 Motor Vehicle Body Manufacturing in Australia Companies in this industry convert vehicle bodies using an existing engine and chassis. C2819 Automotive Parts and Accessories Manufacturing in Australia Businesses in this industry manufacture motor vehicle parts that are not in association with the manufacture of complete vehicles or engines. C2862 Mining and Construction Machinery Manufacturing in Australia Firms in this industry produce off-highway trucks. G5311 Car Retailing in Australia Establishments in this industry carry out minor assembly of otherwise fully imported vehicles. G5312 Motorcycle Dealing in Australia Companies in this industry conduct minor assembly of otherwise fully imported motorcycles.

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Motor Vehicle Manufacturing in Australia July 2012 3

About this Industry

Additional Resources

For additional information on this industry www.innovation.gov.au Department of Industry, Innovation, Science, Research and Tertiary Education www.fcai.com.au Federal Chamber of Automotive Industries www.oica.net International Organization of Motor Vehicle Manufacturers (OICA) www.truckworld.com.au Truckworld

IBISWorld  

writes over 500 Australian industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com.au

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Motor Vehicle Manufacturing in Australia July 2012 4

Industry at a Glance
Motor Vehicle Manufacturing in 2012-13 Key Statistics Snapshot
Revenue

$10.7bn -9.4%
Profit Exports
Revenue vs. employment growth
16 8

Annual Growth 08-13

Annual Growth 13-18

$213.3m $2.4bn
Market Share

-1.4% 68
Businesses

Consumer sentiment index


120 110

% change

Index

Toyota Motor Corporation Australia Limited 45.6%  GM Holden Ltd 23.7%  Ford Motor Company of Australia Limited 18.7% 
p. 26

0 8 16 24

100 90 80

Year 05 Revenue

07

09

11

13

15

17

19

Year 05

07

09

11

13

15

17

19

Employment
SOURCE: WWW.IBISWORLD.COM.AU

Business locations

Key External Drivers


Consumer sentiment index Trade-weighted index World price of crude oil Motor vehicle tariff Domestic price of iron and steel

6.6%
SA

1.9% 0.9%
TAS NT

10.4%
WA

34.9%
VIC

19.8%
QLD

p. 5

25.5%
NSW

SOURCE: WWW.IBISWORLD.COM.AU SOURCE: WWW.IBISWORLD.COM.AU

Industry Structure

Life Cycle Stage Revenue Volatility Capital Intensity Industry Assistance Concentration Level

Decline High Medium Medium High

Regulation Level Technology Change Barriers to Entry Industry Globalisation Competition Level

Medium High High High High

For additional statistics and time series see the appendix on page 38

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Motor Vehicle Manufacturing in Australia July 2012 5

Industry Performance
Executive Summary
Motor vehicle manufacturers are having a tough time. Industry revenue is forecast to contract by an annualised 9.4% over the five years through 2012-13 to reach $10.7 billion. Motor vehicle manufacturers woes started when consumers began switching to smaller, more fuel-efficient vehicles. Consumers made the switch due to environmental concerns and skyrocketing petrol prices. This proved to be an issue for domestic manufacturers, particularly for Holden and Ford, as their core product range consists of large, powerful, fuelinefficient vehicles. Truck manufacturers also noticed the shift towards cleaner trucks, but their troubles lie more in the slowdown of truck-freight demand than in environmental factors. As domestic manufacturers continued to produce cars that consumers did not want, car buyers turned to imported vehicles. As such, import penetration rose in the past five years, with Toyotas imported cars leading the pack. To make matters worse, the Australian dollar increased in value, which led to cheaper imported cars. Faced with falling demand, domestic manufacturers struggled to maintain profitability over

Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

the past five years. In March 2008, Mitsubishi gave up entirely and exited the market after years of trying to prop up production and efficiency. Car production is expected to improve in 2012-13, as domestic manufacturers shift focus to smaller and fuel-efficient vehicles. Pent-up demand will also support a recovery in production. As such, industry revenue is expected to grow 7.7% in 2012-13. However, domestic manufactures will continue to face strong import competition. Domestic manufacturers shift to fuelefficient vehicles will help the industry remain competitive. The next five years are expected to be challenging for domestic motor vehicle manufacturers. Industry revenue is forecast to decline at an annualised 1.4% over the five years through 2017-18 to reach $10 billion. While domestic demand is expected to improve, imports are expected to satisfy a greater proportion of domestic demand. To remain competitive, domestic manufacturers will invest in greener cars. Government help will aid companies in restructuring their operations.

Key External Drivers

Consumer sentiment index End customers are very important to ensure the survival of the Motor Vehicle Manufacturing industry. Economic downturns and other events can affect expenditure decisions of households. When consumers are not happy or optimistic about the future of the economy, they tend to postpone large purchases (such as cars) until times are more favourable. Consumer sentiment was dismal during the global financial crisis. Trade-weighted index Changes in the value of the Australian dollar affect the international competitiveness of domestic car manufacturers. The Australian dollar appreciated rapidly over the past five

years. The competitiveness of domestic manufacturers diminishes when the value of Australian dollar appreciates because it makes imported cars cheaper. At the same time, the strong Australian dollar makes automotive products manufactured in Australia more expensive in export markets. World price of crude oil The price of oil and petrol affect the driving habits of consumers and the type of car they buy. Over the past five years, the price of petrol has been causing chaos among motorists who have started switching to more fuel-efficient options. These include cars that run on liquefied petroleum gas (LPG), hybrids and small cars that achieve better mileage. The trucking segment has also been

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Motor Vehicle Manufacturing in Australia July 2012 6

Industry Performance

Key External Drivers continued

struggling with a rise in the price of fuel, which has put enormous pressure on production costs. Motor vehicle tariff Taxes on imports increase the price of imported motor vehicles, which makes domestic products more competitive on the market. The government reduced tariffs to 10% in 2005 and to 5.0% in 2010. Domestic manufacturers have voiced their concerns about the tariff reduction, believing that it will harm demand. A rise in the number of imported cars in the market could be
Consumer sentiment index
120 110

detrimental to parts manufacturers, which would have a flow-on effect on the entire automotive supply chain. Domestic price of iron and steel Steel is a major input used in motor vehicle manufacturing. Rises in the price of steel put cost pressures on manufacturers, which often leads to a fall in profitability. Over the past five years, the price of steel has been rising rapidly and manufacturers have not been able to completely pass on increased costs to customers.

Trade-weighted index
80 75

Index

100 90 80

Index
07 09 11 13 15 17 19

70 65 60 55

Year 05

Year 05

07

09

11

13

15

17

19

SOURCE: WWW.IBISWORLD.COM.AU

Current Performance

Manufacturing motor vehicles is a global affair. Australias three major car makers and three major truck makers are all divisions of foreign companies. Domestic manufacturers also compete directly with imported motor vehicles, which makes fluctuations in the exchange rate all the more important. The Australian dollar grew in value over the past five years, which made imported vehicles more affordable. Manufacturers also watched hopelessly as the cost of production increased due to rises in the price of steel, a major input in motor vehicle manufacturing. Exchange rates and the price of steel were not the only factors watched closely by manufacturers. Petrol prices skyrocketed over the past five years. As a

result, consumers and businesses changed the way they viewed fuel costs. Freight companies tried to offset rising operation costs through fuel surcharges and by reducing expendable costs such as replacement trucks. Consumers demanded more fuel-efficient cars and drove less, hoping to save money on their fuel bills. A consumer shift towards more fuel-efficient vehicles led to a fall in demand for domestically manufactured cars. The reduced demand from consumers and business led to a decline in revenue. As such, motor vehicle manufacturing revenue is estimated to contract at an annualised 9.4% over the five years through 2012-13 to reach $10.7 billion. Meanwhile, motor vehicle production is expected to fall at an

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Motor Vehicle Manufacturing in Australia July 2012 7

Industry Performance

Current Performance continued

annualised 7.6% over the same period to reach 233,306 vehicles. Demand is expected to continue rising in 2012-13, backed by the production of fuel-efficient cars (including the hybrid Camry and the Holden Cruze) and fleet sales. Domestic manufacturers will feel the heat from imports, but manufacturers

will be better equipped to deal with import competition. All three major car makers will be manufacturing fuelefficient vehicles. Domestic manufacturers will no longer ignore the shift in preferences from large petrolguzzlers to fuel-efficient cars. Revenue is expected to grow 7.7% during 2012-13.

The car crisis

The past five years were tough on all car manufacturers. Production fell by 27% in 2008-09 due to the global financial crisis, which led to a decline in demand for cars both domestically and globally. Abysmal consumer confidence and fears about the future of the economy meant that households and businesses postponed purchasing new vehicles. Many manufacturers were already producing too many vehicles and had to cut production drastically. Car sales rose in 2009-10, mainly due to the low-base effect rather than any other factor. However, export markets did not fare as well due to the loss of the Pontiac export deal and the lingering effects of the global financial crisis. By 2009-10, many manufacturers had switched to making vehicles only on confirmed orders. Production continued to fall in 2009-10 for this reason, and because of the pile-up in inventory during 2009. Truck manufacturers did not fare much better, with road freight services in shambles after massive fuel price jumps. Low consumer sentiment led to a decline in freight demand during 2008-09, which caused overcapacity in the trucking segment. Truck manufacturers will not be expanding their fleet or replacing existing vehicles anytime soon.

Passenger vehicle production


year 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13*
*Estimate

Vehicles (units) 345,828 252,448 248,854 219,194 224,754 233,306

(% change) 3.7 -27.0 -1.4 -11.9 2.5 3.8


SOURCE: FCAI

Car sales were dismal in 2010-11, due to cautious customers preferring to save rather than spend on big-ticket items. Furthermore, toward the end of the financial year, small businesses postponed replacing their fleets in order to take advantage of a business tax break to be introduced in July 2012. The weak car retail environment dragged down car manufacturer revenue. Ford reduced production shifts temporarily in March 2011 due to poor demand. Toyota faced component supply issues due to the tsunami in Japan, which drastically affected car production. Toyotas Altona plant was back to full production in early June 2011, but this was too little, too late for the industry. Production fell by 11.9% in 2010-11 as a result.

Shifting gears

Car prices declined over the past five years, which should have encouraged demand. However, consumers were not running to dealerships and buying cars in droves at least not domestic cars. With the exception of Toyota, domestic manufacturers

struggled to keep their sales up as fuel prices rose. Like their parent companies, Ford and GM Holden had core products consisting of large, fuel-inefficient cars and SUVs. Environmental concerns and persistent rises in petrol prices led

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Motor Vehicle Manufacturing in Australia July 2012 8

Industry Performance

Shifting gears continued

consumers to switch to more fuel-efficient and smaller cars. Car makers such as Mazda and Hyundai that offer fuel-efficient vehicles and small cars gained market share quickly over the past five years. The import competition put even more downward pressure on industry revenue. The fall in import tariffs from 10% to 5.0% in 2010 also contributed to a shift towards smaller imported cars. The tariff cut made imported motor vehicles cheaper. A strong dollar also supported the popularity of imported vehicles through lower prices. A fall in the price of imported motor vehicles further supported the shift towards foreignmade, small, fuel-efficient vehicles. The shift was to the detriment of domestic production. Downward pressure on production could have adverse widespread effects across the supply chain, and automotive component manufacturers have already voiced concerns about lower tariffs. As suppliers, generally smaller companies, started going out of business, motor vehicle production was undermined. The Australian arms of Ford and GM

Holden account for only a small part of their respective parent companys revenue. In the United States, General Motors Corporation declared Chapter 11 bankruptcy in 2009 and exited on 11 July 2009, due in part to the US Government. The new GM was mostly owned by the US Government and was re-listed on the New York stock exchange in November 2010. GM does not intend to close down its Australian operations. However, the Pontiac deal with Holden was a casualty of GMs restructuring. The deal was cancelled in early 2009, which caused export revenue and Holdens export production to drop significantly. Modern motor vehicle manufacturing is no longer a labour-intensive process. It requires huge investment into state-ofthe-art automation, which reinforces the necessity for fewer plants with fewer workers, but greater output. Employment numbers declined at an estimated annualised 6.7% over the past five years. Employment numbers contracted due to automation trends, plant closures, cost cutting, model downsizing, Mitsubishis withdrawal from manufacturing activities and improvements in labour productivity.

Profitability

The industry is too small to be profitable. Motor vehicle manufacturing is more profitable when done on a large scale. Faced with shrinking demand, manufacturers have been shutting down production facilities in Australia for decades. Mitsubishi closed its last remaining plant in March 2008. Even big companies such as GM Holden and Ford struggled to make profit over the past five years. Faced with falling production, companies in the industry are finding it more difficult to improve margins due to lower capacity utilisation. To make matters worse, GM Holden and Ford in particular lacked the vehicle range that consumers wanted to buy. Toyota is a step ahead in the small-car segment (including hybrids), and

benefited from a consumer preference shift to more fuel-efficient motor vehicles. GM Holden and Ford suffered operating losses over the past five years as they persisted in manufacturing SUVs and other large vehicles, despite clear signs of a consumer shift away from such models. On top of having to deal with falling demand, companies within the industry battled high material costs, which further negated profitability. Despite the challenges, industry profitability improved over the past five years. Operating profit margins grew from an estimated 1.7% in 2007-08 to 2.0% in 2012-13. Margins widened as the three major car makers restructured and as input costs softened. Operating margins reached a low of 1.0% losses in

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Motor Vehicle Manufacturing in Australia July 2012 9

Industry Performance

Profitability continued

2008-09, during the worst of the downturn. The primary reason for the losses during the downturn was underutilisation of factory capacity, which led to an increase in fixed costs as a percentage of revenue. Labour costs

were slightly easier to control. Operators cut wage costs and employee numbers as production slowed. However, labour costs as a percentage of revenue did rise during the worst of the crisis as manufacturers overestimated demand and halted production too late.

Government tows car makers

Australias relatively small car market is a major hurdle for the industry, but it has a receptive government willing to help. The government pledged to provide the industry with various assistance schemes. In November 2008, many car dealers faced bankruptcy when two of the major automotive financing companies, GMAC (a GM subsidiary) and GE Financial, decided to leave the Australian market. The government intervened in December 2008 and provided $2.0 billion to help car dealers in need. Although this help does not directly apply to manufacturers, it does confirm the Australian Governments commitment to the industry. Car dealers must remain in business for manufacturers to stay afloat, as they represent a major share of its market. Without car dealers, production would fall drastically. The aim of government assistance was often to give manufacturers an incentive

to invest in research and development. Over the past five years, the focus was on the development of fuel-efficient, emission-reducing, hybrid and alternative-fuel technology. It is also critical for domestic producers to continue to invest in productivity and quality improvements. Investment in equipment and training employees was equally important, since increased automation requires higher skill levels. Some believe that manufacturing cars locally will never be viable and that it will be more economical if car makers import cars instead. Imports completely dominate the small-car segment and account for more than half of the medium-car segment. Imports declined at an annualised 2.2% over the five years through 2012-13 due to weak domestic demand. However, imports satisfied an increasing proportion of domestic demand as penetration increased.

Industry Outlook

Demand for cars will pick up, but domestic motor vehicle manufacturers will continue to face tough import competition. As such, revenue is forecast to decline at an annualised 1.4% over the five years through 2017-18 to $10 billion. Oil prices are forecast to rise over the next five years and will continue to play havoc with the industry, while the domestic price of steel is expected to soften, which will help keep production costs in check. The Australian dollar will remain strong over the next five years, which will keep imports cheap and cause more trouble for domestic manufacturers.

Industry revenue
16 8

% change

0 8 16 24

Year 05

07

09

11

13

15

17

19

SOURCE: WWW.IBISWORLD.COM.AU

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Motor Vehicle Manufacturing in Australia July 2012 10

Industry Performance

Going green

Better economic conditions with higher household disposable income will back demand for new motor vehicles. Domestic manufacturers will have a better range of fuel-efficient vehicles on offer, which will promote demand and support production. Despite the improved demand for motor vehicles, revenue will drop over the next five years due to strong import competition. The fuel-efficient range will help dilute the strong import competition. The shift in production towards green cars may be too late for domestic

manufacturers. Vehicles that are more fuel-efficient compared to those made locally have been available on the global market for years. Consequently, imported green vehicles may be more price-competitive than domestically made cars. The government introduced a mandatory emission standard for vehicles in Australia to be phased in from 2013 to 2018. This will lead to higher research and development costs for domestic manufacturers. IBISWorld does not expect these higher costs to be crippling.

The bright side

Producing green cars requires significant investment. Domestic manufacturers were initially reluctant to manufacture small cars for various reasons, including the difficultly in making profit out of green cars without proper government support. Fuel-efficient vehicles are relatively more expensive and there is not a mass market for them yet. Manufacturing will be slow at first. The small scale will diminish profitability since large-scale production is crucial for healthy margins in the industry. The good news is that the Australian Government is willing to help make the industry greener. The Australian Government will continue to support the automotive sector over the next five years, which will stimulate growth for the industry. However, domestic manufacturers will only reap the full benefits of government intervention and assistance if producers can achieve industrial harmony, reduce employee turnover and invest in automated production equipment. Industry players will strive for reliable

supply links with specialist component producers and will contain costs through economies of scale in production. Domestic manufacturers can then pass on cost reductions to model pricing for domestic consumption and exports. By pumping money into the pockets of motor vehicle manufacturers, the government will ensure a rise in production volumes over the next five years. Financial incentives (as opposed to outright handouts) to generate investment schemes for green car manufacturing will also support production volumes. Government intervention alone will not be enough to jump-start the industry. Nonetheless, the aid will encourage manufacturers to start producing the right type of motor vehicles cars that consumers actually want to buy. Manufacturing smaller cars and fuel-efficient vehicles will help to drive industry demand. The industry will also see limited growth in the large-vehicle segment, as fuel prices remain high.

Greener future

With reduced industry protection, there will be a shake-out among vehicle producers, as pressures increase for operators to become competitive or exit the industry. Some industry consolidation is expected over the next

five years as companies eliminate inefficient units. Establishment numbers will decline by an estimated annualised 3.1% over the next five years. As manufacturers strive to become

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Motor Vehicle Manufacturing in Australia July 2012 11

Industry Performance

Greener future continued

more competitive, labour productivity will be one of the first issues addressed. Industry operators are likely to invest in state-of-the-art production machinery over the next five years, and to improve labour productivity through leaner production methods. Consequently, employment is forecast to decrease as labour costs fall following productivity gains. These gains, along with the development of green car production and a shift away from manufacturing big cars, will lead to a rise in industry

profitability over the next five years. Domestic manufacturing of small and fuel-efficient vehicles is expected to become more established, which will drive wider profit margins. Industry operating profit margins will widen to about 2.8% in 2017-18. However, weak margins will feature initially. It will be difficult for car manufacturers to generate profit when they first launch the vehicles in the market, due to the relatively small scale of car manufacturing in Australia.

Trade slows

Ford and GM Holden will attempt to follow Toyotas success in developing its export markets. However, industry exports will continue to face strong competition in export markets. Domestic manufacturers will need to compete against overseas manufacturers that benefit from lower operating costs. Due to the strong competition, exports are expected to decline by an annualised 2.1% over the five years through 201718. As such, exports will make a smaller share of industry revenue over the next five years. Imports are expected to rise. Although domestic manufacturers will be doing their best to become more competitive, restructuring is a long process. Motor vehicle importers will reap the benefits of a fall in tariffs before domestic manufacturers catch up with new

Revenue vs. exports


40 20

% change

0 20 40

Year 05 Revenue

07

09

11

13

15

17

19

Exports
SOURCE: WWW.IBISWORLD.COM.AU

products. Imports are forecast to increase at an annualised 2.0% over the next five years. Likewise, import penetration will grow and satisfy an increasing proportion of domestic demand.

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Motor Vehicle Manufacturing in Australia July 2012 12

Industry Performance
Life Cycle Stage

The industrys contribution to the economy is shrinking The market for domestically manufactured motor vehicles is shrinking Products manufactured by the industry are not profitable Companies are downsizing

% Growth of profit/GdP

30

25

Company consolidation; level of economic importance stable

Maturity

Quality Growth

High growth in economic importance; weaker companies close down; developed technology and markets

Key Features of a decline Industry Revenue grows slower than economy Falling company numbers; large firms dominate Little technology & process change Declining per capita consumption of good Stable & clearly segmented products & brands

20

15

Quantity Growth

10

Many new companies; minor growth in economic importance; substantial technology change

Shakeout
5

Car retailing Mining and Construction Machinery Manufacturing


Future Industries Motorcycle dealing

Potential Hidden Gems

Time wasters
Hobby Industries

Motor Vehicle Manufacturing decline


Automotive Parts and Accessories Manufacturing Motor Vehicle body Manufacturing
0 5 10 15 20 25 30 % Growth of establishments
SOURCE: WWW.IBISWORLD.COM.AU

Crash or Grow? 5

10 10

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Motor Vehicle Manufacturing in Australia July 2012 13

Industry Performance

Industry Life Cycle This  industry is Declining

The Motor Vehicle Manufacturing industry is in the decline stage of its life cycle. Domestic motor vehicle manufacturers are having trouble manufacturing profitable cars that consumers want to buy. Buyers are turning towards imports to find what they want. Demand for domestically produced vehicles is subsequently falling. As such, the industrys contribution to the economy (industry value added) will fall by an estimated annualised 3.7% over the 10 years through 2017-18. Meanwhile, GDP is forecast to grow at an annualised 2.9% over the same period. As such, the Motor Vehicle Manufacturing industry in Australia will shrink in proportion to the economy. The shrinking suggests the industry is in the decline stage of its life cycle. Customer shifts toward fuel-efficient vehicles started a chain of events that led the industry to where it is today: inefficient, in a stage of decline and facing falling demand. Carmakers have been downsizing their capacity in the

case of Mitsubishi, exiting the market altogether. Engine manufacturers have been going out of business. As such, the number of industry establishments will fall by an estimated annualised 3.3% over the 10 years through 2017-18. However, over the next five years there will be growth potential for the industry in the form of fuel-efficient and environmentally friendly vehicle such as petrol hybrids and electric cars. Manufacturers will develop these products mainly due to a push from the government and emission standards (whether voluntary or not). It is unlikely that domestic motor vehicle manufacturers will be able to increase their value added on new vehicles in the short run, especially since foreign manufacturers have been making fuelefficient vehicles for years. Increased manufacturing of environmentally friendly cars will be off a low base. The growth from the low base will not be strong enough to push the industry into a new growth phase.

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Motor Vehicle Manufacturing in Australia July 2012 14

Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

Products & Markets


Supply Chain
Key buying industries
F4621

Car Wholesaling in Australia Car wholesalers are the main buyers of products from the Motor Vehicle Manufacturing industry. Car Retailing in Australia Distribution of motor vehicles to consumers mainly occurs through dealerships.

G5311

I6110 Road Freight Transport in Australia Road freight companies are significant buyers and users of trucks. I6121 I6122 Long Distance Bus Transport in Australia Bus companies are major buyers of buses made by motor vehicle manufacturers. Short Distance Bus and Tramway Transport in Australia Companies in short-distance bus transport are the main buyers of buses from motor vehicle manufacturers.

Key selling industries


C2551 C2711 C2812 Tyre Manufacturing in Australia Motor vehicle manufacturers source tyres for their vehicles from this industry. Iron and Steel Manufacturing in Australia Iron and steel are major inputs used in manufacturing motor vehicles. Motor Vehicle Body Manufacturing in Australia Motor vehicle bodies are modified by this industry, then supplied to motor vehicle manufacturers. Automotive Electrical and Instrument Manufacturing in Australia This industry is the main supplier of electrical and electronic components used in producing motor vehicles. Automotive Parts and Accessories Manufacturing in Australia Automotive parts and accessories from this industry are paramount to manufacturing motor vehicles.

C2813

C2819

Products & Services

The industry traditionally manufactures large vehicles. Cars that fall under the light, hybrid or small categories are typically imported. Domestic manufacturers took too long to respond to the growing popularity of small cars. They relied on Australians always appreciating iconic cars such as the Holden Commodore. Over the past five years, consumers continually bought smaller, more fuel-efficient (usually imported) cars. Subsequently, Toyota found itself surpassing Holden in sales numbers. Small and hybrid cars This lack of domestically manufactured small and hybrid cars changed in 201011, with Toyotas Hybrid Camry and Holdens Cruze (excluding the 2.0-litre

diesel engine Cruze, which falls into the medium segment). As a result, the small and hybrid car segment grew the fastest over the past five years. For the purpose of this segmentation, small is defined as a passenger car with a four- to six-cylinder engine with displacement between 1.5 litres and 1.9 litres. It also includes hybrid cars. Growth in this segment was the result of shifting consumer preferences towards smaller cars, which had previously been satisfied by imports. Domestic manufacturers are now catching up to this trend with some subsidies from the government. This segment has potential for growth over the next five years, although Holden is reassessing its ability to make the Cruze locally without government help.

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Motor Vehicle Manufacturing in Australia July 2012 15

Products & Markets

Products & Services continued

In January 2011, the government scrapped the green car innovation fund, which was a setback for all three domestic manufacturers. However, car makers will continue to expand their small-car offering. Medium Medium-size cars include cars running on engines of up to 12 cylinders, but with a capacity of more than 1.9 litres. The large cars segment includes bigger cars that run on engines with a minimum of six cylinders. In the medium-size car segment, domestically manufactured cars account for less than 30% of sales, and this segment is mainly dominated by Toyotas four-cylinder Camry (excluding the hybrid Camry). The medium-size segment gained some ground over the past five years, mainly due to Toyotas foresight in offering a smaller Camry. Medium-size car production is expected to perform well over the next five years as consumers continue to shift to smaller cars. SUV, luxury and other The luxury car segment shrank over the past five years as Holden discontinued

the Holden Statesman in 2010. This occurred in the face of rising import competition. The segment is now negligible and is dominated by the Holden Caprice. The SUV segment has not altered radically over the past five years because it accounts for an extremely small part of production in Australia, mainly Fords Territory. Demand for utes has been growing as utes are used in business sectors like construction. Due to a downturn in the economy, demand for utes slowed. However, government incentives such as the tax break right before the end of 2008-09 provided a boost to demand for utes among businesses. Similar conditions prevail in the truck segment, which is also facing pressure to produce more fuel-efficient and hybrid vehicles. Demand for buses has been growing over the past five years as consumers have been leaving their cars at home and using public transport instead of driving, to save on petrol costs. However, this trend has saturated the market for buses and, with trying conditions ahead, companies will be reluctant to invest in new fleets.

Products and services segmentation (2012-13)

2.9% 3.2% Vans and buses


Small-size and hybrid cars

11.3%

4.6%
SUVs

Trucks

Luxury and all other cars

1.5%

42.3%
Large-size cars

Medium-size cars

16.9%

Total $10.7bn

17.3%
Utes
SOURCE: WWW.IBISWORLD.COM.AU

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Motor Vehicle Manufacturing in Australia July 2012 16

Products & Markets

Demand Determinants

Demand for motor vehicles manufactured in this industry can be determined by various factors from vehicle prices and exchange rates, to personal consumer preferences of a vehicle. Product innovation will also influence demand for motor vehicles as will scrapping rates. Movements in the value of the dollar determine the attractiveness of Australian products overseas, and the price of imports for domestic consumption. Movements in income and interest rates will determine the affordability of new motor vehicles; the dollar has been strong over the past few years, which has promoted imports. Longer-term determinants of demand include trends in Australias demography. Despite a decline in population growth, there will be several significant changes to the structure of Australian society. Factors that may curtail demand for motor

vehicles include slowing population growth and an increasing proportion of aged people in the population that will be less inclined to use and replace cars. Factors that are likely to add to vehicle demand include a lesser dependency on the traditional single-family income structure, and an increasing proportion of households without dependent children. Movements in oil prices have an effect on demand for large cars assembled in Australia. During periods of high fuel costs, as experienced in 2007 and the first-half of 2008, demand for large cars will decline in favour of smaller, more fuel-efficient vehicles, which are currentlysourced from imports. Changing patterns in customer preferences for smaller more fuel-efficient vehicles has led all three manufacturers to plan for the domestic manufacture of environmentally friendly vehicles.

Major Markets

The market for motor vehicles manufactured in Australia shrank over the past five years, mainly due to the growing popularity of small cars that are not manufactured domestically. About one million vehicles are sold in Australia per year, most of which will be imported. Motor vehicle manufacturers usually wholesale vehicles themselves, which is why wholesalers are not included in this segmentation. There are small, private Major market segmentation (2012-13)
Taxi operators

companies that partake in wholesaling activities but their contribution is negligent. Car dealers Ultimately, the main market for the industry is car dealers who sell cars direct to the public. Car dealers have been troubled lately with the exit of GMAC and GE Finance from the Australian market. Dealers purchase vehicles through automotive financing companies such as

Freight and bus operators

6.7%

3.7%

Vehicle rental operators

3.7%

Government

13.8%

49.8%
Car dealers

22.3%
Exports

Total $10.7bn

SOURCE: WWW.IBISWORLD.COM.AU

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Motor Vehicle Manufacturing in Australia July 2012 17

Products & Markets

Major Markets continued

GMAC. When these two major players left the automotive financing business, many car dealers were worried that they would not be able to find the money to buy cars. The situation improved in 2009-10 thanks to pent-up demand that led to a rise in car sales. The car dealers market has been stagnant over the past five years due to cautionary consumers saving rather than spending on big-ticket items. Exports The export market shrank over the past five years. The export market took a hit in 2009, when Holden lost its Pontiac export deal with GM; however, the company is still looking to expand its export markets, especially in the Middle East. Export markets have yet to recover since the loss of the Pontiac deal and the global financial crisis. There will be potential for growth in the future though, especially for fuel-

efficient engines. The introduction of mandatory emission standards will also ensure that locally made vehicles are competitive on the global market with respect to fuel efficiency. Freight and government The freight market has been contracting of late mainly due to a slowdown in freight demand. The rental market, which includes car and truck rental, has also been shrinking due to the economic downturn. The Queensland floods in early 2011 provided a small temporary boost to the rental market, as many Queenslanders lost their cars in the natural disaster. On the bright side, demand for government fleets (including police cars) was relatively positive. The taxi market, dominated by Fords LPG Falcon sedan, was resilient over the past five years.

International Trade
Level & Trend  xports in the E

Imports 

in the industry are High and Increasing

$ million

industry are High and Decreasing

Import penetration rose over the past five years, mainly due to an influx of mediumto-small SUVs and cars. This trend is due to increasing fuel prices and a stronger Australian dollar that made imports more attractive. Imports from Thailand have been growing since GM established a plant there. The Thailand-Australia Free Trade Agreement was signed in 2004, which eliminated tariffs on vehicles imported from Thailand during 2005. A tariff elimination on motor vehicle components occurred in 2010. Therefore, sales of new vehicles imported from Thailand increased greatly. Imports as a percentage of domestic demand will rise from 60.8% averaged over the five years through 2007-08 to 69.9% averaged over the five years through 2012-13. Import penetration will continue to increase over the next five years due to reductions in tariffs, but this will be at a slower rate as domestic producers catch up on foreign manufacturers in terms of product offerings and productivity. Despite the increase in import penetration, the value of imports actually

Industry trade balance


10000 0 10000 20000 30000 40000

Year 05 Exports

07

09

11

13

15

17

19

Imports

Balance

SOURCE: WWW.IBISWORLD.COM.AU

fell over the past five years. Imports fell at an annualised 2.2% over the five years through 2012-13. Imports fell due to weakened domestic demand for new motor vehicles. Exports Exports as a percentage of revenue declined over the past five years. The industrys reliance on exports markets shrank as the domestic market proved more resilient than some export markets.

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Motor Vehicle Manufacturing in Australia July 2012 18

Products & Markets

International Trade continued

Exports as a percentage of revenue fell from an estimated 27.4% in 2007-08 to 22.3% in 2012-13. Likewise, the value of exports fell at an annualised 13.0% over the past five years as export markets waned. Nonetheless, manufacturers continually look at overseas opportunities. The largest market for Holden exports is the Middle East, where the Holden Commodore and Statesman were branded as Chevrolets. Exports To...

Toyota Australia is the largest exporter of cars and its markets include the Middle East, New Zealand and South-East Asia. The Middle East accounts for close to 70% of export revenue since Holden lost the Pontiac export deal with the United States, which used to account for up to 20% of export revenue now accounts for less than 2.0%. Manufacturers are continuing to expand into the Middle East.

Imports From...
South Korea

11%

38%
Japan

United Arab Emirates

8%

Kuwait

7%

Saudi Arabia

40%

Germany

14%

New Zealand

14%

Thailand

17%

32%
Other

21%
Other

Year: 2012-13
SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA

Total $2.4bn

Total $22.0bn
SOURCE: ABS

www.ibisworld.com.au

Motor Vehicle Manufacturing in Australia July 2012 19

Products & Markets


Business Locations 2012-13

NT
0.9

QLd
19.8

wA
10.4

SA
6.6

NSw
25.5

ACT
0.0

VIC
34.9

Establishments (%) Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable

TAS
1.9

SOURCE: WWW.IBISWORLD.COM.AU

www.ibisworld.com.au

Motor Vehicle Manufacturing in Australia July 2012 20

Products & Markets

Business Locations

The automotive industries are highly interdependent. Motor vehicle manufacturers need timely and easy access to components to keep production lines running smoothly. This means that motor vehicle manufacturers tend to be located close to component manufacturers in order to improve supply chain synergies. The major car manufacturers of Australia are based in Victoria where many component manufacturers are also located. Until the departure of Mitsubishi in March 2008, South Australia had contributed significantly to the geographic spread of the industry on an employment and output basis. Truck manufacturers are located in Queensland and Victoria. IBISWorld expects the number of motor vehicle manufacturing establishments to grow in Victoria as Ford and Toyota are respectively anticipated to build smaller and hybrid cars in the future. Motor vehicle manufacturers also tend to be located where their customers are. Besides Victoria and New South Wales, the share of the industry for all

Distribution of establishments vs. population


50 40

Percentage

30 20 10 0 VIC ACT QLD NSW TAS WA NT SA

Establishments Population
SOURCE: WWW.IBISWORLD.COM.AU

other states is similar to their share of the population. Victoria is overrepresented in the industry compared with the states population. This is due to a large number of component manufacturers being located there, particularly in traditional manufacturing hubs such as Geelong. New South Wales is under-represented due to companies choosing to open plants in Victoria.

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Motor Vehicle Manufacturing in Australia July 2012 21

Competitive Landscape
Market Share Concentration
Level Concentration  Manufacturing motor vehicles is a global game. One could argue that Australia does not really have domestic businesses that manufacture motor vehicles as the three major car makers (GM Holden, Ford and Toyota) and the three major truck makers (Volvo, PACCAR and Iveco) are all subsidiaries of foreign companies. Nonetheless, many backyard-type small operators

Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalisation

in this industry is High

manufacture engines and assemble motor vehicles, often with used parts. The top four companies of the industry account for an estimated 91.0% of revenue. Market share concentration fell over the past five years. The industry concentration level fell in 2008-09 due to the withdrawal of Mitsubishi from manufacturing operations in Australia during March 2008.

Key Success Factors IBISWorld  identifies 250 Key Success Factors for a business. The most important for this industry are:

Effective cost controls Close relationships with suppliers and good distribution channels will help manufacturers succeed. They will also ensure that car manufacturers have access to relatively cheap car parts. Establishing motor vehicle export markets Developing solid export markets with downstream motor vehicle buyers will help manufacturers secure demand, and therefore income. Global expansion is also important due to the relatively small size of the Australian market. Having an extensive distribution and collection network Good distribution channels will assist motor vehicle manufacturers to succeed

in this industry. The more networks a firm is involved in, the more opportunities exist for business. Use of most efficient work practices Improved labour productivity, including industrial relations, will help manufacturers succeed. Ability to adapt to changes in consumer demand Manufacturers need to adapt to new technology when consumer preferences change. Optimum capacity utilisation The level of plant utilisation of manufacturers in this industry will either help or impede business for motor vehicle production.

Cost Structure Benchmarks

Manufacturing motor vehicles can be a profitable business if done on a largescale. In Australia, the market for domestically manufactured cars has been shrinking for years due to rising import competition. Falling demand coupled with rising costs proved too much for Mitsubishi and the company exited the market in 2008. The three remaining major players are struggling to make profit. Companies in the industry struggled to be profitable due to their products mismatching consumer demand. Operators also battled with overcapacity in the aftermath of the

global downturn. Import competition also pressured margins. Industry profitability improved over the past five years. Operating profit margins (earnings before interest and tax) rose thanks to improving production and the lagging effects of past restructuring. Operating profit margins grew over from approximately 1.7% in 2007-08 to 2.0 % in 2012-13. Operating margins dipped into losses during the worst of the downturn. Industry profitability is forecast to improve over the next five years. Industry operating profit margins are expected

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Motor Vehicle Manufacturing in Australia July 2012 22

Competitive Landscape

Cost Structure Benchmarks continued

widen to 2.8% in 2017-18. Profitability will improve as purchase costs moderate on the back of softer hard commodity prices. However, margins will not widen significantly due to continued strong import competition. Purchases Costs of materials required in motor vehicle manufacturing have been rising due to increases in the price of steel. To give some perspective, the cost of purchases of motor vehicle manufacturers is about three-quarters of revenue. Meanwhile, purchase costs account for about half of revenue for the manufacturing sector as a whole. Research and development has also been putting upward pressure on costs. Manufacturers have been turning to relatively cheaper imported components in order to control costs. Purchase costs as a percentage of revenue is expected to decrease over the next five years. Purchase costs will Sector vs. Industry Costs
Average costs of all industries in sector (2012-13) 100

moderate as commodity prices soften. For example, the domestic price of iron and steel is forecast to fall as developing economies slow. The lower commodity prices will help manufacturers lower their purchase costs. Wages Industry wage costs as a percentage of revenue decreased over the past five years. Wage costs fell as increasingly automated production decreased labour dependence. Labour costs for motor vehicle manufacturers tend to be proportionately less than for the Manufacturing sector as a whole. This is because manufacturing motor vehicles is highly automated. Since late 2008, manufacturers have at times shortened workweeks and reduced shifts in order to align production with demand. This led to a fall in the average industry wage as production workers earn less when their hours contract. Wage costs as a percentage of revenue

Industry costs (2012-13)

1.5
80

7.3 3.5 11.9 13.3

2.1

1.5 3.1

2.0 3.6 13.8

1.6

Percentage of revenue

60

Profit rent utilities depreciation Other wages Purchases

40

60.5
20

74.4

0
SOURCE: WWW.IBISWORLD.COM.AU

www.ibisworld.com.au

Motor Vehicle Manufacturing in Australia July 2012 23

Competitive Landscape

Cost Structure Benchmarks continued

is expected to continue to fall over the next five years. Wage costs will contract as operators continue to invest in greater automation. Depreciation and other costs Other costs include spending on buildings, transportation and utilities. Depreciation costs appear relatively low compared to revenue. Depreciation costs appear small because of the high

value products that manufacturers churn out. Depreciation costs increased slightly over the past five years as automotive manufacturers retooled their plants to match their vehicles better with customer demand. Depreciation costs also increased slightly as operators made capital investments to increase efficiency in light of poor profitability in the aftermath of the global financial crisis.

Basis of Competition
Level & Trend  ompetition C

in this industry is High and the trend  is Increasing

The main sources of competition in the industry stem from imports, pricing and branding. Imports have been on the rise over the past five years due to lower tariffs and the proliferation of relatively cheap foreign vehicles. The abolition of quotas in 1988 ended a restriction on the number of motor vehicles that could be imported into Australia at prevailing tariff rates. An increase in import competition resulted from this movement and was a key strategy in pursuing the achievement of government objectives for the industry: greater efficiency, higher quality and lower prices with minimal disruption. There has been an increase in the relative importance of small cars, a segment supplied entirely by imports. The price and quality gap is quite small between a used domestic car and a cheap new imported small car. This expanded the market for smaller and cheaper vehicles at the same time that local producers increased the size, specification levels, and prices of their small vehicles. The resultant increase in imports of small cars accounted for a significant portion of growth in total imports. Accounting for the remaining growth in imports, there has been an increase in the import share of the small and medium sector of the market; the small-car segment is completely serviced by imports. In the next five years, the industry will increasingly face competition from Chinese car makers, who are expanding into the Australian

market using low pricing strategies. The use of lighter materials, such as magnesium to replace aluminium, in a bid to improve fuel economy is a competitive strategy that manufacturers could use in the future. Magnesium is lighter and stronger than aluminium and has better die-casting characteristics. The use of magnesium is expected to increase from the current average of three kilograms per vehicle to more than 100 kilograms in the next 15 to 20 years. Holden introduced employee pricing to the public but was forced to scaledown the incentive when the Australian Competition and Consumer Commission (ACCC) found in April 2006 that the scheme was misleading. It was revealed that Holden employees received discounts that were not available to the public. These included discounts on factory-fitted options and accessories as well as a discounted dealer delivery fee. Furthermore, when the campaign started employees were offered a further discount of between 25% and 29%, which was not available to the public. Competition between major industry players mainly occurs through branding and price deals. Ford and Holden in compete in similar markets (highpowered vehicles and utes) with products that are alike. They tend to compete through advertising campaigns that promote their respective brands. Holden also positions itself as an Australian company as a competitive strategy.

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Motor Vehicle Manufacturing in Australia July 2012 24

Competitive Landscape

Barriers to Entry
Level & Trend  arriers to Entry B

in this industry are High and Steady 

The industry is characterised by a highly cyclical growth pattern, high fixed costs, break-even profit levels and an excessive number of participants for the size of the market. Barriers to entry into motor vehicle manufacturing are formidable. Some barriers that need to be overcome by a new entrant include the cost of developing high-volume production facilities, in order to benefit from economies of scale; and the ability of a company to gain access to technology from major global operators, as present incumbents include some of the largest multinationals that have considerable claims to new technology. The relatively

barriers to entry checklist Competition Concentration Life cycle stage Capital intensity Technology change Regulation and policy Industry assistance

Level High High Decline Medium High Medium Medium


SOURCE: WWW.IBISWORLD.COM.AU

small size of the domestic market, together with high import penetration levels, has already seen significant rationalisation in the industry.

Industry Globalisation
Level & Trend  lobalisation G

in this industry is High and the trend  is Increasing

A high level of globalisation for the industry is largely due to the significant presence of foreign owners among major local manufacturers in Australia; all the major assemblers in Australia are foreign-owned. Australian motor vehicle manufacturers are increasingly looking to source components globally to remain competitive. For example, local content for Holdens VE Commodore dropped to 55% in 2006. Holden has replaced several local suppliers and sourced parts from Mexico, Thailand, the United States and China. Less than half of components used to assemble the Cruze, which
Trade Globalisation
200 150 100 50 0 Local 0

Holden started manufacturing in Australia in late 2010, is sourced locally. In 2006, GM Holden expanded its Port Melbourne design centre to design vehicles for global markets. The design operations are GMs third-largest behind its design centres in Detroit, US, and Russelsheim, Germany. Design staff increased from 107 to 176 during 2006, making it the largest automotive design centre in Australia. Despite downsizing its operations in early 2009 due to the global economic crisis, the design centre is still going ahead with its global initiatives.
Going Global: Motor Vehicle Manufacturing 1998-2012

International trade is a major determinant of an industrys level of globalisation. Exports offer growth opportunities for firms. However there are legal, economic and political risks associated with dealing in foreign countries. Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local firms would otherwise supply.

Export

Global
Exports/revenue

200 Export 150 100 50 0 Local 0

Global

Exports/revenue

Motor Vehicle Manufacturing


Import
40 80 120 160

1998 2012
Import
40 80 120 160

Imports/domestic demand

Imports/domestic demand
SOURCE: WWW.IBISWORLD.COM.AU

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Motor Vehicle Manufacturing in Australia July 2012 25

Competitive Landscape

Industry Globalisation continued

Ford Australia is to undertake leadership in the design and engineering of a new global light commercial vehicle architecture that will eventually be used

in more than 80 countries worldwide. It will also develop future Falcon and Territory programs for Australia and export markets.

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Motor Vehicle Manufacturing in Australia July 2012 26

Major Companies
Major players
(Market share)

Toyota Motor Corporation Australia Limited | GM Holden Ltd Ford Motor Company of Australia Limited | Other

GM Holden Ltd 23.7%

12.0%
Other Toyota Motor Corporation Australia Limited 45.6% Ford Motor Company of Australia Limited 18.7%
SOURCE: WWW.IBISWORLD.COM.AU

Player Performance Toyota Motor Corporation Australia Limited Market share: 45.6% 

Toyota Motor Corporation Australia Limited is a wholly owned subsidiary of Toyota Motor Corporation of Japan. The companys head office and manufacturing operations are located in Altona, VIC, while its sales and marketing activities are Sydney-based. Its overseas markets have expanded significantly, with regular shipments of Altona-built cars and components to countries in the Middle East, South-East Asia and Oceania. The Altona plant has a production capacity of about 150,000 cars. Quick shift gets Toyota ahead Toyota almost consistently bucked trends over the past five years. The companys above-average performance was mainly due to it being the only car maker to have a medium-car offering. The Camry has been one of the bestselling vehicles in Australia and overseas over the past five years. Toyotas performance can also be explained by its strong export sales. Over the five years through March 2011, revenue grew by 1.6% annually. Toyota did not neglect the large-car segment either, and geared up to

compete with General Motors and Ford by launching its Aurion model in October 2006. Sales have been encouraging, and the vehicle is pitched as the most fuelefficient vehicle among all large vehicles produced in Australia. Positioning the Aurion as a fuel-efficient model shows that Toyota has been more realistic about consumer shifts towards smaller cars. The company was quicker to react to the change than Ford and Holden. Roadblocks Toyota was not immune to the global financial crisis. Operating profit for its manufacturing segment is estimated to have declined at an annualised 29.3% over the four years through March 2011. As such, operating profit margins collapsed from 5.4% in 2006-07 to 1.3% in 2010-11. Weak profitability after the global downturn was more due to natural disasters, rather than bigger structural issues. Despite poor performance in 2009-10, Toyotas market share rose in 2009. This was mainly due to Holdens production crash when the Pontiac export deal fell

Toyota Motor Corporation Australia Limited financial performance


year* 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 revenue ($ billion) 7.73 8.30 9.50 8.92 8.59 8.39 (% change) 4.7 7.4 14.5 -6.1 -3.7 -2.3 Operating profit ($ million) n/C 451.4 342.3 160.6 178.2 112.9 (% change) n/C n/C -24.2 -53.1 11.0 -36.6
SOURCE: IBISWORLD

www.ibisworld.com.au

Motor Vehicle Manufacturing in Australia July 2012 27

Major Companies

Player Performance continued

through. Toyotas production did not fall by as much in the year, which meant that it gained market share. Ford also gained some market share, but it was not as significant as Toyotas rise. Toyota was granted $35 million by the Federal Government to produce the hybrid Camry domestically in 2010, and the Victorian Government also contributed $15 million. Toyota manufactured about 10,000 Camrys each year in Victoria. The company sold the car domestically and in New Zealand. Toyota is a step ahead when it comes to environmentally friendly vehicles. Toyotas greater experience in producing

environmentally friendly vehicles gave the company an edge over its competitors. Unfortunately for the company, Toyota suffered in 2010-11 due to natural disasters in Japan in early 2011, the strong Australian dollar and strong competition. The tsunami led to disruptions in the manufacture and supply of cars and car parts. Australian revenue was negatively affected due to a drop in imports of parts for use in manufacturing new vehicles domestically, which directly affected Toyotas production in this industry. Despite the drawbacks, Toyota continued to gain market share due to its strong product offering.

Toyota Motor Corporation Australia Limited (automotive manufacturing segment) financial performance
year 2006-07 2007-08 2008-09 2009-10 2010-11 revenue ($ billion) 4.21 5.70 4.70 3.94 4.23 (% change) 9.1 35.4 -17.5 -16.2 7.4 Operating profit ($ million) 228.8 205.6 84.7 81.9 57.0 (% change) n/C -10.1 -58.8 -3.3 -30.4
SOURCE: IBISWORLD

Player Performance GM Holden Ltd Market share: 23.7% 

GM Holden Limited is a wholly owned subsidiary of General Motors Company, which is headquartered in the United States. Its head office, design and engineering centre is based in Port Melbourne, VIC, along with its engine manufacturing operations. Its vehicle assembly, body-tool design, stamping, plastic moulding, paint and body hardware facilities are located in Elizabeth, SA. Distribution and marketing facilities of Holden service parts and accessories for the Holden dealer network and international customers are located in Dandenong, VIC. Like its parent company, Holden is known for its legacy of big and powerful

cars. The Commodore is an iconic Australian car and Holden has been a household name for decades. The company relied on its brand power to keep generating sales, despite the growing popularity of smaller cars that Holden does not manufacture. The company stopped manufacturing fourcylinder engines in 2009, which led to about 500 job losses. Holden launched its Australian designed VE Commodore in the second half of 2006. Its persistence with largecar production seems against market trends, as the share of large cars has been declining over the past five years. In 2007, Holden introduced a dual-fuel

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Motor Vehicle Manufacturing in Australia July 2012 28

Major Companies

Player Performance continued

version of its VE range to attract fuelefficient minded consumers. The company also launched a fully redesigned VE ute range based on its VE Commodore line. The redesigned model was engineered in Australia and built in Elizabeth, SA. As standard across the range, the model offers safety features such as electronic stability programming (ESP), and crash-avoidance safety technology. The company spent an extra $100 million on top of its $1.0 billion VE Commodore sedan program to develop the ute. Holden is looking at a long-term strategy of supplying about two-thirds of its annual output to the domestic market and the remaining one-third to exports. Holden uses its GM plant in Thailand as a base to expand into the Asia-Pacific region as part of its focus on becoming a global player. Holdens parent company General Motors was in trouble in 2009, but was bailed out from bankruptcy by the US Government. GM was nationalised as part of the bailout. The new General Motors made an initial public offering in 2010. Car trouble Holdens financial performance over the five years through 2010 was worse than that of the overall industry. Revenue fell by an annualised 15.8% over the period and the company demonstrated poor profitability, with operating losses or close to zero operating profit margins.

However, profitability improved over 2010. Prior to 2005, Holden was complacent about sales and the power of its brand. Since then, several factors have radically changed this notion: the fall in import tariffs in 2005; the appreciation of the Australian dollar making imported cars even cheaper; and stinging rises in the price of petrol, which led consumers away from petrol-guzzling cars. Holdens losses in 2008 were primarily due to the closing down of an engine plant. In 2008, export revenue was up due to strong engine shipments and the Pontiac G8 contract with GM in the United States. The story was different in 2009. Revenue fell by over 30% due to the loss of the Pontiac export deal. When Holdens parent was on the brink of bankruptcy, it was saved by the US Government on the condition of severe restructuring the Pontiac did not make the cut and Holden lost the export deal. Holden only manufactured about 7,000 vehicles destined for overseas in 2009, compared with about 56,000 in 2008. Holdens export volume crashed 87.9% over 2009. Holden lost market share in 2009, partly because of dismal export production. Holden started manufacturing the Holden Cruze in Australia in 2010-11. In July 2010, Holden announced that it would add a second shift at its plant in Elizabeth, SA, in November 2010, to pave the way for the production of the Cruze.

GM Holden Ltd financial performance


year* 2005 2006 2007 2008 2009 2010
*year end december

revenue ($ billion) 6.67 6.51 6.30 5.93 4.13 4.54

(% change) -2.2 -2.4 -3.2 -5.9 -30.4 9.9

Operating profit ($ million) n/C -165.4 14.7 -45.1 -132.4 160.3


SOURCE: IBISWORLD

www.ibisworld.com.au

Motor Vehicle Manufacturing in Australia July 2012 29

Major Companies

Player Performance continued

The second shift will lead to full-time work for many employees who have been on part-time shifts since the global financial crisis. Holden obtained a $149

million grant from the Federal Government and a $30 million grant from the SA Government to support the manufacture of the Cruze.

GM Holden Ltd (automotive manufacturing segment) financial performance


year* 2006 2007 2008 2009 2010
*year end december

revenue ($ billion) 5.12 4.21 4.10 2.88 2.21

(% change) n/C -17.8 -2.6 -29.8 -23.3

Operating profit ($ million) -130.0 9.8 -31.2 -92.3 78.0


SOURCE: IBISWORLD

Player Performance Ford Motor Company of Australia Limited Market share: 18.7% 

Ford Motor Company of Australia is a wholly owned subsidiary of the USbased Ford Motor Company. Ford manufactures, imports and distributes small to medium-size vehicles, and large, luxury, sports, four-wheel drive passenger and commercial vehicles for domestic and export markets. The Ford Falcon and Territory are the only models manufactured in Australia. The Ford Falcon and Territory are exported in small quantities to New Zealand, South Africa and other countries in the Oceania region. As consumer preferences changed from large cars to

small and more fuel-efficient cars over the past five years, Ford introduced a diesel Territory in 2011. Ford Australia led design and engineering for a new vehicle architecture (T6 truck program) targeted to underpin a range of light commercial vehicles in more than 80 countries worldwide. Engineered for both right- and left-hand drive and manufactured in multiple locations, the first derivative is the Ford Ranger. The architecture has the capability for a variety of multiple configurations and body styles.

Ford Motor Company of Australia Limited (automotive manufacturing segment) financial performance
year* 2006 2007 2008 2009 2010
*year end december

revenue ($ billion) 3.45 2.72 2.06 1.97 1.74

(% change) n/C -21.2 -24.3 -4.4 -11.7

Operating profit ($ million) -78.9 -86.0 -205.4 37.7 36.0

(% change) n/C 9.0 138.8 n/C -4.5


SOURCE: IBISWORLD

www.ibisworld.com.au

Motor Vehicle Manufacturing in Australia July 2012 30

Major Companies

Player Performance continued

Falcon production nosedive Ford struggled to keep sales up with its Falcon and SUV offerings, even prior to the crisis. Revenue fell 2.8% per annum over the five years through December 2010. In 2008, the company posted a staggering operating margin loss of 10%. The manufacturer has been shedding jobs due to declining production of the Ford Falcon and Ford Territory. Demand for Fords large motor vehicles deteriorated significantly over the past five years, which negatively affected Fords revenue. Fords performance in 2009 was better than Holdens results. Ford posted stronger profitability than other major companies during 2009 because its production did not fall as sharply as that of the industry. However, IBISWorld believes Ford was

already in trouble and had been reducing capacity prior to the economic downturn. Other strategies to improve market share include importing smaller cars such as the Fiesta, Focus and Mondeo to complement its domestic models. The EcoBoost Falcon will be eligible for the cleaner car rebate should it go ahead. Ford invested $230 million into developing the EcoBoost engine, which is fuel efficient. The government granted the company $42 million of the $230 million. In 2010-11, Ford lost some market share due to dismal production following poor demand for its Falcon and Territory. The company announced that 240 manufacturing jobs were lost in 2011 as a result. Ford is expected to keep losing market share until it adapts its production line to match consumer demand.

Ford Motor Company of Australia Limited financial performance


year* 2005 2006 2007 2008 2009 2010
*year end december

revenue ($ billion) 3.97 3.43 3.45 3.41 3.29 3.45

(% change) -3.9 -13.6 0.6 -1.2 -3.5 4.9

Operating profit ($ million) n/C -78.3 -109.3 -340.1 62.8 71.2


SOURCE: IBISWORLD

Other Companies

Several smaller operators in the industry manufacture engines, modify motor vehicles and build customised vehicles. These operators account for only a small part of revenue and are mainly owneroperators. Their exact number is difficult to estimate, although many of them went out of business during the worst of the crisis as they were ill-equipped to deal with an unfavourable economic climate. Only three truck manufacturers produce trucks domestically in the industry. They each account for less than 5.0% of market share.

Estimated market share: 3.0% This company is a subsidiary of PACCAR Inc, based in the United States. PACCAR Inc manufactures trucks under the Kenworth, Peterbilt, DAF and Leyland nameplates. In Australia, PACCAR manufactures Kenworth trucks in Bayswater, VIC. Domestically manufactured trucks are exported to Papua New Guinea and New Zealand. In 2010, the company achieved revenue of $757.8 million and recorded operating profit of $153.7 million.

PACCAR Australia Pty Ltd

www.ibisworld.com.au

Motor Vehicle Manufacturing in Australia July 2012 31

Major Companies

Other Companies continued

Estimated market share: 2.9% Volvo Group Australia, known as Volvo Commercial Vehicles Australia until August 2009, manufactures Mack trucks. It operates an assembly plant at Wacol, QLD, which produces heavy vehicles for a wide range of applications comprising more than 15 models. It is also the only Mack assembly plant outside of the United States. Established in 1972, the facility has a production capacity of up to 10 vehicles per day on a single shift, and currently has capacity to manufacture 3,000 vehicles annually. Mack trucks use over 275 supplier organisations, 160 of which are based in Queensland. Revenue amounted to $1.0 billion and operating profit was $24.9 million in 2010-11. Estimated market share: 1.5% As with Volvo and PACCAR, Iveco Trucks Australia is the subsidiary of foreignowned Fiat Group, which is based in Italy. Iveco Trucks Australia, formerly known as International Harvester and International Trucks, is located in

Volvo Group Australia

Dandenong, VIC. The company manufactures light, medium and heavy commercial vehicles (vans, trucks and buses) for the road freight sector. The Dandenong plant has manufactured more than 200,000 trucks since it opened in 1952. Consolidated revenue in 2010 amounted to $395.7 million, while the company recorded an operating loss of $4.1 million. Company exit 2008 Until 2008, Mitsubishi Motors Australia Ltd was a major player in the industry. After failing to gain market share and export markets, Mitsubishi ceased motor vehicle manufacturing activities in Australia during March 2008. In 2007, Mitsubishi Australia sold just 10,942 cars (the Mitsubishi 380 model) in the domestic market. The 380 model was supposed to be the saviour of Mitsubishis manufacturing operations in Australia; however, it had to be discounted in price, and profitability suffered as a result. Mitsubishi manufactured 4,482 vehicles in 2008, before exiting the industry.

Mitsubishi Motors Australia Ltd

Iveco Trucks Australia

www.ibisworld.com.au

Motor Vehicle Manufacturing in Australia July 2012 32

Operating Conditions
Capital Intensity
Level The level  Manufacturing motor vehicles is a highly automated process, although labour is required on the assembly line. A large amount of capital is required to purchase equipment and machinery for the production line. Most manufacturing processes involve repetitive activities that are automated to increase production speed and cost efficiency. Capital requirements for the industry have not changed significantly over the past five years. There has been significant investment into plant and equipment upgrades, and in processing and product development. However, this has been met by rising labour costs. On average, a firm in the industry spends about $4.39 on labour for each unit dollar invested in capital. Even though employment is

Capital Intensity | Technology & Systems | Industry Volatility Regulation & Policy | Industry Assistance

Capital units per labour unit 0.5 0.4 0.3 0.2 0.1 0.0 Economy Manufacturing Motor Vehicle Manufacturing
SOURCE: WWW.IBISWORLD.COM.AU

Capital intensity

of capital intensity is Medium

Dotted line shows a high level of capital intensity

falling, it has not decreased by a large enough number to offset the dramatic drop in production completely.

Tools of the trade: Growth strategies for success


New Age Economy recreation, Personal Services, Health and Education. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation. Investment Economy Information, Communications, Mining, Finance and real Estate. To increase revenue firms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Capital Intensive

Labour Intensive

Car wholesaling

road Freight Transport

Traditional Service Economy

wholesale and retail. Reliant on labor rather than capital to Automotive Parts sell goods. Functions cannot Motor Vehicle body and Accessories be outsourced therefore firms Manufacturing Manufacturing must use new technology or improve staff training to increase revenue growth.

Motor Vehicle Manufacturing

Old Economy Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand firms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.
SOURCE: WWW.IBISWORLD.COM.AU

Change in Share of the Economy

Tyre Manufacturing

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Motor Vehicle Manufacturing in Australia July 2012 33

Operating Conditions

Technology & Systems


Level The level 

of Technology Change is High

Investment in technology by motor vehicle producers has been on the rise, especially in robotics where repetitive pinpoint accuracy is needed. The Australian Automotive sector is accelerating plans for an industry-wide communications network to link major manufacturers with parts suppliers. Under the Australian Automotive Network Exchange project, existing communication links between manufacturers and parts suppliers would be replaced by the AANX network, with an outside service provider to run the operation. Fuel-cell technology, which principally involves the use of hydrogen to produce electric current, is expected to greatly increase the market potential of electric vehicles. In the interim, hybrid petrol and electric systems incorporated in vehicles are providing a technology bridge to the future. Ford Australia confirmed in

March 2007 its support of a long-term research project by the University of Melbourne to study efficient and practical hydrogen-fuelled vehicle technologies. The first stage of the project aims to develop, build and test a hydrogenfuelled turbo-charged Ford six-cylinder engine using advanced combustion technology (HAJI Hydrogen Assisted Jet Ignition). Further development of electronic braking and steering systems is also expected to reduce the amount of product testing required in future. This will also work to increase fuel-efficiency, eliminate hydraulic fluid use, improve safety, and allow for more standardisation of parts. Investment into new technology such as supply-chain management and collaborative forecasting (where members of the supply chain share forecasting data to reduce bottlenecks) helps make the industry competitive.

Revenue Volatility
Level The level 

of Volatility is High

Over the past five years, the industry became more volatile. This was the result of fluctuations in exchange rates and fuel prices, changes in legislation and assistance packages, as well as the growing popularity of small cars. An appreciation of the Australian dollar also led to rises in the competitiveness
A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment. When a firm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly.

of the industry, which was compounded by consumers preferring to buy small, imported cars rather than big domestic cars. The price of petrol created havoc and uncertainty in household budgets over the past five years. Furthermore, this variable has been at the forefront of an

Volatility vs Growth
1000

Hazardous

rollercoaster

revenue volatility* (%)

100 10

Motor Vehicle Manufacturing


1 0.1

Stagnant
30 10 10 30 50

blue Chip
70

Five year annualised revenue growth (%)


* Axis is in logarithmic scale
SOURCE: WWW.IBISWORLD.COM.AU

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Motor Vehicle Manufacturing in Australia July 2012 34

Operating Conditions

Revenue Volatility continued

environmental revolution. Changes in legislation regarding the level of assistance and voluntary emission targets also affect the volatility of the

industry. The global financial crisis also contributed to a massive decline in car production since 2008-09, which led to a rise in volatility.

Regulation & Policy


Level & Trend  he level of T

Regulation is Medium and the  trend is Increasing

The industry is set to face more stringent emissions standards in the future. The European Community (EU) tightened its limits on exhaust emissions at the beginning of 2001, and they will become even stricter. By 2008, regulations in Australia had matched European standards. To meet these sorts of regulations, car makers are looking at alternatives to traditional engines. Hybrid vehicles, which use petrol engines to generate electric power, are just one option. A more radical solution is fuel cells that produce electricity by combining hydrogen and oxygen. However, a problem lies in how to go about storing the volatile hydrogen gas. Toyota and Honda have developed hybrid vehicles. The Toyota Prius uses about half the fuel of a similar-sized car and emits half the amount of carbon dioxide. Other energy saving characteristics include auto-petrol engine shutdown, regenerative braking systems, and battery-powered operations that kicks in whenever the vehicle has stopped or is under light load. In 2010, Toyota started manufacturing a hybrid version of the Camry in Australia. In June 2006, the Australian Transport Council (ATC) urged the Federal Government to make it compulsory for new cars to include computerised safety technology that detects and avoids skids. The ATC has called for the Australian Design Rules to require electronic stability control (ESC); a system that uses sensors and a computer to detect impending loss of control and avoids it by manipulating the cars brakes and throttle. Ford and Holden only offer ESC on luxury models. Emission targets According to the Federal Chamber of Automotive Industries (FCAI), the automotive sector is committed to making

a strong contribution to reduce the effect of global climate change. A target has been adopted to reduce average carbon dioxide (CO2) emissions from new light vehicles. This involves cutting emission from levels of about 252 grams of CO2 per kilometre (g/km) in 2002 to an average 222 g/km by 2010, a reduction of 12%. In 2010, the fleet-wide national average carbon emissions total about 218 g/km, which implies that the industry has been successful in meeting the target. This positive result came about mainly thanks to improvements in engine technology brought about by intense import competition. The automotive sector is a global one and engine manufacturers typically sell engines across the world. Europe has strict and enforceable engine standards, which implies that manufacturers must develop more fuel-efficient engines. As a result, it is easier for any manufacturer to meet the less-strict Australian targets as the technology already exists. The EU target is currently 160 g/km and it will be lowered to an average of 130 g/km by 2015; the long-term target is 95 g/km by 2020. In July 2010, the government proposed the development of carbon dioxide emission standards for passenger vehicles, which was welcomed by the FCAI. The proposed targets are 190 g/km by 2015 (a reduction of about 12.8% on 2010 levels) and 155 g/km by 2024. These targets are far less strict than EU targets. The two markets are quite different and not necessarily directly comparable. For example, smaller diesel cars are historically more common in Europe, while Australians tend to drive bigger petrol-guzzling vehicles. At any rate, EU targets are relevant in that Australian targets will not be difficult to meet if enforced as the engine technology already exists. The government is still

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Motor Vehicle Manufacturing in Australia July 2012 35

Operating Conditions

Regulation & Policy continued

working on a CO2-specific proposal as at June 2011. Euro standards In June 2011, the government announced a new set of emission standards that will be mandatory. The standards will follow that of the European Union. Euro standards are generally based in terms of nitrogen oxide (NOx), particulate matter (PM), and hydrocarbons (HC) emitted by a vehicle. Emissions are measured in grams per kilowatt-hour (g/kWh) or gram/kilometre (g/km). Standards for light duty vehicles (petrol and diesel) are generally named Euro 1 to 6. Euro 5 standards will be phased in as from November 2013 to November 2016. Euro 6 standards will then be phased it from

July 2017 to July 2018. The government expects to reduce PM by 90%, HC by 50% and NOx by 70% once all vehicles comply with Euro 6 standards by 2016. Mandatory standards are good news for the industry: Australian manufacturers will be forced to catch up to global standards, which will open the door for potential export markets. Most domestic manufactures are working towards meeting these requirements. Toyota expects to start manufacturing four cylinder engines in Australia by 2012. However, Australia will continue to lag behind Europe. Euro 5 standards have been in place in the EU since 2009 and Euro 6 will come into effect in 2014, well before it comes into effect domestically.

Industry Assistance
Level & Trend  he level of Industry T

Assistance is Medium and the  trend is Increasing

The tariff rate for passenger motor vehicles is 5.0%. Declining tariff rates have contributed to a rise in sales of imported cars to the detriment of domestically manufactured vehicles. Apart from private motor vehicles, tariffs of 5.0% apply to light commercial vehicles (LCVs) and four-wheel drives (4WDs), as well as components for these vehicles: no changes are currently scheduled. Vehicle tariffs also apply to second-hand imports, plus a specific tariff of $12,000 per vehicle. Tariffs have had a major indirect effect on the industry. In 2004, the average level of imported content across all models was 35%, with considerable variation above and below this figure for individual models. The lowering of tariffs on parts has had a positive effect on the industry by reducing input costs and exerting pressure on domestic suppliers to perform more efficiently. Successful negotiations of free-trade agreements would also benefit Australian motor vehicle manufacturers. Free-trade agreements with Asia-Pacific countries would provide access to larger markets that have been protected by tariffs.

Increasing assistance The industry has experienced government intervention in assistance to protect employment and engineering capabilities: including research and development. Direct grants by the government have been the norm in recent years to assure motor vehicle manufacturing capabilities in Australia. For example, Mitsubishi was awarded $200 million in assistance during 2003 to continue operations in South Australia until 2005. Fords investment in the development of its all-wheel drive Territory received both Federal and Victorian Government financial support. In May 2006, Ford received a $52 million grant from the Federal Government and dollar-for-dollar assistance from the Victorian Government to help with the cost of expanding its design operations and to help pay for developing left-hand drive versions of the 2008 Falcon and Territory. The government also provided a $35 million assistance package for Toyota to produce petrol-electric hybrid Camrys domestically in 2010. In December 2002, the Federal Government decided to substantially underwrite the automotive sectors future

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Motor Vehicle Manufacturing in Australia July 2012 36

Operating Conditions

Industry Assistance continued

in Australia by finalising a $4.2 billion assistance package. Under the Automotive Competitiveness and Investment Scheme (ACIS), the government will provide subsidies valued at $2.8 billion from 2006 to 2010, which will be phased down to $1.4 billion from 2011 to 2015. The Rudd Government also initiated a $500 million green-car innovation fund, which will operate over five years from 2011. Under this initiative, recipients of the fund will be asked to match the governments contribution on at least a three-to-one dollar basis, generating at least $2.0 billion in investment. The government expects that the fund will encourage Australian automotive industries to develop and manufacture low-emission vehicles so that challenges of climate change can be met while maintaining critical employment levels. A comprehensive review of the automotive sector was conducted over 2008 and a report was tabled in August 2008 by the Victorian Government. The review has made a number of recommendations and these are predicated on changing the behaviour of automotive firms to make them more competitive and better able to meet global challenges; including the move to a low-carbon environment. The Premier recommended the replacement of the current ACIS with a new and re-targeted global automotive transition scheme designed to support research, development, design and exports. He also recommended doubling the green car innovation fund and lowering of import tariffs to 5.0% by 2010. Following the review, the government agreed to reduce tariffs to 5.0% on 1 January 2010. The Rudd Governments response was formulated in a new car plan for a greener future, setting the tone for the direction the government wants to take. Under the new plan, ACIS will be gradually changed to the Automotive Transformation Scheme (ATS), which will run from 2011 to 2020 and will include $3.4 billion in aid. ATS is a

greener assistance program than the ACIS. The green car innovation fund was increased to $1.3 billion and will run over 10 years from 2009. Both changes reflect the governments commitment towards a greener industry, particularly with the green car fund being brought forward by one year. The report also outlined a $10.5 million LPG conversion fund, which will be used to reward buyers of factory-fitted LPG vehicles. The increase in, and restructuring of, the assistance schemes will drive green-car production over the next five years. However, in August 2010, the Gillard Government reduced the $1.3 billion green car innovation fund by $200 million. The fund has so far been used to promote the domestic manufacture of fuel-efficient vehicles; Toyota was granted $35 million to begin production of the hybrid Camry in 2010, Holden was given $149 million to start making the Cruze in late 2010 while Ford received $42 million for the EcoBoost Falcon and fuel-efficient Territory. Component manufacturers are also benefiting from the fund. In January 2011, the Gillard Government scrapped the green car innovation funds and diverted the funds to the Queensland flood rebuilding efforts. Cleaner car rebate In August 2010, the Gillard Government announced a $394 million cleaner-car rebate. The rebate was to run from January 2011 to December 2014 and was to be capped at 200,000 vehicles. The incentive was $2,000 for people wishing to trade-in a pre-1995 petrol or diesel vehicle for a new qualifying fuel-efficient vehicle. Eligible new vehicles were those that emit a maximum of 220 g/km of carbon dioxide. Popular vehicles such as the Holden Commodore and Toyota Corolla do not meet the emission requirement. The rebate was to be limited to passenger vehicles (not fleets or vehicles owned by businesses) and the owner of the pre-1995 must have owned the car for at least two years. The old car

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Motor Vehicle Manufacturing in Australia July 2012 37

Operating Conditions

Industry Assistance continued

would then have been scrapped. In October 2010, it was announced that the rebate would be delayed and size reduced from $394 million. Even if the rebate, in its original form, did go ahead, the impact on domestic manufacturers would have been minimal. Eligible new vehicles included the Toyota Prius, the Volkswagen Polo, Suzuki Alto and the Smart Fortwo. Most of the qualifying vehicles are not manufactured in Australia. Out of domestically made vehicles, only the Toyota Camry hybrid and Holden Cruze

were eligible. In January 2011, Julia Gillard scrapped the rebate due to the Queensland flood relief. The effect of the rebate on industry revenue would have been minimal anyway, as the scheme was to be capped at 200,000 vehicles and was not expected to create additional new demand. As a result, scrapping the scheme did not affect the industry. As mentioned, most of the qualifying vehicles are not manufactured in Australia and manufacturing revenue has not been affected by the scrapping.

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Motor Vehicle Manufacturing in Australia July 2012 38

Key Statistics
Industry Data
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Sector Rank Economy Rank Revenue ($m) 19,987.9 19,967 17,645 17,218.6 17,422.5 14,058.8 11,320.9 9,875.8 9,899.6 10,663.9 11,751.1 11,104.8 10,349.7 10,722.3 9,961 3/148 87/502 Industry Value Added ($m) 3,621.3 3,545.3 3,199.5 3,126.3 2,870.9 2,453.3 1,784 1,521.3 1,965 2,017.6 2,206.3 2,092.7 2,018.7 2,092.7 1,960.5 9/148 144/502 Establishments 140 130 125 120 114 105 103 102 100 96 94 91 90 87 82 114/148 433/502 Enterprises Employment 92 28,427 90 28,158 83 27,108 82 26,135 79 24,500 73 20,189 72 17,076 72 16,371 71 16,125 68 17,308 67 17,255 67 16,940 66 16,773 62 16,715 59 16,347 115/148 10/148 418/502 163/502 Exports ($m) 4,830.7 4,467 5,070.2 4,084.9 4,767.8 3,453.9 2,386.7 2,004.7 2,293 2,383.3 2,695.4 2,786.6 2,414.6 2,343.8 2,148.1 7/139 23/206 Imports ($m) 20,577.9 21,232.9 20,687.2 22,364.3 24,646.1 18,234.1 23,344.7 20,417.2 21,395.7 22,042.5 23,667.2 24,131.2 24,135.9 25,573 24,285.3 1/139 3/185 Wages ($m) 2,158.3 2,254.3 2,228.9 2,232 2,013.8 1,721.1 1,434.6 1,293.2 1,386.8 1,469.4 1,578.7 1,466.4 1,414.2 1,445 1,364.6 3/148 112/502 Domestic Demand ($m) 35,735.1 36,732.9 33,262 35,498 37,300.8 28,839 32,278.9 28,288.3 29,002.3 30,323.1 32,722.9 32,449.4 32,071 33,951.5 32,098.2 2/137 10/182 Motor Vehicle Production 413,869 397,303 352,773 333,347 345,828 252,448 248,854 219,194 224,754 233,306 N/A N/A N/A N/A N/A N/A N/A

Annual Change
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Sector Rank Economy Rank Revenue (%) -0.1 -11.6 -2.4 1.2 -19.3 -19.5 -12.8 0.2 7.7 10.2 -5.5 -6.8 3.6 -7.1 1/148 9/502

Industry Value Added (%) -2.1 -9.8 -2.3 -8.2 -14.5 -27.3 -14.7 29.2 2.7 9.4 -5.1 -3.5 3.7 -6.3 1/148 12/502

Establishments (%) -7.1 -3.8 -4.0 -5.0 -7.9 -1.9 -1.0 -2.0 -4.0 -2.1 -3.2 -1.1 -3.3 -5.7 50/148 282/502

Enterprises Employment (%) (%) -2.2 -0.9 -7.8 -3.7 -1.2 -3.6 -3.7 -6.3 -7.6 -17.6 -1.4 -15.4 0.0 -4.1 -1.4 -1.5 -4.2 7.3 -1.5 -0.3 0.0 -1.8 -1.5 -1.0 -6.1 -0.3 -4.8 -2.2 70/148 2/148 283/502 4/502

Exports (%) -7.5 13.5 -19.4 16.7 -27.6 -30.9 -16.0 14.4 3.9 13.1 3.4 -13.3 -2.9 -8.3 7/139 13/206

Imports (%) 3.2 -2.6 8.1 10.2 -26.0 28.0 -12.5 4.8 3.0 7.4 2.0 0.0 6.0 -5.0 10/139 13/185

Wages (%) 4.4 -1.1 0.1 -9.8 -14.5 -16.6 -9.9 7.2 6.0 7.4 -7.1 -3.6 2.2 -5.6 3/148 11/501

Domestic Demand (%) 2.8 -9.4 6.7 5.1 -22.7 11.9 -12.4 2.5 4.6 7.9 -0.8 -1.2 5.9 -5.5 4/137 8/181

Motor Vehicle Production (%) -4.0 -11.2 -5.5 3.7 -27.0 -1.4 -11.9 2.5 3.8 N/A N/A N/A N/A N/A N/A N/A

Key Ratios
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 Sector Rank Economy Rank IVA/Revenue (%) 18.12 17.76 18.13 18.16 16.48 17.45 15.76 15.40 19.85 18.92 18.78 18.85 19.50 19.52 19.68 130/148 415/502 Imports/Demand Exports/Revenue (%) (%) 57.58 24.17 57.80 22.37 62.19 28.73 63.00 23.72 66.07 27.37 63.23 24.57 72.32 21.08 72.18 20.30 73.77 23.16 72.69 22.35 72.33 22.94 74.37 25.09 75.26 23.33 75.32 21.86 75.66 21.57 18/137 36/139 19/182 55/206

Revenue per Employee ($000) 703.13 709.11 650.91 658.83 711.12 696.36 662.97 603.25 613.93 616.13 681.03 655.54 617.05 641.48 609.35 35/148 116/502

Wages/Revenue (%) 10.80 11.29 12.63 12.96 11.56 12.24 12.67 13.09 14.01 13.78 13.43 13.21 13.66 13.48 13.70 99/148 324/502

Employees per Est. 203.05 216.60 216.86 217.79 214.91 192.28 165.79 160.50 161.25 180.29 183.56 186.15 186.37 192.13 199.35 7/148 27/502

Average Wage ($) 75,924.30 80,058.95 82,222.96 85,402.72 82,195.92 85,249.39 84,012.65 78,993.34 86,003.10 84,897.16 91,492.32 86,564.34 84,314.08 86,449.30 83,477.09 21/148 84/502

Share of the Economy (%) 0.33 0.32 0.28 0.26 0.23 0.19 0.14 0.12 0.14 0.14 0.15 0.14 0.13 0.13 0.12 9/148 144/502

Figures are inflation-adjusted 2013 dollars. Rank refers to 2013 data.

SOURCE: WWW.IBISWORLD.COM.AU

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Motor Vehicle Manufacturing in Australia July 2012 39

Jargon & Glossary

Industry Jargon

HYBRID VEHICLES Electric-hybrid cars that run on an electric battery and a gasoline engine. They are more fuel-efficient than a standard car. LIQUEFIED PETROLEUM GAS (LPG) A product of petroleum gases, principally propane and butane, LPG must be stored under pressure to keep it in a liquid state.

SCRAPPING RATE The percentage of failed motor vehicle assemblies or materials that cannot be repaired or restored and are therefore condemned and discarded. SPORTS UTILITY VEHICLE (SUV) A general marketing description for rugged vehicles similar to a station wagon, but built on a light-truck chassis.

IBISWorld Glossary

BARRIERS TO ENTRY Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry. CAPITAL/LABOUR INTENSITY An indicator of how much capital is used in production as opposed to labour. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3-$8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation. CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using 2012-13 as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the real growth or decline in industry metrics. The inflation adjustments in IBISWorlds reports are made using the Australian Bureau of Statistics implicit GDP price deflator. DOMESTIC DEMAND The use of goods and services within Australia; the sum of imports and domestic production minus exports. EARNINGS BEFORE INTEREST AND TAX (EBIT) IBISWorld uses EBIT as an indicator of a companys profitability. It is calculated as revenue minus expenses, excluding tax and interest. EMPLOYMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees. ENTERPRISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry. ESTABLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates. EXPORTS The total sales and transfers of goods produced by an industry that are exported. IMPORTS The value of goods and services imported with the amount payable to non-residents.

INDUSTRY CONCENTRATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 4070% of revenue; Low is less than 40%. INDUSTRY REVENUE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INDUSTRY VALUE ADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added). INTERNATIONAL TRADE The level is determined by: Exports/Revenue: Low is 0-5%; Medium is 5-20%; High is over 20%. Imports/Domestic Demand: Low is 0-5%; Medium is 5-35%; and High is over 35%. LIFE CYCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each. NON-EMPLOYING ESTABLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals. VOLATILITY The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than 20%; High Volatility is between 10% and 20%; Moderate Volatility is between 3% and 10%; and Low Volatility is less than 3%. WAGES The gross total wages and salaries of all employees of the establishment.

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