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There is Still Life and Growth in the Automotive Industry

15 November

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Motor vehicle manufacturing in Australia is experiencing hard times, with manufacturer’s “overwhelmed by import competition over the last five years”. According to a report by IBIS World, “[p]roduction volumes have plummeted as consumer demand shifted away from locally manufactured vehicles, due to the greater fuel-efficiency of many imported vehicles. Importers have benefited from a high Australian dollar and tariff changes over the past five years.” The report forecast that industry revenue “will fall by a compound annual rate of 2.9%.”

Over the last six years, there has been a drop in the number of monthly automotive production volumes. The Federal Chamber of Automotive Industries reports that out of the last six years Australia’s best year was 2010 with 239,443 cars produced, compared to 2014 which had 174,986. Although local production volumes have declined, this hasn’t deterred Australian’s from purchasing vehicles this year. As of October 2015 Australian’s have purchased about 957,153 (YTD) vehicles compared to 924,183 (YTD) the same time last year.

The industry has endured its fair share of scandals with Volkswagen under investigation for emissions misconduct. The car maker has been caught out using emissions cheating software in an estimated 11 million vehicles.

To add salt to the wound, Volkswagen have admitted that another 800,000 vehicles have cheated tests through software. According to Business Spectator “US environmental regulators say that Volkswagen also included “defeat devices” to skirt emissions rules on certain larger diesel engines, in addition to the smaller 2.0 litre engines reported earlier.”

“The software makes the engines run according to US standards when emissions testing is ongoing. Immediately after testing is finished, the software switches into standard drive mode in which poisonous nitrogen oxide emissions rise to up to nine times the EPA’s standard…”

Production line for manufactoring of the engines in the car factory.

Although the industry is struggling in Australia there is a small glimmer of hope for local parts manufacturers. Ford have announced that they have signed deals with 63 suppliers to locally source parts.

AAP reported that, the automotive giant plans “to help more local aftermarket parts suppliers get work in Ford’s global supply chain.”

The Australian Automotive Aftermarket Association (AAAA) wrote in a submission to the senate, that they believe that the aftermarket segment is profitable. More automotive manufacturers should diversify their businesses, and tap into this sector.

“The automotive aftermarket is not dependent upon local vehicle assembly and hence despite the announced closure of assembly and engine manufacturing plants, the aftermarket segment remains stable and profitable.”

“Indeed the automotive aftermarket segment has performed strongly, achieving year on year growth. The export performance of the aftermarket segment represents 12.4% of sales and aftermarket producers are active exporters as a key focus for their future success.”

“Despite import pressure, the aftermarket segment has performed successfully. Our industry’s response has been to move up the value chain: from service parts to high-value specialty products with a technological advantage. This competition has created an aftermarket segment that has the right pre-conditions to be a globally competitive sector.”

“If the full growth potential of the aftermarket segment is realised, it can absorb some of the excess capacity, skills and knowledge that become available as the ongoing decline of the Australian domestic OE passenger motor vehicle sector plays out.”  AAAA stated in the report.

To read the full submission to the senate, click here.