Australia's automotive manufacturing industry

Preliminary Findings Report

Preliminary findings report

Released 20 / 2/ 2013

This report examines the global context and trends in automotive manufacturing, and the factors affecting the competitiveness of the Australian automotive manufacturing industry.

The Commission released a position paper on 31 January 2014, which will consider potential options for government assistance to the automotive manufacturing industry.

You were invited to examine the preliminary findings report and to make written submissions and to participate in public hearings.

This inquiry has concluded. The final report was sent to Government on 31 March 2014 and publicly released on 26 August 2014.

Please note: This preliminary findings report is for research purposes only. For final outcomes of this inquiry refer to the inquiry report.

Download the report

Global forces are driving (and are likely to continue to drive) dramatic changes in both the demand for motor vehicles and the size, scale and location of production.
At a global level, production capacity exceeds demand for motor vehicles.
- Demand in a number of developed economies has been slow to rebound from the global financial crisis, and many assembly plants are operating below capacity.
- Significant rationalisation of production capacity has occurred in the US, and further assembly plant closures have been announced in the UK and Belgium.
- Vehicle manufacturing capacity is shifting to regions with lower labour costs and high demand growth such as China, Eastern Europe, India, Mexico and Thailand.
- Many governments provide financial or other support to attract (or retain) an automotive manufacturing industry.
There is relentless pressure on vehicle producers worldwide to reduce manufacturing costs, particularly in the small to medium size car, high volume, market segments.
- The selling prices for vehicles in such segments of the new car market are held down by fierce competition from local suppliers and importers.
- Affiliates within international firms compete for the right to produce models built on global platforms - for supply to both domestic and export markets.
- Cost pressures extend to component manufacturers throughout the supply chain.
Production scale and labour costs are key drivers of automotive manufacturing costs.
- All vehicle manufacturers in Australia are producing well below the 200 000 to 300 000 vehicles needed annually for an assembly plant to be cost competitive.
- Labour costs in automotive manufacturing are substantially higher in Australia than in countries such as China and Thailand.
- Despite continuing efforts by vehicle producers and their employees, a substantial cost gap between Australian and many overseas assembly plants remains.
Increasing vehicle production in Australia, for local supply or export, is challenging. Vehicle producers in Australia have been losing local market share.
- The Australian new car market is small by global standards. It is highly competitive, to the benefit of Australian consumers, but is fragmented. Top selling models enjoy sales of only a little over 40 000 vehicles a year.
- Export opportunities are limited by the high costs of production, the sustained high Australian dollar, competition, and continuing barriers to trade.
Global trends place ongoing pressure on Australian automotive component suppliers.
- Component manufacturing in Australia is high cost compared to countries such as China and India. Motor vehicle producers in Australia are increasingly sourcing automotive components from overseas.
- Vehicle producers increasingly require their key component suppliers to have a global presence and be located near major production regions.
- The greater use of global platforms may lead to opportunities for some Australian component suppliers, but may lead to the closure of others.
Australian governments have provided capital grants and subsidies to automotive manufacturers, and transitional assistance intended to facilitate industry adjustment.

Global forces driving change in Auto manufacturing

Global forces are driving, and will continue to drive, dramatic changes in both the demand for motor vehicles and the size, scale and location of production, according to the Productivity Commission's preliminary findings report on Australia's automotive manufacturing industry.

Australia's automotive manufacturing industry is very small by international standards and is exposed to these global changes. The industry needs to significantly reduce its cost base if it is to become and remain globally competitive and resilient to future global and local pressures.

The Presiding Commissioner, Mike Woods, said 'Vehicle manufacturing capacity is shifting toward lower labour cost countries and regions that have high demand growth. In 2002, the United States, the EU15 and Japan together produced around 67 per cent of all motor vehicles, but by 2012 that share had fallen to 40 per cent. Conversely, China's production has increased from 2 million vehicles in 2000 to 19 million in 2012 - a global share of 24 per cent.'

There is relentless pressure on the industry, across the globe, to reduce manufacturing costs. Mr Woods said, 'Labour costs and the scale of production are key drivers of these costs, for both vehicle and component manufacturers. In Australia's case, all vehicle assembly plants are producing well below the scale needed to be internationally cost competitive. And Australia's automotive manufacturing labour costs are substantially higher than in countries such as China, Thailand, Mexico and the Republic of Korea.'

'A major challenge for future automotive manufacturing in Australia is to increase the volume of local production', Mr Woods said, 'but local sales growth is only part of the answer, because the domestic market is small, fragmented and highly competitive. While exports can provide further opportunities for volume growth, the challenges of exporting from Australia include the high costs of production, competition from lower cost affiliated plants within the global companies, continuing barriers to trade and, at present, the sustained high Australian dollar.'

Mr Woods said 'Component suppliers are facing additional pressures, not only from the impending assembly plant closures in Australia, but from the decisions of vehicle producers internationally to use global vehicle platforms, to reduce their number of major suppliers and to require many key component suppliers to be located near major production plants.'

The Productivity Commission will release a position paper by 31 January 2014 which will address policy options for government assistance to the automotive industry and to those people and communities affected by structural changes occurring in the industry.