The End of Car Production in Australia

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Posted on 30th September 2017 – Automobile Industry News

Throughout the 20th century, Australia has had a proud history of car making, with international manufacturers opening plants. However, it will come to an end in October 2017 when both Holden and Toyota will close their doors, a year after Ford.

Ford was the first household name to decide to start manufacturing cars in Australia in 1925, after two decades of making them overseas and importing them.

General Motors opened an outpost in Port Melbourne in 1936. The factory first assembled cars from parts imported from the UK and the US before supporting the Australian army in World War II by producing aircraft engines, armoured vehicles and weaponry.

Holden, after its acquisition by General Motors, was given a car to build in 1948. Toyota has been manufacturing cars locally since 1963 and has been the largest vehicle producer in the last 10 years, as well as the biggest exporter. To give you a sense of scale, Toyota exported in 16 years more than Holden did in 63 years and Ford in 91 years!

It will therefore be a sad day when the last Aussie car manufacturers close shops. We look at what went wrong in what seemed like a success story.

A subsidised industry

The Australian car industry has been a massive employer for decades. At its peak, it supported about 50,000 full-time employees in the motor vehicle industry. Although it may have looked prosperous, the truth behind it is that the industry wasn’t profitable at all and only went on because it was repeatedly propped up by the taxpayer to the tune of more than $5 billion over the past 10 years alone.

Despite this, and investment from the manufacturers, Australia’s car industry couldn’t survive the low import tariffs put into place a decade ago, and the unstoppable tide of foreign cars, sometimes cheaper and better equipped than what was available in the country.

Fragmentation of the market

Another issue that spelt the end for Aussie manufacturers is the number of brands available in the country. There are more brands of cars on offer in Australia than in Europe, the US or Japan. Australia has 64, the US 38 and the UK 42. Great news for consumers but less so for car manufacturers who saw their market share diminish.

This led to a fragmentation of the market to a level where car factories in Australia simply didn’t have the number to keep their operations viable. In their heyday, Holden produced 165,000 cars a year; Ford 155,000 and Toyota 148,000, but, in 2016, all of them combined sold only about 87,000 cars. At its peak, the Holden Commodore which dominated the market sold 90,000 units a year. Nowadays, annual sales of 40,000 of any car are considered a massive success.

Lack of export market

This alone is sufficient to explain why Australian car makers were in trouble, as only luxury brands commanding premium prices can survive on those numbers. The UK automobile industry, which has a smaller domestic market, can manage, but this is because the country has an asset up their sleeves: it exports 80% of cars it manufactures - 1.35 million of the 1.7 million vehicles produced in the country 2016.

Unfortunately, Australia’s proximity to cheap labour markets made this option impossible. Against a minimum hourly wage in Thailand of less than $2 and of $6 for car assembly line workers, the Australian car industry was unable to remain competitive given that the average wage for car manufacturing workers at home is $69,000 a year.

Lifting of import tariffs

In addition, an unwise Free Trade Agreement with Thailand introduced in 2005 hammered another nail in the coffin. Import tariffs on cars were lifted and cars produced in Thailand flooded the market– over 2 million since that date – while Australia exported just 100 Ford Territory SUVs.

The reason? Despite the agreement, Thailand maintained hidden, non-tariff barriers and continued to impose high registration fees for cars with large engines – which was what Ford and Holden manufactured – de facto actively discouraging purchase of Australian cars, while Australia had opened its borders completely.

Today, Thailand is the second-biggest provider of vehicles in Australia after Japan, and ahead of South Korea.

What's next?

The closing of manufacturing plants obviously has other consequences than just lost market shares. It also means a wave of redundancies of workers who are specialised in car making and often nothing else. A report published by the University of Adelaide after the closure of the Mitsubishi car factory in 2008 estimated that a third of blue-collar workers made redundant would become long-term unemployed, creating financial difficulties not only for their immediate household but also for entire communities suddenly impoverished.

The only solution to this situation is costly and long re-training so that these workers can transfer their skills to other industries.

For car lovers, the question is what will replace the home-grown V8 and turbocharged six-cylinder rear-drive saloons that Ford and Holden produced? Not only were they some of the most powerful saloons in the world but they also cost far less than German and British equivalent models - a Holden Commodore or a Ford Falcon with a V8 engine could be found for $50,000 and, towards the end of their lives, those performance cars represented about half of Falcon and Commodore sales.

For the police highway patrol divisions who use both vehicles in pursuit, they will struggle to find cars powerful enough and within budget, their only realistic option at this time being Ford Mustangs. General duties police officers will have to migrate to sedans like the Toyota Camry, SUVs like the Hyundai’s Santa Fe, and prisoner transport vans like the Volkswagen Transporter or Hyundai iLoad.

If you bought your car abroad and are looking for a shipping company to bring it into Australia, give us a ring on +64 09 309 1163, request a quote online or send us an email.

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