Leslie Massey
Australia's automotive industry fell apart in 2017, with the closure of its last manufacturing plant. The industry's collapse was a result of various factors, including the high cost of manufacturing, low economies of scale, a strong Australian dollar, and competition from cheaper imports. The Australian government's decision to subsidize the industry for years had also played a role, with the country's market being too small for domestic production and too expensive for exports. The shift in consumer preferences towards SUVs and small engine vehicles, along with the presence of cheaper labour in neighbouring developing countries, further contributed to the industry's demise.
| Characteristics | Values |
|---|---|
| Year of last manufacturing plant closure | 2017 |
| Number of jobs lost | 2500 |
| Companies that stopped manufacturing in Australia | Holden, Ford, Toyota, Mitsubishi, Nissan |
| Reasons for stopping manufacturing | Unfavorable Australian dollar, high cost of manufacturing, low economies of scale, cheaper foreign production inputs, higher wages, better work conditions, unionism, mining boom, retreating government support |
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What You'll Learn
Unfavourable Australian dollar
The Australian car manufacturing industry was once a thriving sector, employing over 100,000 people across multiple states. However, by 2017, the last manufacturing plant in Australia had closed its doors, bringing an end to almost a century of car-building in the country. One of the key factors contributing to the demise of the industry was the unfavourable Australian dollar.
The appreciation of the Australian dollar made it difficult for local manufacturers to remain competitive in the global market. With labour costs in Australia being significantly higher than in some Asian countries, car manufacturers had to keep vehicle list prices relatively low to stay competitive with Japanese and Korean brands. This was done to the detriment of profit margins, which were already suffering due to the high cost of manufacturing in Australia.
The unfavourable exchange rate also contributed to the decision of car manufacturers to move their production lines overseas, where the cost of production was significantly lower. This was particularly true for companies like Toyota, which had to consider not just the Australian market but also their global operations.
The strong Australian dollar, combined with the high labour costs associated with it, made it challenging for the local car manufacturing industry to survive. As a result, companies chose to relocate their assembly lines to countries with lower labour costs, such as Thailand, where wages were a fraction of those in Australia.
The unfavourable Australian dollar was not the only factor that led to the end of car manufacturing in the country. Other contributing factors included a decrease in government subsidies, the emergence of more affordable and advanced car models, and the inability of the industry to fully exploit economies of scale due to the small size of the Australian market.
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High manufacturing costs
High labour costs in Australia made it difficult for the country's car manufacturing industry to compete with cheaper labour markets in Asia. In 2005, each of Mitsubishi's domestically produced cars received AUD 1,300 of subsidies. A local manufacturing worker in Australia costs, on average, AUD 69,000 (EUR 44,000 / USD 50,000) per year, while a worker in Thailand receives AUD 12,500 (EUR 8,000 / USD 9,000) per year.
The Australian government was subsidising car manufacturers to the tune of billions of dollars, but eventually decided to stop handing out money without a commitment from the companies to stay in the country. The government was also fed up with subsidising companies that could never grow to succeed.
In addition to high labour costs, the car manufacturing industry in Australia suffered from high wages and better work conditions demanded by unions, and the appreciation of the Australian dollar.
The high cost of manufacturing in Australia, combined with low economies of scale, made it difficult for the country's car industry to compete with larger, globalised networks. The Australian market was too small, and the industry could not fully exploit economies of scale. At their peak, Toyota, Ford, and Holden produced 148,000, 155,000, and 165,000 vehicles in a calendar year, respectively. However, in 2016, they only produced an estimated 87,000 cars locally.
The high cost of manufacturing in Australia, combined with other factors such as the lowering of import tariffs, the emergence of better and more affordable car models, and the loss of connection to the customer, ultimately led to the end of the country's car manufacturing industry.
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Low economies of scale
Australia's automotive industry was never very big, even at its peak. Annual car production in Australia was around 500,000 cars per year, which pales in comparison to Hyundai's Ulsan factory, which can produce 1.5 million cars per year.
The Australian market was too small, and the industry could not fully exploit economies of scale. In the 1970s, automakers were producing too many models, with individual production runs as small as 25,000 units, which led to a lack of economies of scale.
The high cost of manufacturing in Australia, partly due to high labour costs, also contributed to the low economies of scale. In comparison, labour costs in some Asian countries are only one-fourth of those in Australia. For example, a local manufacturing worker in Australia costs an average of AU$69,000 per year, while a worker in Thailand earns AU$12,500.
To remain competitive, Australian car manufacturers kept vehicle list prices relatively low, which further impacted profitability. The decrease in government subsidies and the emergence of more affordable car models from foreign manufacturers also made it difficult for local carmakers to achieve economies of scale.
The closure of Mitsubishi factories in Adelaide in 2004 and 2008, followed by Ford's announcement to leave the market by 2016, signalled the end of Australia's car manufacturing industry. Toyota, the last major carmaker in Australia, closed its Melbourne plant in October 2017, marking the end of an era for the country's automotive industry.
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Lack of government support
The Australian government's dwindling support for the automotive industry is a key factor in the country's eventual cessation of car manufacturing. Once a thriving automotive hub, Australia's domestic market became increasingly untenable due to various economic factors.
The Australian government had long subsidised the automotive industry, injecting over five billion AUD in the ten years leading up to 2016. However, the government grew weary of propping up an industry that seemed unable to stand on its own feet. The industry's lack of commitment to Australia was a significant concern, with carmakers keeping "one foot out the door".
The high cost of manufacturing in Australia, driven by high wages and strong labour unions, made it difficult for the industry to compete globally. The country's proximity to developing nations with significantly lower labour costs, such as Thailand, made it challenging to keep vehicle prices competitive. This was further exacerbated by the appreciation of the Australian dollar and the lowering of import tariffs, making imported vehicles more attractive to consumers.
The Australian government's decision to maintain zero or low tariffs on car imports accelerated the decline of the domestic industry. Local manufacturers struggled to compete with the influx of cheaper, imported vehicles, particularly from Japan and Korea. While protective tariffs may have helped, they were not a silver bullet, and Australia's small market size meant local manufacturers struggled to achieve the economies of scale needed to compete with global megafactories.
The government's retreat from financial support, combined with the industry's structural challenges, sealed the fate of Australia's car manufacturing sector. The last manufacturing plants, operated by Holden and Toyota, closed their doors in 2017, marking the end of an era for Australian automotive production.
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Competition from imports
Australia's car manufacturing industry was impacted by several factors, including competition from imports. The country's proximity to developing countries with significantly cheaper labour costs made it challenging for local manufacturers to remain competitive. For instance, the average annual salary of a manufacturing worker in Australia was AU$69,000, while a worker in Thailand earned only AU$12,500 per year. To stay competitive with Japanese and Korean brands, Australian carmakers had to keep vehicle list prices relatively low, impacting profitability.
Additionally, the lowering of import tariffs and the signing of Free Trade Agreements made it easier for foreign car manufacturers to access the Australian market. By 2017, 77% of all new vehicles sold in Australia were tariff-free, further intensifying the competition for local carmakers. The high cost of manufacturing in Australia, including wages and the strong Australian dollar, also contributed to the challenges faced by the local industry.
The Australian car market was relatively small, and local manufacturers struggled to achieve economies of scale. With five companies producing as many as 15 models, individual production runs were as low as 25,000 units, making it challenging to compete with larger international manufacturers. The emergence of more auto brands and the availability of better and more affordable car models from foreign manufacturers also put pressure on the local industry.
The shift in consumer preferences towards SUVs and small engine economic vehicles further impacted local manufacturers, who were known for producing V6 and V8 sedan cars. This change in buyer profile caught the manufacturers off guard, and they were unable to adapt quickly enough to the new market demands.
The combination of these factors made it increasingly difficult for Australian car manufacturers to compete with imports, ultimately contributing to the decline and eventual end of the country's car manufacturing industry.
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Frequently asked questions
There were several reasons for the end of Australia's car manufacturing industry. Firstly, the country was too small for domestic production and too expensive for exports. Secondly, the Australian government was tired of subsidizing carmakers that could never grow to succeed. Thirdly, the local manufacturers' large cars fell out of favour with consumers, who started to prefer SUVs and small-engine economic vehicles.
Australia's last manufacturing plant closed in October 2017, when Holden ceased operations. This was shortly after Toyota closed its Melbourne plant, and a few years after Mitsubishi and Ford had exited the Australian market.
Holden, Toyota, Mitsubishi, and Ford all manufactured cars in Australia. Holden was Australia's flagship brand and the first to offer mass-produced cars in the country.
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