General Motors decided to stop its manufactures of cars in the Holden factory in Elizabeth, South Australian suburb. Many of the workers will be left as unemployed and Toyota Motor Corporation also shut its manufacturing plant in Victoria. Ford Motor Corporation also closed the manufacturing site of cars in Victoria in 2015. The automotive industry in Australia faced the economic blow where the industry does not have any sign of recovery. Near death of automotive industry in Australia will leave an economic gap, employment gap and investment gap in Australia. Holden itself injected more than a billion dollar into the South Australian economy; therefore, this loss will be significant for the Australian economy also. South Australia is 60% of the desert and it has not suffered from the soaring currency of rising wages; jobless rate has dropped in this area (News.com.au 2018). After closing of Holden; it will provide an uplift in the unemployment rate. Australia has long-past in the car industry as first car manufacturing factory started in the year 1901 and Holden was the country’s best-selling car till 2011. However, in the car manufacturing sector; only 11,500 people were employed directly (Abc.net.au 2018). Many of the supplier companies faced the issue after shutting down of Holden that will make unemployed more than 2,500 jobs in Australia.
The threat of new entrants: In the automobile industry, it is difficult for the new manufacturing company to enter as huge investment is required. After establishing the manufacturing plant, hiring skilled employees and setting up a distribution network is required to sell the cars. New automobile company will not be interested to open up the manufacturing plant in Australia as the car manufacturing industry in Australia is not flourished and many of the international key players left Australia. Barriers of new entrants are an investment, Australia’s car manufacturing industry history and getting access to the raw materials. Therefore this force is low.
Competitive rivalry: In Australia, international car manufacturing companies left, for example, Toyota and Ford Motors. Holden decided to stop the car manufacturing in Australia. In Australia, a strong regional development trend in the car manufacturing industry is seen. In Australia, four historical car brands which made the industry profitable are Holden, Ford, Toyota and Mitsubishi. Any car manufacturing brand trying to exit may face large losses as the level of customer loyalty is high in this industry (Stanford 2017). The rivalry among the car manufacturer has decreased as the manufacturers stopped producing cars in Australia. Therefore, competitive rivalry is low in the automotive industry. Australia is now dependent on importing of the cars.
The threat of substitute: Substitute of cars can be taxis, buses and public transport for the common people. However, the common people want to have their own car and people can purchase passenger vehicles as well. Public transport cannot provide the convenience and accessibility which can be provided by owning the automobile. In Australia, the car manufacturing companies had higher production; however, they did not have enough demand. Australia was in love with foreign cars as the foreign cars were cheaper and better equipped. The threat of substitute of car manufacturing industry in Australia is medium.
Bargaining power of buyers: Individuals purchase a single vehicle and government agencies or the corporations can purchase a large number of vehicles. Buyers who want to have a fleet of vehicles can bargain and individual buyers can shift to any other brand if the price is high. In Australia, Government has always put a high-level tax for the automotive industry as large numbers of foreign car manufacturing companies existing in Australia (Soo et al. 2016). The buyers in Australia are price sensitive and foreign cars in Australia are cheaper than the national one. Brand of automobile industry focuses on design, quality, competitive pricing and building of the customer loyalty. This force is also medium.
Bargaining power of suppliers: In Australia, suppliers of car manufacturing industry are strong and they provide a series of many parts of cars. Few of the suppliers are significant and the risk of forwarding integration is low from suppliers. Car manufacturing companies in Australia cannot export perfectly as Australia is surrounded by developing countries with cheaper labour cost (Bloomfield 2017). For the Free Trade Agreements with other countries, many of the countries import the familiar brands of cars to Australia. The car manufacturing companies in Australia hold immense pressure on the suppliers as plenty of other suppliers are available in Australia. Switching cost to other suppliers is not large for the automobile industry. This force is also medium.
Before the announcement of Holden’s stopping of car manufacturing, Toyota also announced the same. Ford Motors also left Australia putting a stop to car manufacturing. At present, Renault, Nissan, Mitsubishi and Mazda are some of the competitors.
After shutting down of Holden car manufacturing and assembly, Australia’s 70-year old car manufacturing industry will close. The reason behind poor condition of Australia’s car manufacturing industry is due to the transnational corporations, wages and conditions of the employees, the role of trade unions against the employees and successive government. Australian Manufacturing Workers Union declared that Liberal-National Government is responsible solely for the poor condition of automotive industry in Australia as it ended subsidies to the car companies which have been started by Labour Governments (Glover and Edquist, 2015). These series of shutting down the car manufacturing is a sign of warning for the auto manufacturers in Australia as the car manufacturers will shift to the cheap labour nations with low-wage countries. In Australia, labour wage is not cheap and the car manufacturing companies have to bear a large wage. In order to reduce the expense of car manufacturing, the car companies slashed the numbers of employees. The previous government increased tariff protection and in 1983, Industry Minister Button envisaged bureaucratic regulation (News.com.au 2018). He reduced the tariff, started annual model production and export credit scheme. Australia is one of the thirteen countries which can produce a car from the scratch. Government’s increased tariff and higher import duties may impact on the car manufacturing industry in Australia.
As stated by Conlon and Perkins (2018), the Australian market is small for the car industry and this industry may not be able to fully exploit the economies of scale. Therefore, the motor vehicle industry collapsed and it could adversely influence the viability of passenger vehicle industry as well. Motor vehicle manufacturing industry in Australia provides $ 8 billion inputs in the different economic sector in Australia. In addition, Free Trade Agreements with car producing nations like South Korea, China, Japan, Thailand and the US provided free tickets to the countries to sell cars in Australia. FTAs cannot provide a positive impact on Australian car manufacturing companies and it may result in a forty-to-one imbalance in trade flows. GDP rank of Australia is 13th and GDP growth of Australia is 0.6%. Therefore, the current economic condition of Australia is not bright and the current inflation rate is 1.8% (Abc.net.au 2018). The unemployment rate in Australia is 5.5% at present. Job losses lead to a problem in the economic factor like Professional Scientific and Technical Service (FSTS) sector as well.
Australian vehicle buyers have always been provided maximum preference to the foreign brands as these vehicles are cheaper and better equipped with. Due to the high tariff, the cost of the cars is high in Australia. Holden produced higher numbers of vehicles than selling numbers. The recent development of the vehicle performance, style and comfort; the buyers of vehicles try to find everything in a single car. Now the buyers of Australia purchase vehicles from the distributors that exported the cars from foreign lands (Clibborn et al. 2016). Additionally, sudden decisions of the car manufacturing companies of shutting down of the factories led to the loss of jobs of the employees.
In recent time, car concept has captured the imagination of the buyers. The automobile industry is relying heavily on autonomous technology. In Australia, the car manufacturing companies tried to provide leading-edge safety technologies for the customers which are advance in global markets (Glover and Edquist 2015). Holden needed to provide the technologies so that they can be competitive with other marketers and the cost of the vehicles remain higher. They use environmental technologies which are important to control the reduction of carbon emission. In car manufacturing plants, the car companies use advanced technologies which are significant for the automotive industry. It leads to higher price and government imposed tariff as well.
Reference:
ABC News. 2018. Holden and Australia’s history of car manufacturing. [online] Available at: https://www.abc.net.au/news/2017-10-08/holden-closure-australia-history-car-manufacturing/9015562 [Accessed 26 Aug. 2018].
Bloomfield, G.T., 2017. The world automotive industry in transition. In Restructuring the global automobile industry. pp. 19-60.
Clibborn, S., Lansbury, R.D. and Wright, C.F., 2016. Who killed the Australian automotive industry: the employers, government or trade unions?. Economic Papers: A journal of applied economics and policy, 35(1), pp.2-15.
Conlon, R. and Perkins, J., 2018. Wheels and deals: The automotive industry in twentieth-century Australia. Abingdon: Routledge.
Glover, J. and Edquist, H., 2015. Women in the early Australian automotive industry: A survey. RMIT Design Archives Journal, 5(1), pp.24-35.
Lockrey, S., 2017. Temporal ripples-Automotive industry influence on contemporary Australian design practice. In AHA 2016 Automotive Histories: Driving Futures. pp. 1-16.
News.com.au. 2018. Holden to end manufacturing. Available at: https://www.news.com.au/holden-to-end-car-manufacturing-in-australia-and-import-cars/news-story/35a9521c87efb63e2185fc693e9ab789 [Accessed on 25 Aug 2018]
Soo, V.K., Compston, P. and Doolan, M., 2016. Is the Australian Automotive Recycling Industry Heading towards a Global Circular Economy?–A Case Study on Vehicle Doors. Procedia CIRP, 48, pp.10-15.
Stanford, J., 2017. Automotive surrender: The demise of industrial policy in the Australian vehicle industry. The Economic and Labour Relations Review, 28(2), pp.197-217.
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