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Dire prediction for parts-makers

Going, going: The Australian automotive parts industry is in “serious trouble”, according to Deloitte partner Damon Cantwell.

More than two-thirds of the component sector expected to close by 2017: Deloitte

14 Dec 2015

ABOUT 100 parts-makers are expected to close by the time car manufacturing ceases in 2017, costing Victoria and South Australia tens of thousands of jobs, according to industry consultant Deloitte Australia.

In a sobering assessment of the immediate outlook on ABC Radio National's Breakfast program, Deloitte partner Damon Cantwell estimated that two-thirds of the remaining parts-makers would be in “serious trouble” over the next 12 months.

In supporting this view, Federation of Automotive Products Manufacturers (FAPM) manager Tom Chappell said the closures were going to be a heavy blow to the local industry and the economy.

“It’s going to be substantial and it’s going to be significant,” he said.

Many of the closures would be made by overseas companies closing Australian subsidiaries, according to Mr Chappell.

“The problem is that the products that they make are heavy, highly engineered, they’re expensive and they are expensive to transport,” he said.

“When your customer wants sequenced, in-line delivery of those components, it doesn’t make sense to locate your supply plants in another country, so when your manufacturing customer is overseas, that’s where you have to locate your supply plants.

“This is a negative. This is plant and equipment that was established here that was productive and now it’s leaving the country.” Mr Cantwell said it was almost too late to do anything about it if a company had not already started diversifying or exporting as “that window is closing rapidly”.

There were examples of companies that would survive the closure of the three car assembly plants – Ford, GM Holden and Toyota – by the end of 2017, but they had laid down their plans some years ago, according to Mr Cantwell.

He said the local arm of the German giant Robert Bosch group and the relatively small Melbourne parts-maker MTM were examples of companies that had planned ahead.

Bosch Australia was now the main source for the Bosch group of power diodes, a critical part used in vehicle alternators. It will soon be able once again to sell diodes to customers other than Bosch, and expects to double output to almost 200 million a year by 2020.

In addition, 95 per cent of the engineering Bosch does in Australia is for offshore customers, maintaining high skills jobs in Australia.

MTM makes door checks and gear selector mechanisms that sit on the top of the centre console. It has been exporting its door checks for some time and now provides the door checks used on every Cadillac.

The company recently diversified and now manufactures all-terrain vehicle, the Tomcar.

“MTM has been at the diversification and export game for 20 years,” Mr Cantwell said. “None of this happened overnight.” “(MTM chief executive) Mark Albert has really done the hard yards over a number of years to insulate it from what’s ultimately happened in terms of the closure of the local car manufacturing here.” But Mr Cantwell said he was not optimistic about the chances for other companies to achieve similar transformations.

“That window is closing rapidly. One of the reasons is that MTM and Bosch have seen this shift in domestic manufacturing a long way out.

“So, for companies who are just starting that process now, or who only started 12 months ago, 18 months ago, when the announcements were made, they are really playing catch-up and they need to be very smart about how they go about their market targeting.

“The other aspect is to make sure that within their own management teams, and this is not always the case, that they have the right skill sets around market development, marketing and the R&D story, which is so important to long-term exports.” Mr Chappell said one of the most interesting aspects of the MTM story was that the company had a high percentage of engineers on its local workforce.

“MTM has now got a business model where they have a high proportion of the high value jobs based here in Melbourne.

“They have established a plant overseas to service those companies in low-cost environments. They can do those low-value jobs efficiently.” Mr Cantwell said the Tomcar project at MTM was indicative of a developing trend around the global vehicle industry of manufacturers establishing several smaller-volume plants instead of one large plant.

“What has been a bit lost in the local debate over the last two or three years is, what we have seen globally around new styles of vehicle manufacturing and you’d argue that at the micro level, Tomcar is an example of that.

“Companies like Mahindra Reva, an electric vehicle company in India, is putting plants up around the world that only have capacity of 30,000 units a year. Now this is revolutionary compared to what has happened over the last 60 years of car manufacturing, where bigger has been better.” Mr Cantwell suggested that it might be too late even to look at this style of manufacturing in Australia.

“There are windows closing left, right and centre and this is another of them.

“The reality is, with 12 to 18 months to go, and I should preface this by saying if you look at (the possibility of) these new-style manufacturers establishing here, you are not going to save 150 automotive suppliers.

“You might save 20 or 30, but the security of the skill base and the technology, the engineering smarts that goes with it, potentially can be secured. As with all these things, time is running out.”

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