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How the Middle East was lost

All aboard: Examples of Holden's long-wheelbase Caprice board a ship headed for the Middle East.

Poor quality cost GM Holden its Middle East business, says company executive

Holden logo11 Jul 2011


QUALITY and service problems played a large role in undermining what had been a successful GM Holden push into Middle Eastern markets, according to one of the company’s senior purchasing executives.

The admission came during a frank exchange between parts suppliers and three senior purchasing officers from the local vehicle producers at last week’s national conference of the Federation of Automotive Products Manufacturers.

hile optimistic about the industry’s future beyond 2015, all three urged parts suppliers to redouble their efforts to stay competitive and come up with products that can help set Australian cars apart from their rivals.

“We had the Middle East business, anchored in Melbourne, and we lost that we lost it because of poor quality,” said GM Holden’s Michael Filazzola.

“It was also in the way we way we actually executed the program. That gave us a bit of a realisation that the rest of the world has passed us by.”

He said GMH executives thought they were doing a good job when they were not.

“We stood still, we thought we actually were doing a good job, but we really weren’t.

 center imageLeft: Recent Holden exports.

“It was nothing complicated. It was simple focus. We lost our way. We assumed things would happen, as opposed to executing and doing the follow-up.”

Toyota stressed the importance of exports to its Australian operations, with purchasing officer Barry Budge saying the company still maintained a staff of Australians in the Middle East to service that business.

“We have been exporting for quite some time and we have a very strong focus on our Middle East customers,” said Mr Budge.

“We need to take their tastes and requirements into account. That’s why we have so many people over there trying to capture that information and data first-hand.

“But we cannot lose sight of the domestic market. If we don’t have a domestic market, we won’t have an export market, and that means we won’t have manufacturing. The domestic market is extra-important.”

Ford Australia’s Carl Parkin said the Blue Oval was considering what platform to manufacture after 2015 and suggested the company may get back into export during the next model cycle.

“If we produce an alternative vehicle to the Falcon and Territory here in Australia, it has to be exportable,” he said.

“We are quite restricted at the moment in that we can only produce right-hand-drive vehicles. That’s been a help to us in some ways but has also been a challenge in terms of finding alternative markets for the vehicles.

“In terms of the future, it will definitely be a global platform and a vehicle we can export.”

When asked about the imbalance caused by the strong dollar and Australia’s tariffs – the lowest of any car-making country in the world – Toyota’s Mr Budge said nothing was going to change there.

But he said Australia – and the industry – should fight harder to gain access to regional markets.

“There are a few countries in the region where the barriers are still there. They’ve got to come down and they have got to come down quickly,” said Mr Budge.

“If they don’t, we’re not going to be able to export into the region. If we don’t do that in the next five years none of us will be here.

“We all have to work as an industry to bring down those barriers so we can export into those markets.”

Ford’s Mr Parkin reminded the conference of the dirty trick played by the Thais after Australia and Thailand had concluded a free-trade agreement.

“We had a nice agreement with the Thais saying there would be zero tariffs and then they slapped a sales levy on six-cylinder vehicles and stopped us straight away,” he told the conference.

The supply executives were also challenged on their attitude to dropping local suppliers and switching to imported parts for their Australian-built cars.

All three said they preferred to have local suppliers, although their products and their management sometimes left room for improvement.

Mr Filazzola said GM as a group had changed tack and was now concentrating on working closely with suppliers and bringing them in early in the development process.

After years of “cost-down” pressure on local suppliers, Mr Filazzola said GM was now approaching suppliers more as partners.

“So we’re busy changing ourselves and we have put a lot of work into developing suppliers, in the areas we need to,” he said. “I’ve seen a big shift in relationships with suppliers.”

Mr Filazzola has only been back in Melbourne for a few months after a four-year stint in China, where he spent a lot of time developing suppliers.

“They are now probably the most robust supplier group anywhere. And we’re doing the same thing here.

“GM has gone through a turbulent few years, and we’ve realised that suppliers are pretty much part of us. We build here, they need to be with us, we’ve made that decision.”

Mr Budge said Toyota also wanted to have suppliers close at hand, but he was concerned about falling skill levels in the management ranks.

“We are constantly battling to maintain the local supplier base, and the fundamentals that should be there are sometimes not,” said Mr Budge.

“That’s the result of a high churn factor across parts suppliers. At the moment I think quality is suffering because we don’t have the right skill and expertise.

“We have a high turnover of quality managers in the industry and I think to achieve the costs we are dependent on – and that we are demanding from the suppliers – we are cutting back on those skills (that) we need to go forward and have a future.”

But there are many instances of supplier behavior that cause anxiety for the three OEMs.

“The thing that frustrates me the most is we get to the point of no return and suddenly a massive issue appears which could have been avoided if we had talked about it earlier,” said Ford’s Mr Parkin.

“Whether it’s about financing or quality or whatever, the lack of communication – sometimes it’s on our part as well – that drives extra costs and issues into our businesses could be avoided just by communicating.

“We understand that we make decisions that cause people problems. I would much rather people put their hands up at the time that is happening, rather than three months down the line have a bigger problem.”

Each executive stressed the need for parts-makers to come up with new products that are better than those of competitors and which give local cars an advantage.

“If I was setting up a parts business I would look for technology that would give me a product no-one else has,” said Mr Filazzola. “If you have that, you’ve got a selling point.”

Mr Parkin agreed it was about differentiation: “I think technology is a key differentiator. And being able to introduce that, not only in this market, but then be able to export it to other markets and have a product that’s unique, that’s a good business.”

Mr Filazzola said that, while some contracts had been awarded to offshore suppliers, the local industry was not feeling the full competitive pressure from China.

“The Chinese supplier base is very dedicated. They are hungry for the business. When they say they are going to do something, they actually do it.

“They put in infrastructure, they put in people and they have a lot of capital backing. They are very dedicated and they want to grow.”

But, with a market that grew 38 per cent in 2010, they are busy at home.

“To be honest, I had a hard time getting suppliers to export because there is so much domestic growth in China,” he said.

“They would pretty much knock it back. They didn’t want to grow outside China they wanted to grow in China.

“Don’t run around thinking the Chinese are going to take away our business. They aren’t. They have so much work there, there really is no motivation for them to export.”

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