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Parts industry: “It’s a bloody disaster”

Wider impact: The Toyota Camry will no longer be made in Australia from 2018 - leaving many local parts-makers stranded.

Components industry may not even be able to supply car-makers out to 2017

11 Feb 2014

PARTS-MAKERS, already struggling with historically low levels of production, may not be able to continue operating long enough to enable Ford, GM Holden and Toyota to make graceful exits in 2016-17, according to the Federation of Automotive Products Manufacturers (FAPM).

Speaking with GoAuto today, FAPM executive director Richard Reilly said most of Australia’s 100-plus parts makers will not be able to diversify into other products outside the automotive industry, leaving them with bleak futures.

In addition, Japanese suppliers such as Denso and Aisin – among others – which are in Australia exclusively to service Toyota will have no interest in diversifying or consolidating, Mr Reilly said. They will just leave when Toyota does.

“It’s a bloody disaster,” he said.

“It’s not just one company closing down. It’s a whole industry closing down. That’s what we are looking at.” Mr Reilly said virtually all the parts makers – especially the Australian-owned companies – were in a financially weak state after the last five years of falling production by the car-makers.

He said they have no cash to invest in research and development and new products.

 center imageLeft: FAPM executive director Richard Reilly.

“Not only that but, if the volumes aren’t there – and we are at historic lows anyway – you are doing less R&D by definition and certainly making less investments.

“There’s no future (new model) programs coming on, therefore you aren’t claiming under the Automotive Transformation Scheme for your R&D and your investments, you’re not taking as much money out of the scheme and that’s not great either.” The end result is that many parts makers will just shut up shop.

“Some will probably survive, but it is hard to see who. Some will have different diversification strategies but you need that underlying revenue base. Without that you can’t have a diversification program.

“Unless they have that revenue base, from three vehicle manufacturers or two or one, they can’t sustain themselves with just a diversification strategy, if they’ve got one.” Mr Reilly’s fear is that parts-makers could start shutting their doors early, causing supply chain disruption and leaving Ford, GM Holden or Toyota unable to make a complete car.

“Hopefully it doesn’t come to that. But I think we need help. We need some advice and we need some structure about how we are going to do this.

“It’s not just one company closing down, it’s a whole industry closing down and that’s what we are looking at. We need a measured, very high level government response with industry input, otherwise it’s not going to be great.” Mr Reilly said it was unlikely any of the parts-makers who were part of, or closely aligned with, Toyota’s keiretsu would try to stay on in Australia.

Japanese companies that came to Australia to service Toyota include Denso, Aisin, Australian Arrow, Toyota Boshoku and Toyota Tsusho.

“They’re in the keiretsu. They’re here because Toyota has some ownership or they have very strong relationships with Toyota as companies,” Mr Reilly said.

“They’re only here because Toyota is here. If Toyota ceases manufacturing vehicles, I think that those multinationals will not be here for the long term either because they won’t have business here.” Mr Reilly said the FAPM would complete its submission for the Productivity Commission hearing scheduled for the 19th of the month, but he was not certain about whether he would appear.

“We will go through the process at this stage, unless my president tells me something different.” He said he thought the PC’s Position Paper was “very disheartening” as it basically recommended that Australia didn’t need a car industry.

He said he was also disappointed that in its position paper, the PC failed to meet the task set out for it in the Terms of Reference handed down by the Treasurer, Joe Hockey.

In the Terms of Reference, Mr Hockey asked the PC to propose ways in which the car industry could be sustained in Australia.

“I don’t think they even addressed that particular topic. And they didn’t offer the comparisons of national car industry assistance around the world.

“Maybe they found it all a bit hard.” Toyota quits: PM moots extra infrastructure funding Toyota quits: Decision was a “close” call Toyota quits: Akio Toyoda ‘heartbroken’ Toyota quits: Australia to lose car-making in 2017 Toyota quits: Decision was a “close” call. Toyota quits: Next-gen Camry was “close” Toyota quits: Devastating day for industry, says union Toyota quits: Axe hangs over tech centre Toyota quits: Local industry ‘will never be the same’

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