The Australian automotive sector has been almost powerless against the onslaught of international competition.
Producing less than 1 per cent of the world's vehicles, it finds itself in a parlous position where one more significant event - further appreciation of the Australian dollar, another oil price rise or the failure of a significant parts maker - could make the decline irreversible.
The car and parts sectors have been pummelled by massive imports from new sources such as South Korea, Thailand and China. The industry has been hurt a strong Australian dollar and, most recently, hit by falling sales of six-cylinder models at home.
Profit margins are non-existent, which means no one is willing to invest in the future.
That is why federal and state governments came up with a $100 million package for Ford last month, in return for a commitment to invest in a new Falcon model. But the giant Ford group, which is in trouble in the US, was not prepared to commit to the project at a time when Falcon sales were sagging.
Changes in the industry are only just starting to be reflected by production volumes. Vehicle production reached a 22-year high of 411,000 units in 2004, but that figure dropped 6 per cent to 388,000 in 2005.
The drop this year will be much sharper following cuts by Ford and Mitsubishi and the cancellation of GM Holden's third shift late last year.
Toyota will also produce fewer cars as it is staging the introduction of its two new models, the Camry in July and the Aurion V6 later.
The combined effect of these cuts is a massive reduction in the efficiency of the parts industry. This has been compounded by the decision of GM Holden and, to a lesser extent, Toyota, to source parts overseas while preparing their next models for market.
The decline in activity has also had an effect on the macro scale, as the surge in vehicle imports in recent years and the loss of parts contracts to overseas suppliers has worsened Australia's trade balance.
The automotive industry has been the best-performing manufacturing sector - its exports rising above $5 billion again in 2005. But that is almost insignificant compared with the automotive import bill.
In 2005, Australia imported $23.5 billion worth of vehicles and parts. Since 2001, imports have grown at about $1.3 billion a year, but in 2005 they jumped by $2 billion.
The removal of virtually all tariffs in recent years, the replacement of wholesale tax on cars with goods and services tax, and consistently low interest rates have made cars cheaper than ever, accelerating the new vehicle market.
There have been four consecutive annual sales records since 2002, but unfortunately for the local producers, all of the extra sales are imports.
The proportion of the market taken by local cars has slumped from 40 per cent in 2001 to less than 30 per cent - the lowest share for any domestic automotive industry in the world.
Most of the extra sales have been in the small and light-car sectors, where prices can be as low as $14,000.
The Australian love affair with the six-cylinder car is over, undermining the local industry's 50-year-old foundations. Sales of the Ford Falcon and Holden Commodore have dropped by 20 per cent or more, shaking the local industry and threatening its survival.
Slumping local car production is making life tough for Australian parts makers.
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. It seemed that they might have jumped the gun to fast, But maybe it was the plan ?
Originally Posted by SlickHolden
Looks like Toyota are certainly sourcing their parts globally.
