Strategic Vehicles Import Supply Chain †Free Samples to Students

Question: Discuss about the Strategic Vehicles Import Supply Chain. Answer: Introduction The Australian automotive industry is witnessing major changes represented in the closure of the three major vehicle manufacturers, Ford, Holden, and Toyota by the end of 2017. Australia is a well-known country as a leader in car manufacturing since 1890's. The global changing conditions represented in the trade liberalization forced global vehicles manufactures to withdraw from high cost countries to low cost countries including Australia. According to the estimates of the Australian Automotive Aftermarket Association (AAAA) as cited in Neale (2017), about 25 thousand workers in the automotive supply chain business will lose their jobs and about 50% of the automotive component industry firms will close, and the other firms could adapt to change their business into other markets. However, the optimistic scenario suggests that the automotive industry would adapt through involvement in wholesale and retail of imported parts, and vehicles. The incentives offered by the Australian government and the low interest rates indicate that the Australian automotive industry shall witness a positive growth in the mid of 2018 (Motor trade association in Australia, 2016). The Australian economy is stable and the social protection scheme is strong which illustrate the optimistic scenario. The following sections address the Australian automotive industry background, the research objectives, the research questions, the reasons behind the withdrawal of the major three automotive companies from the domestic market, the impact of their withdrawal on the Australian economy and the industry workforce, the main causes of the closure decision and the actions that could be made by the government to manage the risk of the closure decision. History and background The Australian market used to offer an attractive climate for car production. Australian automotive industry has an innovative long history of car manufacturing. In the past, Australia was one of the 13 countries who owned the capabilities of producing a car from scratch. It could produce about half a million cars in 1974. Ford was the first car manufacturer in the Australian market, as it introduced its first car in 1896 (Barclay, 2017). The car industry, mainly focuses on producing large vehicles which attracted a large base of customers. The automotive companies operating in the Australian market are represented in Ford, Toyota, Holden, Nissan, Chrysler, British Leyland, Renault, Volkswagen and Rootes. The Australian government imposed high protection regulation on the automotive industry since 1965, including certain specifications of levels of local content, tariffs, and import quotas to ensure a high degree of the industry from the external competition. In the mid of 1980, the automotive industry witnessed major changes in the governmental policies known as the "Motor industry development plan". This plan aimed at reducing the level of protection of the industry. Recently, the strength of the Australian dollar negatively affected the competitive level of the automotive industry in the export market, while the prices of imported cars are lowered. In 2012, Holden announced cutting flexible jobs, followed by further job cuttings by Toyota in the several past years (The Allen consulting group, 2013). Labor cut decisio ns by the domestic manufacturers indicate their intention of shrinking their operations in the domestic market, which may lead to a complete shutdown of the industry if the governmental policies continued to lower investment incentives. Research objectives To realize the reasons behind the withdrawal of the three major companies from the automotive industry in Australia. To address the potential risks associated with the automotive industry closure in Australia. To discuss the impact on the workers in the automotive industry and assisting industries. To analyze the governmental policies that led to the collapse of the automotive industry. To address the potential of retaining the automotive industry and the component manufacturing within the domestic market. Research questions Should the Australian car industry be kept alive? Is it right to end the long history of the automotive industry in Australia? How the automotive industry closure will affect the Australian economy? How the former factory workers will find employment opportunities in other industrial sectors? Will be there any future opportunities in automotive manufacturing in Australia? What is going to happen to the car component industry and how its capability will be affected? Is there a real opportunity in the green automotive industry? Australia and the global automotive manufacturing industry There exist different factors of success within the global manufacturing industry, including the internal and external firm competition, trade barriers, and, exchange rate risks. To take the decision of investing in a foreign market, the investor is influenced by the governmental policies, including, incentives for investment. After the global financial crisis, the support of the Australian government to the automotive industry decreased. Other factors related to the weak governmental support, include, the high labor cost, the strong currency and the liberalization of the automotive industry (The Allen consulting group, 2013). Accordingly, the investments of the three operating companies would likely shift to other countries where invest incentives exist. The automotive worldwide sales recorded 88 million vehicles in 2016, showing an annual increase of 4.8% compared to their level in 2015. Companies also enjoyed high rates of revenues and earnings, but in the next five years, only few companies who will be able to introduce creative products and utilize their limited resources will survive. The development of innovative software cost is likely to increase and mergers and acquisitions are predicted to take place to (Parkin, Wilk, Hirsh, 2017). This analysis indicates that the industry is in serious trouble. The three car manufacturers who domestically operate are represented in Toyota, Holden, and Ford. Regarding the governmental policies towards the automotive industry, they decided that they cannot continue to create a competitive business due to low governmental incentives. Noting that the automotive industry has a high multiplier; as the economy benefits between 1.9$ to 9$ for each 1$ invested in the automotive manufacturing industry (The Allen consulting group, 2013). The recent years witnessed a shortage of providing the motor machines, as demand for the machines decreases it is likely that the car manufacturers withdraw from the market (Australian government- Department of employment, 2014). It is important to think of how the economy would look like if the automotive industry shut down. Also the withdrawal of the three major companies from the Australian market is likely to shift the main source of revenue from the vehicle itself to a new reevaluated value driver business strategy (KPMG, 2017). Accordingly, data should be analyzed carefully to estimate the upcoming trends in the automotive market. Domestic market share losses The Australian economy has switched to growing levels of vehicles imports as a result of the trade liberalization of Automotive. Tariffs gradually declined from 60% in 1984 to only 15% in 2000 and continued to decline to reach 5% in 2009, as declared in figure (1). The diversification of imported brands created a fragmented market, the domestic customer was allowed to choose among different types of vehicles. The automotive industry sales decreased from 300 thousand units to 120 thousand units in 2012 in Australia. As a result of the goods and services boom, and the appreciation of the Australian dollar, the consumers demand for imported vehicles increased, leaving the domestic vehicles unsold due to their high prices (Barnes, 2015). Also, the government will face the problem of importing right-hand-drive vehicles, in this case it would have to import from Japan and the UK at least (Department of commerce, 2016). Accordingly, it seems that the automotive industry in Australia is losi ng its market share and the decision of the three major automotive companies is not a sudden decision. The average age of the passenger vehicle is about 10 years, which is considered higher than its level during 2007 to 2010, as shown in figure (2). It is also higher than the UK average age of 7.3 years, and the age in Japan. The older average age reflects that the Australian customers are relying on vehicles that lack the efficiency and safety features of the new cars. The vehicle sales in the last years does not reflect the fleet renewal (Australian automobile association, 2016). About 62% of Australians are likely to pay more money to get a vehicle with zero emissions. The growing number of population ensures that car sales would remain strong (Morgan, 2017). Consumers would benefit from the tariff reduction and competition in the global market, but the local market will lose the investments and jobs. It should be considered that when the market is not optimally operating and the characteristics of customer choices are not clear, prices would increase (Australian automotive aftermarket association, 2016). This assumption is likely to come true when the three major automotive companies shut down their business by the end of the year. The reasons behind the withdrawal of car manufacturing companies like Ford, Holden, Toyota from Australia Although Toyota sells about 3.5 Mn. cars, followed by Holden that sells about 2.1 Mn. cars and Ford that sells 1.7 Mn. cars (Morgan, 2017). The three Australian major automotive manufacturers, Ford, Holden, and Toyota announced in 2014 that their production plants are going to close by the end of 2017. Their reasons are related to the economic conditions within the Australian market, which indicate the unavailability of the car manufacturing. For example, they could export only 40% of their domestic vehicle production in 2012 and the imported new vehicles represented 92% of sales, representing more than one million car sales per year, as shown in figure (4). Cars imported from USA, Thailand, Japan, Korea and Germany are preferred by the local customers. Moreover, the decision of the government to cut the import tariff with Japan because of the free trade area agreement means that imports from Japan will increase, and imported car prices will decrease during the following years. Recently, the medium size sedan cars are the focus of the car manufacturing assembly, which also shows unsustainability, for example, the Toyota Camry (Malihi Shee, 2017). Australia also agreed to lower the import tariff on vehicles from Thailand, this policy resulted in importing of 2 Mn. cars of familiar brands, including, Ford, Holden, and Toyota, the three companies who decided to close their plants. Also imported brands extended to include Nissan, Honda, Mazda, and Mitsubishi. Australia could only export 100 vehicles in return to Thailand as, the latest impose non-tariff barriers. The major car exporters to Australia are Japan and Thailand (Dowling, 2017). T his implies that the car manufacturers will move away from export-based manufacturing to the closure of their plants. The employment will be affected in both of the component making and automotive assembly. The vehicle manufacturing industry is switching to component parts import. Also, the Australian market is limited which affects the ability of companies to exploit economies of scale, and the import penetration is considered among the major reasons for vehicles' plant closure. Component suppliers will probably switch to other manufacturing activities. For example, Ford assisted its workers to find other employers (Auto skills Australia, 2016). Toyota and Holden illustrate that high production cost, changing consumer preferences, high labor cost, the strong currency and the liberalization of the automotive industry and the fragmented domestic market are the main reasons for the closure. Automotive closure impact on the workers The automotive industry employs more thousands of workers involved directly and indirectly, representing 8.5% of the total workforce, according to the Australian Bureau of Statistics as cited in Valadkhani (2016), figure (5), shows the trends and the distribution of workers in the automotive manufacturing during (2002- 2013). The job losses are concentrated in the professional, scientific, and technical services. In 2009/2010, the output of the car manufacturing industry accounted for about 20 Bn. $. The multiplier effect of the employment in the economy is seven, meaning that one million dollar demand can directly and indirectly generate seven jobs. This industry provides jobs in engineering, scientific research, design, architecture, computer systems, accounting, law, market research, advertising, management and consulting. As the sectorial linkages differ, the losses of full-time jobs also differs (Valadkhani, 2016). There is no clear vision about what is going to happen after the closure of this industry, but definitely, the car component industry will not survive and its capability will be affected. In 2013, 118 automotive supply parts were surveyed and the results showed that about 32% of the major suppliers declared that the major three vehicle manufacturers contribute to about 95% of their business (Colliers International, 2016). The full industry shutdown by the end of 2017 will negatively affect not only the parts suppliers but also more associates. Causes of the three major automotive companies withdrawal from Australia The three automotive companies produce small, medium, and large vehicles. The companies are based in Victoria and South Australia. Automotive production is supported by about 134 supply chain firms to design and manufacture car components. The share of the Australian automotive industry in the global production of automotive sector accounts for only 0.3%. There are major trends that shape the global automotive sector, according to Australian government (2014) as follows: The growing markets in Asia, especially China, the largest vehicles manufacturer and sales market. The shift of vehicle manufacturers towards the global platform to take the advantage of the large economies of scale, flexible production processes, and economic arbitrage. The change in customers' preferences towards smaller, and more fuel efficient cars. These trends are considered the main causes of the decision of Ford, Holden and Toyota to close their plants in the Australian market. It is important to focus on the cases of each company. Accordingly, Ford, and Toyota are discussed in details to provide their justifications more deeply, as follows: Toyota Australia: Is considered a leading vehicle manufacturer, distributer and exporter of cars. It operates under the Toyota and Lexus brands. The company's operations are mainly in sales and marketing, product planning and development, corporate services, and manufacturing and purchasing. Its customers include private and government buyers of cars and fleets. Following the announcement of closure in 2014, the company decided to switch its business to be a national sales and distribution company (Toyota, 2016). It is obvious that the domestic market has lost a very important investor who will withdraw his money from the market due to the economic conditions that do not support automotive foreign investments. Ford Australia: Is a global hub for designing, developing, and testing Ford vehicles. In 2012, the company invested 200 Mn. A$ in RD, with total investments of 1.9 Bn. A$ during (2007-2012). The company annual purchases from the local parts suppliers account for 545 Mn. A$. The cost of manufacturing in the Australian market is about the double of the cost of similar facilities in Europe and nearly four times greater than the cost of operating in Asia (Ford, 2013). As the Australian government did not take any protection policies, Ford had to withdraw from the local market. The recommended governmental policies to save the automotive industry in Australia The Australian government is committed to reduce the carbon emissions to zero by 2050, once the electric vehicles technology, and the battery are economically available, they will be introduced in the local market. The government started to develop policies that support investment in the electric vehicles in some states (ClimateWorks Australia, 2017). The intention of the government towards transforming into electric vehicles may reopen the market to automotive industry once again in the future According to The senate (2015), the Automotive Transformation Scheme (ATS) introduces 3.4 Bn. $ in addition to 1.3 Bn. $ to be funded to the green car innovation. The growing demand for environmentally-friendly cars offers an opportunity to car component manufacturing, which could be used in the domestic market of exported to other countries. According to Price water house Coopers (2011), the Australian government has plans for expansion in the car components manufacturing. The Automotive Industry Structural Adjustment Program includes, structural, and labor adjustment to provide training to redundant workers. The Government also established the Victorian Automotive Transition Taskforce to engage the supply chain companies in their diversification plans. Accordingly, Ford, Toyota and Holden will continue to operate specific plants in Victoria. Moreover, the government purchased the site that was formerly owned by Holden at Fishermans Bend, in order to maintain the Australian automotive alive with a new design, technology, and engineering (Victoria state government, 2016). Accordingly, the government took the decision of keeping the iconic presence of the automotive industry in Victoria in order maintain the minimum level of the presence of the industry and not totally shut it down. The Australian government is likely to assess the skill levels across the automotive and parts manufacturing workers, and to identify re-skilling within the workforce (Australian government, 2014). Australia is not the only advanced economy that faced the automotive industry withdrawal from its market. It can utilize its skillset through investing in emerging markets that require the same capabilities. For example, Australia could invest in the carbon fiber industry as it has the knowledge required to boost the carbon fiber component of automotive parts ( The commonwealth scientific and industrial research organisation , 2015). The Australian competition consumer commission (2017), recommends that the car manufacturers should share technical information to assist in creating schemes to be adopted to assess the cost and benefits of alternatives. The production contracts assisted in shifting the Australian companies away from the negative effects of the automotive industry shutdown towards an advanced manufacturing sector (Price water house, 2017). The transitional programs created a platform for the industrial sector to engage in global production activities. According to the Australian automotive dealer association Ltd. (2016), the new car dealers are likely to operate in new car, used car, parts, accessories, and after sales services, and finance and insurance services. Conclusion The Australian economy has switched to growing levels of vehicle imports as a result of the trade liberalization of Automotive. Regarding the governmental policies towards the automotive industry, the three car manufacturers who domestically operate decided that they cannot continue to create a competitive business due to low governmental incentives. The Australian market is limited, which affects the ability of companies to exploit economies of scale, the import penetration, the strength of the Australian dollar, and the high labor cost is considered among the major reasons of vehicles' plant closure This implies that the car manufacturers will move away from export-based manufacturing to the closure of their plants. The vehicle manufacturing industry is switching to component parts import. Component suppliers will probably switch to other manufacturing activities. 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