Motor Vehicle Manufacturing in Australia

Overview

Thomson (2003) explains that the manufacturing of motor vehicles is a global game. Thomson (2003) argues that Australia does not really have domestic businesses that manufacture motor vehicles as the three major car makers (GM Holden, Ford and Toyota) are all subsidiaries of foreign companies. However, this is not the case, GM Holden for example produces many cars a year in Australia for Australian consumers as well as engines for export.

Industry Attractiveness The Ibis report (retrieved 1 August 2010) shows that the motor vehicle manufacturing industry in Australia is a $11.8 billion industry where 19,025 are employed. The industry is said to grow annually by 3.1% with just over 100 businesses working under the motor vehicle manufacturing banner. The industry in Australia exports $3 billion to overseas customers and manufacturing plants, this number is only said to expand because of globalization factors such as international trade.

Porters Five Forces Model

Porters Five Forces – Extended 1.Threat of new entrants According to Wright (2008) the motor vehicle industry is volatile in Australia as there is an ever present threat of other international and domestic car companies entering the market, however form a standpoint of a totally new company entering the market this would be extremely hard. Wright (2008) explains that there is very high barriers of entry including; •High fixed costs

•Excessive number of participants within the industry •Small size of domestic market •Competition with some of the largest multinationals As the passenger motor vehicle production has dropped over the years, seen through the -3.6% decline, (comparable to last year) the results have suggested that new entrants are simply from overseas manufacturers because; as Thomson (2003) puts it economies of production variation are lower overseas.

2.Bargaining power of buyers – ability to place the firm under pressure Ruthven (2004) notes that end consumers are very important to the survival of the industry, moreover economic down-turns and other uncontrollable environmental events can affect the decisions of expenditure for households, including motor vehicle purchasing. Within Australia the reduction of interest rates attempt to boost spending. Rather Ruthven (2004) suggests that Australians are more concerned about job losses, thus more movement in interest rates and income will determine whether or not spending on big purchase decisions such as motor vehicles will be made. Wright (2008) also notes that consumer sentiment will rise once again in 2010.

3.Bargaining power of suppliers

The bargaining power of suppliers relates directly to the market of inputs in the case of motor vehicle manufacturing the suppliers of raw materials. Key external drivers •World exchange rates oWhen the Australian dollar rises to much this means that imported cars and car parts are cheaper to run and buy within Australia

•Price of crude oil oThe price of oil affects the types of cars consumers buy, with an ever increasing oil price consumers turn towards alternative energy vehicles, LPG or hybrid engines •Import taxes oIncreased prices for imported motors could be detrimental to Australian made cars with foreign parts.

•Domestic goods prices oThere are cost pressures on manufactures of motor vehicles as the price of crude goods (metals) increase, these costs eventually get past on to end consumers

4.Threat of substitutes Imports are considered a high and ever increasing opportunity for Australian car substitutes, with the rise of the Australian dollar and increasing fuel prices, imports are becoming ever more popular. Currently Australia buys $16.9 billion worth of imports with 45% of these from manufacturers in Japan. Furthermore with the increase in fuel prices LPG and hybrid vehicles will substitute normal petroleum engines.

5.Industry Rivalry Within the motor vehicle manufacturing industry rivalry will always be rife, there will always be an industry favorite and industry competitor seen as below average. With new technologies coming out constantly it is those who can keep up-to-date or even ahead of time that will succeed. As Wright (2008) explains the major risk index is first competition then imports followed lastly by life cycle of cars.

COMPANY ANALYSIS Brief News In late 2009 General Motors (the subsidiary of Holden in Australia) filed for chapter 11 bankruptcy, however Holden Australia guarantees to continue to manufacture and maintain operations in the Asia Pacific region. Moreover Holden has taken all necessary steps to weather the economic downturn, including cutting employee shifts and pay cuts across the board. Holden also states it is in position to be a future economic hub in emerging regions along with China and Korea.

Overview According to Ruthven (2004) Holden started in 1856 in South Australia, a far cry from what Holden is today, boasting that it is only one of seven fully integrated General Motors operators that designs and builds cars and motors for Australia and around the world. Holden hold 29.4% of the market share in the motor vehicle manufacturing industry in Australia.

Scope With representation of over 300 retail outlets amongst all of Australia Holden also boasts a vehicle manufacturing plant in South Australia and a motor manufacturing plant in Port Melbourne. There is an availability to build over 40 different car models with four different vehicle bodies that are sold both in Australia and around the world. For the Australian market, the facility produces the Commodore range of sedans, Sport wagon and Ute together with Caprice and Statesman long-wheel base luxury vehicles. Moreover General Motor’s largest investment in Australia in the past 20 years was in 2004 with the opening of the Victorian engine plant at a cost of $400 million.

SWOT Analysis Strengths Large market share: Although the market share in Australia has recently dropped it is still very healthy and competitive at 29.4%, also increasing their market share globally especially in China where business and foreign motor export is booming there is no reason that Holden wont become the automotive leader of the past. Global Experience

Holden is a global company and as such its success is determined on the basis of global sales and profits and consumer/product competitiveness. For nearly a decade now Holden has extended and held a grand market share globally for car and motor sales. It is this experience that will allow Holden to flourish into the future. Brand name variety

Although all sitting under the one banner of Holden, names synonymous with quality and appeal will always be regarded as a key strength to Holden’s success. Astra, Commodore, SS Ute; these names have become synonymous with Australian living and are held dearly to Australian ways of life.

Financing Plans The GM Holden customer-financing plan originated in 1919 (USA) has become the most successful profiteering scheme in Holden’s history.

Weaknesses Behind the Alternative Energy Movement Considered Holdens biggest weakness the turn towards hybrid or alternative energy by a ever growing concerned consumer population is at the forefront of car design in Australia and worldwide. Holden is behind the ball when it comes to alternative energy cars; a problem that could result in loss of market share and profits. Organisational structure

The structure as discussed by Thomson (2003) is seen as to vertical with most decisions being made top-down. This could ultimately be the factor that prevented Holden achieving success in the hybrid or alternative energy car market.

Stagnant Profits Stagnant profits means a few things, lower shareholder earnings and lower profits, we see with a growth of only 3% annually that profit stagnant are becoming a real concern for Holden.

Opportunities Alternative Energy There is an ever-increasing demand for newer hybrid or alternative energy motor options, Holden need to become aware and produce these options to stay ahead of competitors. The Alternative energy movement is the future of motoring and successful motoring companies.

Continued global expansion As in China the idea of continued global expansions means a number of things to Holden Australia. It gives more jobs to Australians working in both the Melbourne and South Australian plants and increasing global market share of the product. With $3 billion worth of motor vehicle exports each year, Holden could have a bigger market share of that. New vehicles, models, styles

Obviously the number one opportunity is to evolve and increase the styles and models of cars available though Holden. The new trend with consumers is one of change. Change within the workplace, change within family structure (housing) and change with vehicle choices. Consumers want change and differences!

Threats Rising Fuel Prices With the ever-increasing fuel prices the threat is simply an environmental threat that Holden have no control over. However if Holden start to produce hybrid or alternative fuel vehicles the rise in fuel price may not be as catastrophic as it is viewed at the moment. Growth of competitors

The Australian Automotive industry is ferocious, and even though Holden is synonymous with Australian living, consumers must do what is right for them and their future. Holden must keep up with competitors otherwise they will be overtaken. The vehicle market is ever growing and more importantly ever evolving and as such Holden must keep up with the evolutionary process of its competitors. Rising Supply Costs

Costs of steel and other raw materials are increasing, thus companies must increase production costs without increasing the price to consumers. Holden must look at alternative raw materials such as recyclables and/or other metals for production. Infact according to Wright (2008) Australia has abundant reserves of aluminium and magnesium and substantial research capability in organisations such as the CSIRO. Considerable expansion of research into light metals represents a significant opportunity for Australia to develop a competitive advantage in the design and manufacture of light metal components for cars and motors

Current and future success of the firm Holden employs over 6,700 people, and over the last 5 years has invested more than $3 billion in its Australian operations, including more than $1 billion to design and develop a Commodore range of vehicles for Australian and export. This investment recognises Australia’s capability and considerable potential for innovation and is essential to the future sustainability of the automotive industry.

Holden’s Vehicle Operations (HVO) is noted as one of the world’s most versatile vehicle assembly facilities, producing a number of body styles in both right and left-hand drive configurations. The capacity of the plant is 145,000 vehicles over two shifts and the current production rate is 620 vehicles per day.

Words: 1749

Refrences Ruthven, P 2004, ‘Revved up about car industry’, Business Review Weekly, Vol 26, no. 21, pp.30-33 Thomsom, J 2003, ‘Car makers’ new model’, Business Review Weekly, Vol 25, no. 8, pp. 38-41 Wright, A. (2008, September 09). Billions needed for car industry. Mail Courier (Brisbane) Ibis report Holden online