Shifting gears: Can R&D revitalise an industry in decline?

In a country where the physical production of cars has become outmoded, can continued investment in automotive R&D help establish leading roles in the manufacturing supply chains of future? David Loneragan speaks to the experts.

In the context of Australia’s post-mining boom transition to a more knowledge-based economy, investment in research and development (R&D) is vital in preserving and developing the skills and technologies necessary to keep up with future trends in advanced manufacturing. Can high-tech automotive R&D, in particular, help drive the creation of new value- chains in the national economy?

In August, almost a year after car manufacturing wrapped-up in Australia, General Motors announced plans to employ 150 more engineers at Holden’s Port Melbourne facility, where they will join the company’s global Advanced Vehicle Design (AVD) team dedicated to the development of autonomous and electric vehicle technology. The positions are expected to be filled by the end of 2019, bringing the Australian design, engineering and development team to over 500 in number.

Speaking to the media at Holden’s Port Melbourne headquarters, GM executive vice-president of global product development, Mark Reuss, said Holden in Australia would quadruple its R&D budget from $30 to $120 million a year to provide this boost to the company’s design and engineering workforce, an important asset in its march towards developing the electric and driverless vehicles of the future.

“GM is determined to be the first company to bring safe, autonomous vehicles to market – not within years, but in quarters,” Reuss said. “The world-class vehicle engineering capability we have at Holden in Australia will play a significant role in GM delivering its commitment to create a world with zero crashes, zero emissions and zero congestion.”

Proving Australian R&D capability

According to David Chuter, Innovation Manufacturing CRC (IMCRC) CEO and managing director, Holden is one of many companies currently demonstrating that Australia continues to be well respected for its design and engineering capability.

“I think this is a big yes-vote for the capability we do have in Australia to design, engineer and create great products for manufacturing,” Chuter told Manufacturers’ Monthly. “While these future vehicles won’t be made in Australia, it doesn’t mean that we don’t have still a significant amount of value to add to the car industry, globally speaking.”

Holden follows Ford, which,in 2016, provided $450 million – representing a 50 per cent increase – to the company’s Australian research and development budget, supporting the expansion of its engineering, design and technician workforce from 1100 to 1750. As with Holden, the effort is aimed at developing fully autonomous car technology for commercial vehicles by the early 2020s.

Still, according to Chuter, without the direct link between R&D and every stage of automotive production that used to exist in the country, Australia will still need have to work hard to earn in its place in the global network. He indicated that, in the face of increasing global competition in the R&D space, companies like Holden and Ford must keep pushing ahead of the curve and investing heavily R&D in Australia.

“I think the critical thing is that, regardless of what industry is carried out in Australia, it’s a sustainable business model,” Chuter said. “And there has to be recognition, awareness and understanding that markets like China, India and others are growing their own R&D capabilities rather quickly.”

In October 2017, General Motors Holden’s manufacturing plant in Elizabeth, Adelaide, shut its gates for the last time, bringing an end to the physical production of cars in Australia and the jobs of 1,400 workers. Toyota’s Altona North factory closed earlier in the same month, while Ford had already closed its 91-year-old plant at Broadmeadows in Melbourne 12 months before, leading to the loss of thousands of jobs.

This mass culling of Australia’s automotive manufacturing workforce didn’t stop with the big three car companies. Along with those directly employed at the plant, the Holden closure meant the loss of another 1,500 to 2,000 jobs from the supply chain that provided goods and services to the company. A report from the Productivity Commission released in 2014 had predicted that up to 40,000 jobs would potentially be lost from the closure of automotive manufacturing plants across Australia by the end of 2017.

The end of automotive manufacturing in Australia was precipitated by economic trends long in the making. The soaring price of the Australian dollar in the wake of the resources boom, along with high wages and strong competition from low-cost (particularly low-labour-cost) car-producing countries, rendered Australia an unattractive location for further long-term investment from the foreign-owned automotive subsidiary companies operating in the country. In short, automotive production closed as Australia was increasingly outpaced in a global market where scale and unit-cost are the basis of competition.

Australia’s need for “smart specialisation”

Ever since the automotive plant closures, public discourse – among the media, politicians, academics and industry figures – swirled furiously and repeatedly around two topics in particular: the uncertain future for manufacturing jobs in Australia and the threat posed to the knowledge, skills and technologies necessary for future survival in high-tech, high-value, and high-skill advanced manufacturing supply-chains.

The federal government, in its 2017-18 budget, set aside $100 million to establish an Advanced Manufacturing Fund to boost innovation, skills and employment in advanced manufacturing. It is not clear, however, that enough funding and planning has gone into preserving value-adding activities within the broader manufacturing process as it moves forward into the future, particularly in product design and research and development.

Professor Roy Green, special advisor and chair for the University of Technology Sydney’s Innovation Council, told Manufacturers’ Monthly that the development of industry policy in Australia was severely lagging. “Over the last two years, billions have been taken out of the national research and innovation system while, at the same time, other countries are pouring resources into their future research and innovation capability,” Green said. “We’re not doing that, and we have not identified where our competitive advantages lie.”

Green said that with Australia making up only two to three per cent of the world’s R&D, it was now up to governments to contribute to developing areas of “smart specialisation” in the economy, including support for R&D endeavours in the world automotive supply chain.

“The government does have its Advanced Manufacturing Fund, which was promised as part of the transition away from car assembly, the Labor opposition has its plan for a billion-dollar manufacturing future fund based on the Clean Energy Finance Corporation, and various companies are receiving grants – these are all good ideas, but they’re rather isolated and fragmented ideas,” Green said. “They need to be part of a much more coherent approach to the development of next-generation manufacturing.”

The path forward

Nonetheless, recent activity from the automotive industry itself may be a sign that Australia’s situation may not be as parlous as frequently predicted. Holden, Ford and Toyota have a continued presence on Australia’s shores in the form of engineering services and R&D. And this looks set to expand and grow going forward.

Green said that this kind of development is what many had been arguing for when the automotive assembly plants closed. “Australia’s automotive research and development capability needs to be retained as we have a fairly high capacity in this area. To the extent that companies like Holden and Ford can feed into the global R&D network, the head offices of these companies see that as adding value to their globally-based businesses,” Green said.

According to Green, continued demonstration of high-level capability in the design and R&D space might be able to encourage further investment over time. “We have large numbers of R&D specialists working in these facilities, and this might give us enough critical mass to stay within those major manufacturing value chains,” said Green. “That may be in auto-components – which, in the past, we should have been investing in much more than we did compared with car assembly – or it might be in new industries altogether or in new forms of car production.”

There is clearly high interest in developing electric and driverless car capability in Australia. GM Holden is preparing to lead the way through its own investments in research and development capabilities in this space.

The soon-to-be 500 strong team of engineers at its Port Melbourne facility will be working on projects that will see the creation of vehicles for both domestic and global markets. “Make no mistake, we’re moving to a driverless future – a future of safer roads and zero crashes,” said GM’s Mark Reuss. “GM is well on its way to bringing at least 20 new all-electric models to market by 2023.”

And, while it may appear that Australia is fated to no longer make cars, Chuter said continued automotive R&D investment might allow Australia to keep up with the rapid pace of technological change, opening paths for advanced manufacturing – and possibly vehicle manufacturing – in the long-term.

“We’re building things like battery capability, Internet of Things (IoT) capability, and it is not impossible to think that we might build human transport products in the future,” said Chuter. “If that means doing design and engineering maintains our global relevance in the automotive industry as it stands today, then that can only good for Australia in the long-term.”