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Focus on saving automotive industry misguided: Professor

Australia should not overstate the importance of supporting its embattled automotive sector, according to influential consultant and academic Professor Hermann Simon.

As news emerges that senior ministers in Tony Abbott’s government believe Holden will end manufacturing in Australia regardless of any further assistance to prop up the sector, Simon has commented that Australia should not bet on the industry.

“It wouldn’t mean anything for Australia,” said Simon, when asked what impact the loss of car manufacturing would have.

“These are large assembly plants with still a lot of employment, but that is disappearing anyway.”

Simon – whose global consultancy Simon Kucher & Partners has advised auto companies including Volvo, Toyota and VW – told Manufacturers’ Monthly that automation would continue eroding employment in the car sector, and that any automotive industry innovation would not be led by Australia.

“Have you seen some of the pictures of the BMW plant?” he asked.

I was recently in the [Volkswagen] Golf plant in Wolfsburg: you hardly see any people there. Robots do the jobs you couldn’t imagine years ago that robots could do.

“And the automotive innovation would certainly not come from Australia. In Europe it will mostly come from Germany and Korea, and Japan is also very strong. And it may be in the future that with automatic cars, self-controlled cars, it will come from a company like Google. Nobody knows.

“But there will be radical innovations in two regards in the automotive industry. One is energy efficiency – be it electric cars, be it fuel cells, nobody knows. And the other is digitalisation and electronics. And I don’t think that in either area Australia can play a leading role.”

The future of the country’s remaining car manufacturers remains in question, with the continuing high dollar continuing to make exporting very difficult.

Ford has announced that it will cease making cars in Australia in 2016. Toyota announced last month that it would make 100 redundancies at its Altona plant, and yesterday said that it would need to reduce the cost of production by $3,800 per vehicle by 2018.

Meanwhile, the decision announced last week by Holden managing director Mike Devereux to take a position with Holden’s parent company General Motors in Shanghai has been interpreted as an admission that GM won’t agree to invest in factory upgrades at Elizabeth to produce two new models.

A Productivity Commission inquiry into Australia’s car industry is underway and Industry minister Ian Macfarlane will be handed its interim and final report on December 20 and March 31 respectively.

The federal cabinet is divided on whether or not to provide what Macfarlane has called a “blood transfusion” to encourage Holden to stay.

Scale remains a problem for the viability of the industry, with the number of motor vehicles produced in Australia likely to slip under 200,000 for the year. The 2008 Bracks review found that the minimum efficient scale for a production line in Australia would be between 300 and 400,000 vehicles a year.

Professor Simon was the keynote speaker on the subject of “Hidden Champions: The Vanguard of Globalia” at yesterday’s Productivity, Process and Innovation conference.

Simon suggested that Australia would be better served playing to its natural advantages to benefit from an increasingly globalised world.

“Australia has unique, big advantages in raw materials,” he said.

“I think going further down the value chain, creating more value-add instead of selling raw materials is probably the most important direction. The same for agricultural products.”

Citing a recent visit to New Zealand, Simon explained that Australia would be well-advised to follow its lead in pushing for increased sales to Asia in food manufacturing.

“The demand is huge in China for milk powder, for infant formulas etcetera,” he said.

“And Australia has the same opportunities. But you need global companies who can make things, take advantage of the natural resources you have, plus are able to sell and market them worldwide.”

 

Manufacturers' Monthly attended Productivity, Process and Innovation as a guest of the German-Australian Chamber of Industry and Commerce.

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