Aftermarket Association: Set policy for whole auto industry – not just the car making sector

The Australian Automotive Aftermarket Association (AAAA) has submitted to the Federal Government’s Productivity Commission Review into the auto industry that a constructive discussion about the future of the Australian automotive manufacturing industry cannot be conducted by examining only the “original equipment” (OE) sector – the car manufacturers and their supply chain.

In his presentation to the Productivity Commission hearing in Adelaide this morning, AAAA Executive Director Stuart Charity said the discussion is not just about making cars and the parts used to build them.

“The policy makers must recognise that there is a massive automotive industry outside of the pyramid of car makers and their direct suppliers,” said Charity.

“The aftermarket manufacturing industry makes up 36% of all local production, employs 21,000 people directly and includes automotive parts, accessories and performance enhancement products fitted over the life of the vehicle. These parts are fitted to both Australian built and imported vehicles.

“Among our membership of 1700 companies, 260 of them manufacture automotive aftermarket products in Australia in a trade exposed, highly competitive environment. They are exporting over $800 million worth of product a year. These are predominantly Australian owned and operated companies that are growing with virtually no recognition or support from Government,” said Charity.

Industry experts acknowledge that diversification is a critical imperative for the OE sector. While the OE component sector has experienced serious structural decline in recent years, the aftermarket sector has grown.

The AAAA submission to the Productivity Commission suggests that, from both a product synergy and policy point of view, the easiest and most logical transitional path for the OE component sector is to diversify into aftermarket production and expand into export markets.

“Transitioning the OE component supply chain into the aftermarket would enhance Australian productivity and capability by retaining and leveraging the OE supply chain’s workforce skills, R&D capability, intellectual property and quality systems,” said Charity.

“This strategy requires policy settings that embrace both the OE component and the aftermarket sectors simultaneously. It needs policy that encourages both sectors to collaborate in the search for new product manufacturing and global marketing opportunities.

“In our submission, we provided economic modelling showing that Government automotive industry policy in recent years has actually had a negative impact on the aftermarket sector. More effective policy settings – to promote the expansion of aftermarket production and sales – could have created a sector worth some $6.56 billion today, rather than its current estimated value at around $5.2 billion.

“Global competition, among other forces, has created an aftermarket sector in Australia that has the right pre-conditions to be successful. However, current domestic policy settings create an environment of disincentive.

“To ensure a sustainable Australian automotive industry, we need policy that facilitates structural adjustment for the entire industry.

“The AAAA submission to the Productivity Commission does not ask that our members gain access to what the OE sector has enjoyed through years of Government co-investment programs.

“What we asked for is for a comprehensive re-orientation of the Government incentive structure to cover the entire automotive manufacturing industry. This will encourage diversification by the OE segment into the aftermarket, and position that stronger aftermarket sector for export growth,” he said.