Doubts on car parts future

The recent receivership of APV Automotive Components and CMI’s factory lock-out due to unpaid rent has highlighted the uncertain future of the automotive parts industry in Australia and the need to adapt to the new economic climate.

The automotive components manufacturing sector is an industry under threat from the high Australian dollar, high wages and the balancing act between the unions and employers.

In early April, APV Automotive Components went into receivership after a planned restructure was blocked by workers on the advice of Australian Manufacturing Workers Union. They could not agree on a proposal for a voluntary redundancy scheme.

After two weeks of negotiations, the outcome was a positive one of sorts with customers Toyota, Ford and Holden all agreeing to an increase in pricing and compulsory purchase over the short term and 34 workers opted to take a voluntary redundancy package, meaning the company is again operating, but under receivers.

Stephen Longley, the receiver from PPB Advisory, said that other manufacturing companies, particularly in the automotive industry will need to adapt to the changing economic climate by diversifying and looking globally or risk a similar fate to that of APV.

"Look at who you’re selling to and what are the risks in that relationship. If you don’t have the strength in the relationship, like a lot of suppliers don’t, then you need to diversify that risk by looking into other industry segments or sectors or geographic areas," Longley told Manufacturers’ Monthly.

He said that the power struggle not only exists in the automotive parts supply chain but that many businesses are faced with the burden of redundancy costs, while employees face an uncertain employment future.

"The challenge for employees is how long it takes for them to get another job. If they agree to a redundancy entitlement originally up front, then why would they want to re-negotiate it?" Longley asked.

He pointed out that the government now has in place a payment scheme for businesses who cannot pay the full redundancy in the form of the General Employee Entitlements and Redundancy Scheme (GEERS).

The scheme is designed to create a safety net for employees, however Longley says that it could be to the detriment of businesses as employees may "hold out" for the full redundancy paid by the government rather than negotiate a lesser amount in order for the business to stay in operation.

"That’s the sort of challenges faced by employers."

Longley believes more help should be offered to failing companies in order to keep the industry within Australia.

"The government should help businesses fund a reduction in employees, help them fund redundancies without them having to go broke to get that funding.

"And secondly help companies look at internal consolidation and organisation, and technology to make the businesses more efficient, more globally competitive.

"Without that sort of two pronged approach, I think a lot of our businesses are not going to be able to go the distance in a global automotive manufacturing landscape," he said.

Richard Reilly Chief Executive of the Federation of Auto Parts Manufacturing says that diversifying and looking overseas will the key to longevity within in the sector.

"Automotive parts manufacturers’ have to look globally, they have to be as competitive as they can and there are a range of challenges around that.

"The components industry certainly has its challenges but we’re trying to develop our skills, we’re trying to move up the chain so we’re not just producing commodity products, we’re producing products that are more valued on the international scene and that is where the future for us is going to lie," Reilly said.

Longley expressed a similar sentiment: "I think the lesson from APV is to avoid being reliant on one industry. So if you’re in manufacturing try not to be reliant on just automotive or just one geography or one industry."

Reilly said that ultimately the strain will continue to be felt in the industry.

"I think they (CMI and APV) both highlight the stresses that the automotive components sector has been experiencing over the median term and probably will continue to experience going forward with the move towards global platforms from the vehicle manufacturers’."

[Image: motoringmojo.com]