What lessons has industry learnt?

With Ford closing its manufacturing operations in Victoria last month, and Toyota and Holden following suit next year, many observers are asking what led to this unfortunate outcome. Alan Johnson reports.

LEARNING from your mistakes is one of the fundamental aspects of life, coupled with the importance of not making the same mistake twice.

So what lessons have we learnt from the demise of our once highly-successful car industry? It’s painful to look back, but once we understand where we went wrong, hopefully the same mistakes won’t be repeated.

Deloitte’s manufacturing group leader, Damon Cantwell, believes the closure of our vehicle assembly operations offers a chance to reflect on the issues, and understand what can be learned from the experience, especially for policy makers in regard to the emerging opportunities in advanced manufacturing and defence industries.

He says State and Federal governments need to maintain a constant watch on global developments in these sectors.

“They should note the way in which other competing countries are managing their policy settings and benchmark them to maintain Australian competitiveness,” Cantwell told Manufacturers’ Monthly.

He says decisions government make in regard to the way funding and support programs are structured are also a key aspect of the overall industry policy picture. And sees the Ford closure as the culmination of a range of developments over a long period of time.
“Outcomes such as this arise through the interaction of individual company decisions in the context of the broader industry policy environment. Rarely are there individual events that lead to the loss of an entire industry.

“With successive governments only reviewing industry policy settings every five years or so, they missed the chance to adjust settings as they needed to; depending on what was happening around the world.

“For me that was issue number one, that’s where we lost control of the agenda.”
Cantwell says the second element was about the money involved.

“I’m not saying there should have been more money, it was more about how that money was allocated. “

He says there is a concern we received too little from the car companies for the public investment being made

“Basically, we didn’t get enough back from the car companies for the dollars they were given; areas such as guarantees around additional model builds, having an export vehicle, all of which would have changed the dynamics in terms of volume.

“The third element was about supporting too many component companies through the process, which at its peak was supporting 150 suppliers.”

He says the industry was never producing enough vehicles to support a supply chain that size.

Cantwell points to Deloitte’s 2016 Global Manufacturing Competitiveness Index which highlights the extent to which international manufacturers consider industry policy settings in deciding where to invest.

He says, Governments must continually review their policy settings in a dynamic environment where the physical and digital worlds continue to converge.

“Industry policy cannot be ‘set and forget’. Successive Australian governments over the last 30 years had a tendency to re-set automotive industry policy every five years or so, and unfortunately we were eventually playing catch up in regard to where the global industry had moved.”

Going Forward
Cantwell says the present industry settings revolve around the Government securing design and development engineering type facilities in Australia.

“We have the skills base here which is the equal to the rest of the world.”

However, he asks what will be the longevity of these design and engineering companies following the demise of the car industry?

“It will be interesting to see how long they are going to remain, though some have committed to an on-going presence.

“An ongoing dialogue should be with these companies to make sure the industry policy settings in support of this new type of activity is appropriate.

“It’s important there is connectivity with Australia’s public funded R&D community, universities etc, and make sure they are getting the right sort of graduates in, through to the right sort of support they offer.

“Over the years, one of the biggest disconnects has been universities’ KPIs, which has been based around papers published and conferences attended rather than around producing industry solutions.

“The point is our R&D facilities are equal to anything in the rest of the world, but we are way down the track when to comes to engagement with industry.

“For me, the university who gets this model right first stands to make a good return out of it.  This is a revenue stream just waiting to be had,” Cantwell said.

Defence Industry
The idea of re-engaging the skilled workers from the car industry in the defence industry sounds great on paper. Over the next decade we will be building not just submarines, but frigates and other naval vessels, as well as the Hawkeye military vehicle Thales is making in Bendigo.

But as Cantwell points out, the transition problem is a matter of timing.

“Hawkeye is the first to come through, but with almost all these contracts there is a potential valley of death around what automotive suppliers do between the cessation of automotive manufacturing and these new defence contracts coming on board.”

However, Cantwell believes the Federal Government is on the right track with its Defence Innovation Capability, by trying to support supply chain capabilities for these new defence projects to localise as much of the activity as possible.

“The days of mandating local content is long gone. The best governments can do today is put these training and servicing frameworks in place. “

He says the sooner these sorts of programs get rolled out, in terms of the shift in skills from the automotive industry to defence, the better.
Subhead: Funding

With the Government offering a myriad of assistance packages based around innovation and links with universities, manufacturing CRCs, Advanced Manufacturing Industry Growth centres, Cantwell says there is no shortage of innovation and technology services, instead he calls on industry to make a management cultural shift to engage in them.

“It’s not a funding issue, more a hearts and minds issue for the SME manufacturing community.”

He readily admits companies coming out of the automotive sector will find that a tough move.

“Working in the automotive sector, there was very little need for car component manufacturers to invest in design as the OEM simply told the manufacturer what to make, and how many.

“There needs to be a cultural management shift, for them to bring design and innovation in house. This is a very different business model for them.”

Cantwell advises companies to engage with the manufacturing CRCs, Advanced Manufacturing Industry Growth centres, plus all the universities, as much as they can, and to shift their business model to one of innovation and technology.

“Going forward, the type of manufacturing Australia can support is more advanced manufacturing, more automation and robotics, which means far less employees that we have been used to.”

Global developments
Cantwell believes a practical and relevant industry policy also needs to keep pace with new manufacturing business models.

“While Australia’s auto industry remained characterised by high-capacity plants and a modest number of vehicle models, the global industry has seen new developments through many companies investing in smaller, more agile production facilities.”

He points to companies like Mahindra Reva in India, and contract manufacturers such as Valmet in Europe who have production models that are quite different from the traditional automotive norm.

“These facilities represent the type of industry innovation that we were not able to attract to Australia,” Cantwell said.

“The point is, we are losing the traditional automotive manufacturing business model, plants with 300,000 to 400,000 capacity, with big investments and large break even points, so when consumer preference shifts, OEMs can get caught out with the types of cars that we were making.”

He says Mahindra, on the other hand, can profitably make just 30,000 units, and is a more sustainable venture than traditional large plants.

“Its latest small electric vehicle plant was designed from the ground up, to produce just 30,000 vehicles a year, with a lot of flexibility around demand. It’s the business model of the future.”

Cantwell says the other development that passed us by was contract manufacturing.
“This could have been a viable option for Australia, offering a greater diversity in the nature of automotive manufacturing than what we were doing.

“Contract manufacturing gives you a bit more resilience as an economy to the types of cars you are making and the ability to respond to changes to consumer preferences more easily.”

Pointing to South Africa, a successful of contract automotive manufacturing country assembling BMW, Ford, General Motors, Mercedes Benz, Nissan, Renault, Toyota and Volkswagen vehicles, Cantwell says there is no reason why we couldn’t have achieved that.
“But the business models, unfortunately, passed us by 10 to 12 years ago, when Mitsubishi pulled out of Australia.”

Going forward, Cantwell says it’s important governments keep an eye on what is happening globally in these sectors and respond accordingly.

“Industry policy can’t be just set and forget.”