What really happened in the Australian automotive industry
The demise of the Australian automotive industry has been held forth by a dealers’ association in South Africa as an example of what South Africa can look forward to if the new Code of Conduct, currently being drafted by the Competition Commission, comes into effect.
The association previously raised safety fears and now raises job fears, to protect its market from competition from independent automotive workshops.
In a recent article the association claims: “We should also keep in mind that Australia shut down an entire motor manufacturing industry due to adopting controversial codes.” It says the new Code – which aims to open up maintenance and repairs to independent workshops without the vehicle’s warranty being voided – is bad for the South African automobile industry.
Gunther Schmitz, the Chairman of Right to Repair South Africa (R2RSA), explains that there is no link between the issue of providing consumers with options when repairing vehicles and what happened to the Australian automotive manufacturing industry. “This is a clear example of a misrepresentation of the facts.” He says, instead, the closure of the Australian automotive manufacturing industry occurred when it ultimately became uncompetitive in a region swamped with new cars from low labour-cost developing Southeast Asian countries.
“That had nothing to do with the R2R code, which by the way has not been implemented in Australia yet. The Australian automotive industry was protected by high import duties (similar to South Africa). In 2013 the Australian government decided to stop subsidising car production in Australia as part of trade agreements that would enable Australia to export more goods where it could be competitive to other economies. Due to the strong Australian dollar, its higher labour cost and the small domestic market, production in Australia was no longer viable,” says Schmitz.
This explanation is endorsed by Australia’s own automotive aftermarket representative body. Lesley Yates, Senior Manager – Government Relations & Advocacy of the Australian Automotive Aftermarket Association (AAAA) and Convenor: Automotive Products Manufacturers & Exporters Council (APMEC), says: “Nothing could be further from the truth [than the association’s assertion]. The Australian car industry closed due to increased competition from imports due to the progressive removal of tariffs.”
“We have a small population (25 million) and at the time of closure there were less than one million new vehicle sales across 68 brands. It was simple commercial reality prompted by increased imports of small cars and SUVs, and less sales of the locally produced sedans. The gradual removal of tariffs/import duty commenced in the 1990s and the government provided large subsidies to the local car companies to compensate for the removal of trade barriers. These subsidies and grants were being progressively scaled down.
“So – a perfect storm really: lower domestic sales, lower import duty, progressive scaling back of government funding. Add to that a strong Australian dollar which affected our export volumes. This was about the commercial reality of our inability to achieve economies of scale and an inability to compete against new car manufacturing facilities in Thailand. It has absolutely nothing to do with increased regulations. Not one commentator would state that our industry closed due to over regulation. Not even our car industry representatives have made that link,” says Yates.
Schmitz explains that Original Equipment Manufacturers typically ‘lock in’ their market by refusing to share the data and resources needed to repair their products. They argue that this is common practice in other sectors such as aircraft manufacturers and mobile phones, computers and accessories. This is also untrue, and countries like Australia and the US are legislating Mandatory Data Sharing.
Yates says this will be legislated in Australia in 2019, and that there is no causal relationship to what happened to the Australian automotive industry. “It is also worth noting that in Australia the Australian Automotive Dealers Association (AADA) supports mandatory data sharing. We have had a voluntary scheme in place that has not produced the right outcomes. The government has announced that it is now government policy to introduce a mandatory scheme with monitoring, enforcement and penalties for non-compliance. Our Treasury is now writing this Mandatory Industry Code.”
“This scheme will not affect vehicle sales in any way. The cost of compliance is also minimal given that all of the brands that sell into Australia also sell into the USA. General Motors is already complying by providing Australian access to AC Delco.”
The last Australian car manufacturer left in 2017. In the previous ten years alone the Australian taxpayer largely footed the bill, shelling out more than A$5-billion in industry assistance. With low to zero import tariffs over that past decade, Australia became flooded with foreign cars that were cheaper than local models. This gradually ate into the volume that Australian car factories needed to remain viable. At their peak, for instance, Holden built 165,000 cars in a calendar year (2004), Ford built 155,000 (1984) and Toyota 148,000 (2007). But by the final year, all three sold a combined total of just 87,000 locally-made cars.
Schmitz strongly urges the need for Right to Repair in South Africa: “It’s not right that the public is still being fed incorrect facts by the manufacturers and dealers. We shouldn’t and cannot afford to continue with the status quo in our country. Consumers should have the right to choose what happens with their vehicles, and the independent industry needs to be sustained. If things continue as they are there’s a very good chance that within ten years the independent aftermarket will be significantly impacted by lack of access to repair information, tools and training. What we do now will directly affect the sustainability of the SME portion of this sector as well as new empowerment businesses opening their doors in the years to come,” he says.