Running on empty

The motor vehicle manufacturing industry has hit the skids in Australia. The only clear road ahead leads offshore. By JASON BAKER at IBISWorld.

By Jason Baker

The motor vehicle manufacturing industry has hit the skids in Australia.

 

This week Ford announced its plan to close its factory in Victoria’s regional town of Geelong in 2010.

Hundreds of jobs will be lost at Ford and many businesses relying on the Ford business will suffer. Another 3000 jobs at related parts suppliers and service industries will also be lost, according to the ACTU.

The $14.1 billion motor vehicle manufacturing industry in Australia is under pressure. IBISWorld estimates that this industry contracted at an average rate of 5.2% a year over the five year period to 2006/07.

Falling demand, falling exports, and increased petrol prices have depressed industry revenue, despite relatively low interest rates and increases in incomes.

IBISWorld forecasts the industry will grow at an average annual rate of 1.7% over the next five years, to reach $15.3 billion in 2011/12.

Real industry revenue is expected to recover slightly in 2007/08, as demand for larger cars picks-up momentum following expected reduction in fuel prices. Government assistance is expected to continue through financial grants.

With reduction in industry protection already announced, there is going to be a shake out among the vehicle producers. The producers will be under pressure to become world competitive or depart from Australia.

The likely scenario will be that the weaker players such as Mitsubishi, which represents just 6% of motor vehicle manufacturing in Australia, will withdraw from manufacturing activities by the end of 2012.

Industry revenue is expected to increase moderately during the last four years of the forecast period to 2011/12. The outlook for exports from the motor vehicle industry hinges on the success of the export facilitation scheme.

In turn, the scheme can only be successful if capacity and quality problems can be solved and adequate cost control can be implemented.

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au